LLC or Sole Proprietorship? What’s the Difference & Why it Matters

Recently, we’ve received some questions about sole proprietorship.

While in the past we’ve talked about LLCs and S-Corps, we glossed right over the option to form a Sole Proprietorship.

Most private practice nutrition professionals we have met will file their practice as an LLC and for most individuals in private practice, it is our recommended option when setting up your business though every practice is different and has different goals. Today, we’re going to discuss the differences between an LLC and a Sole Proprietorship to help you decide which way you would like to file.

The biggest difference between an LLC and a Sole Proprietorship is your relationship to your business as the business owner.

An LLC separates your business from yourself.

It declares that your company is its own entity. It means that you are not personally liable for your business in that your personal assets are protected and separate from your company.

An LLC is a formal organization and does require filing with a state. It may be expensive to start because of this upfront cost.

However, with an LLC, there is an added layer of liability protection.

Beyond having liability insurance, if you were to be sued, the law suit would be against your business and not you as an individual.

A Sole Proprietorship on the other hand, declares that you are a business owner.

Your business is not separate from yourself.

It does not have the same upfront cost and is a simpler process than filing for an LLC. It is significantly cheaper to file as a sole proprietorship.

While you can keep your business financials separate from your personal assets, there is no legislation prohibiting financial intermingling with a sole proprietorship.

The major disadvantage to a sole proprietorship is that you would not be protected against personal liability.

If you were to face a law suit, the suit would be against you and puts your personal assets at risk. While liability insurance can offer some protection, be sure that you stay aware of the boundaries and limits of coverage.

Here are a few helpful resources to expand on our post:

– Comparing an LLC to a Sole Proprietorship and a Partnership (LegalZoom)

– What to Consider When Deciding Between Forming a Sole Proprietorship or LLC (Entrepreneur)

– Sole Proprietorship or LLC? (Limited Liability Company Center)

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to Top