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Sole proprietorship versus limited liability company

On Behalf of | May 16, 2022 | Business & Commercial Law |

The dream of owning your own business is a major one for many people. Making sure that you do what you can to propel that dream to success is important. One of the first decisions you have to make is what type of business structure you’ll use.

For small businesses, there are two primary structures that people consider at first. These are the sole proprietorship and the limited liability company. Both of these are good for businesses that are just opening, but the limited liability company offers some protections that the sole proprietorship doesn’t.

What is the primary difference between these two business structures?

The primary difference between the sole proprietorship and the limited liability company is the division between business assets and personal assets. The sole proprietorship doesn’t provide any division between those two, which means that if someone successfully sues your company, they can lay claim to your personal assets. A limited liability company establishes a dividing line between these assets, which means that the person can’t lay claim to your personal assets if they successfully sue your company.

Some people believe that insurance coverage can help to prevent claims on their personal assets after a business lawsuit. While it’s true that the insurance may kick in, it’s not worth the risk for companies that come with considerable risk. Small business owners should carefully consider establishing a limited liability company to enjoy the protection of that asset division.

Anyone who’s starting a business should ensure they’re doing what they need to protect the company from legal actions. There are many ways to do this. One of the first that you need to consider is the structure. Working with someone familiar with this matter is beneficial so that you can draw from their knowledge and use it to help your business move toward success.