So you’ve scrimped and saved, and toiled your fingers to the bone, and gotten your own business up and running, but you’re not sure how you should set your business up. If you’re going it alone, your primary options are to choose between running your business as a Sole Proprietorship, or as a single member Limited Liability Company.
There are definite pro’s and con’s to both, and a lot of times it boils down to where you operate your business out of. For states with high filing fees for Limited Liability Companies, it may very well be better – especially in the short run – to run your business as a Sole Proprietorship. It’s arguably the simplest plan. Most of the time, all you need to do is open up a new bank account. Unless you’re hiring employees, you don’t even need to apply for an Employer Identification Number. However, you’re not as protected as with a Limited Liability Company. If anything goes wrong, your personal assets and finances may be at stake.
If you’re unable to pay rent for business space, or get a creditor its money back, you might find yourself emptying your own savings account to make up for the losses. Salt in the wound, especially after considering your business is likely going under.
With a Limited Liability Company, however, you are shielded from certain forms of liability in terms of being required to use personal funds to repay business costs. In the long run, especially if you have employees, you’ll probably be better off forming the LLC, but it’s worth a chat with an attorney first to see where your attention is best focused on.