Should you change your sole proprietorship into an LLC?

On Behalf of | Aug 7, 2022 | Business Law |

You started out with a dream and a shoestring budget, but you’ve successfully developed your small business into something profitable.

Now, it may be time to move away from the sole proprietorship you have and create a more formal business structure. A limited liability corporation (LLC) can offer you many of the benefits of a sole proprietorship – without the same risks.

Why is a sole proprietorship risky?

Essentially, when you have a sole proprietorship, there’s no legal difference between you and your business. That means there’s also nothing to protect your personal assets from seizure if you get sued by a client and lose or the business suddenly flounders and gets into debt. An LLC creates a sort of legal “wall” between you and your business that can insulate you from such problems.

In addition, forming an LLC has other benefits:

  • It’s one of the easiest formal business entities to form, with the least amount of paperwork and lowest filing costs.
  • An LLC can be formed by just one person – although you can also add as many members as you want to the group.
  • You get to keep “flow-through” taxation (where your business income is part of your personal taxes, which makes it easier to manage that aspect of the business.

These are far from the only benefits. That being said, an LLC isn’t necessarily right for every business. If, for example, you hope to attract investors or you want to obtain financing to support your growth, you may want to consider incorporating your business instead.

When your home business is scaling up and you’re not sure what formal structure will benefit you the most, the wisest thing you can do is get more information about your options.


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