If you’re the sole owner of a business, you may have pondered the question: “Should I operate as a sole proprietor or a single member LLC?”
Decisions, decisions! So what else is new when running a business, right?
There are always choices to make—and deciding which business entity type will be right for your company is one not to be made lightly.
The type of business structure you choose will have legal and financial implications. It will also affect the time you spend on efforts to keep your business compliant with whatever rules must be followed for the legal entity. For these reasons, I recommend consulting with an attorney and accountant (or tax advisor) so that you can better understand your options and make an informed decision.
Sole Proprietor vs. LLC: A Side-by-side Comparison
Below, I’ve created a table to help you understand some of the differences between a sole proprietorship and an LLC (Limited Liability Company). By having this side-by-side comparison for reference purposes, I hope that you’ll be better able to ask your legal and accounting resources the right questions to draw out the insight you need.
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Business Requirements That Apply to Sole Proprietors and LLCs
For both sole proprietorships and single-member LLCs (and corporations, too), some obligations are universally required.
Several examples include:
- Pay income taxes (federal, state, local income tax; sales tax (if applicable); payroll taxes (if the business hires employees)
- Obtain an EIN (usually required for opening a business bank account and always if hiring employees)
- Comply with the local area’s zoning requirements
- Request W-9s from independent contractors and send them 1099 forms at tax time.
- Obtain and renew applicable business licenses and permits.
These come with the territory of owning a business and should never be ignored. As I mentioned earlier, it’s very important for entrepreneurs to get professional legal and accounting insight to make sure they cover all the bases.
About Business Licenses and Permits
Depending on where a business is located, the industry it’s in, and the business activities it carries out, it might need to obtain a combination of federal, state, and local licenses and permits. I recommend researching the requirements in that order.
Federal licenses apply to businesses in the following industries:
- Alcoholic beverages
- Firearms, ammunition, and explosives
- Fish and wildlife
- Commercial fisheries
- Maritime transportation
- Mining and drilling
- Nuclear energy
- Radio and TV broadcasting
- Transportation and logistics
State and local licenses and permits requirements will depend on the nature of your business activities and where your business is located. Some of the most common include:
- Sales tax permit
- Zoning and land use permit
- Building permit
- General business license
- Occupational or professional license (e.g., cosmetology, real estate sales, accounting, law practice, medical car)
- Health permit (often required for restaurants, food trucks, nail salons, tattoo artists, etc.)
- Home occupational permit (for operating a business from home)
- Fire permit (if operating a business that’s open to the public or that uses flammable materials)
Our CorpNet website provides details about many different types of licenses and permits, so I encourage you to check out that extensive list to gain a better understanding of their purpose and whether your business might need them. The Small Business Administration (SBA) website is a wonderful resource for exploring what licenses and permits might apply to your business, as well.
Resources for Small Business Owners
I have said it twice before in this article, but I would be remiss not to emphasize it one last time: When you’re deciding on what legal structure to choose and figuring out what steps you must take to successfully (and legally) launch your business, consider seeking the guidance of an attorney and an accountant (or tax advisor). Look for professionals with business expertise and experience working with business owners so that you have a team of trusted consultants who can help you weigh the pros and cons specific to your situation and entrepreneurial preferences.
Also, consider looking at the following resources for learning more about what it takes to start and run a business:
A few specific items that I believe you’ll find helpful include:
- Starting a Business Checklist
- Name Your Business
- Fictitious Name Registration: Know What It Is and Why You Need One
- Business Name Restrictions: What to Know Before Registering Your Business
- CorpNet B.I.Z. (Business Information Zone) – For monitoring your upcoming compliance filings
- What an LLC Statement of Information Is and Why You Need One
- What Is the LLC Tax Rate?
- Benefits of an S Corporation
- How to Apply for an EIN Number
- Trademark Vs. Service Mark
Prepare to Launch
Remember that as you’re ready to move forward, CorpNet is here to handle all of your business registration and compliance filings—no matter where you are in the 50 states of the U.S.
Our filing experts will take the pressure off of you and save you time and money as they make sure all of your documentation is submitted accurately, on-time, and cost-effectively.
We can help you via:
- Registering a fictitious name (i.e., filing for a DBA)
- Preparing and submitting your Articles of Organization. (We can even help you determine your filing costs through our online Business Price Quote tool.)
- Filing for S Corp election
- Serving as your Registered Agent
- Applying for and renewing business licenses and permits
- Applying for an EIN
- Registering for a trademark or service mark with the USPTO
- Filing initial and annual reports
- And more!
Contact us today to get started on your journey to business success!