Avatar

Freelancing – The Pros and Cons of Setting an LLC v. Sole Proprietorship

Freelancing – The Pros and Cons of Setting an LLC v. Sole Proprietorship

When someone decides to freelance, one of the first steps is to properly set up their business structure. The business structures that oftentimes make the most sense is either an LLC or sole proprietor. Let’s take a look at the pros and cons of each structure.

LLC

One of the biggest benefits of an LLC, otherwise known as a limited liability company, are that it can shield the individual from the liabilities of the company’s debt. This is the most important characteristic of an LLC. To be clear, if an LLC is sued, the individual can still be responsible but he is not primarily responsible. The presence of these other circumstances may also make an individual member more liable for debts of an LLC – if personal funds are intermingled with LLC funds and if a member personally guarantees the debt of the LLC. It is also easier for LLCs to raise more money because they can do things like sell their membership interests. Ownership in LLCs are easily transferrable whereas a sole proprietorships do not transfer as easily.

The disadvantages of an LLC are that they are very formal business organizations. They require registration with the state and the cost to get the initial formation forms, filing fees and annual state fees add up. The formal nature of an LLC also require record keeping and other formal organization procedures.

Sole Proprietorship

The sole proprietorship is the easiest structure to set up. Essentially, you just start working. You as the freelancer is the business. If you want to do something under the business, you simply file it under your name with a “DBA” or a “Doing Business As” name.

The trouble with a sole proprietorship is that there is zero liability. If the business is sued, you are sued and your assets are on the line.

The primary difference between the two is the level of formality and the level of liability protection.


* And when you do decide – SimpleForms.com gives you the ability to keep every W-9 (autofilled), every contract, every invoice, and every 1099 safe and secure! Signup for a free trial!

 


About the author

Angela Yu is a New Jersey and New York attorney with a multifaceted practice area focusing in corporate, real estate and general contract law. Ms. Yu is a published legal author and holds a J.D. and M.B.A. from Rutgers School of Law and Rutgers Business School.

Angela Yu does not provide legal advice on this website. This blog post and any blog posts authored by Angela Yu do not constitute legal advice.

 



No Comments


Leave a Comment

About Us


Simple Forms Employee Onboarding Software


Streamlining completion, compliance and storage W-4 forms, i-9s and W-9s. We build in a custom forms portal and keep you fully compliant against audits.

Customer Review:
“Working with SimpleForms was a seamless process. Their team brought energy into each step of the integration process. We look forward to working with them going forward!” -AVMA