If you’re among the 42% of Americans who have thought about becoming an entrepreneur, learning about various business structures is the best place to start. Understanding the difference between a single member LLC and a sole proprietorship is the first step toward securing both your personal and business assets.
Read on to learn the differences between these types of entities, the pros and cons of each option, and how you can decide which is right for your budding organization.
What Is a Florida Single Member LLC?
A limited liability company (LLC) is a corporate structure that protects the owner’s personal finances. The owner forms a new entity at the Florida state level, and that entity is the LLC that they own.
The LLC is a separate entity from the owner(s) and other members. This means that the owner isn’t responsible for any debts and other liabilities that it incurs. Any lawsuits directed against the LLC also won’t transfer to the owners and can be dealt with only at a company level.
The owner of an LLC must keep its business funds and banking information separate from their personal accounts. Records can’t cross over – the legal entities (owner and LLC) are as separate as two unrelated people might be. Cross-contamination of funds can mean that the owner loses the limited liability protection offered to them through Florida state law.
The Pros of a Single Member LLC
One of the biggest benefits of a single member LLC is personal protection against liability. However, this is far from the only advantage, especially when tax time rolls around. An LLC provides owners with more flexibility because they can choose whether they’re taxed as a sole proprietor, partnership, S-corporation, or C-corporation.
This flexibility means that everyone can choose the tax structure that best meets their needs. If the LLC is large and generates a massive amount of income, you might get tax breaks when charged as a corporation. If you own a smaller LLC, it might be easier to file as a sole proprietor or partnership.
LLCs also have the advantage of professionalism. They seem more legitimate to potential investors and clients, which makes growing a business and gaining more capital easier. You can also add new partners whenever you like or sell a percentage interest to others, which sole proprietorships cannot do.
Basically, getting your business branded as an LLC is a great way to expand.
LLCs also afford you as the owner more privacy. Any real estate that you put into your LLC won’t be tied to your name on official public records. Instead, it will come up with your business name.
This lets you preserve your privacy, protect your location, and create a sense of professionalism when people Google you.
What Are the Cons?
The main disadvantages of LLCs boil down to setup costs and difficulties. You’ll need to overcome a lot of red tape, file a large quantity of paperwork, and ensure that everything is filed methodically with Florida entities. This can be challenging and take many months.
Luckily, hiring a business attorney can make this process easier. Experienced lawyers can guide you through application processes and file paperwork for you.
The Basics of a Sole Proprietorship
A sole proprietorship is also a way for one individual to establish a business. However, it’s far simpler. You set up the business and collect all of the profits that it turns.
Sole proprietors can mix personal and business funds if need be. The owner and the business are regarded as the same legal entity, so no one will get in trouble if there’s a mix-up. Note, though, that mixing personal and business funds can get confusing and mess up taxes, so it’s best to keep them as separate as possible regardless of the law.
This easy establishment, however, comes with a price. Unlike an LLC, the owner of a sole proprietorship is responsible for its debts and obligations.
If the business goes under while still owing thousands of dollars’ worth of debt to a supplier, the owner then assumes this debt even if the business tanks. A lawsuit against the sole proprietorship is one against the individual, and they’ll need to defend themselves and their assets as well as the business.
Sole Proprietorship Advantages
Sole proprietorships are quick and easy to set up. You don’t need to pay as many legal or filing fees as you would with an LLC. There aren’t a lot of obstacles that you’ll need to overcome, sp the process is bound to go a lot more smoothly.
Another benefit is that the sole proprietor keeps full control over all decisions. The assets of the business are their personal assets as well. They don’t just own the business that owns its own assets.
This makes it easier to sell or dissolve when the time comes.
Downsides to Consider
However, convenience does come at a price. When you create a sole proprietorship, you have no liability protection whatsoever. If you get slapped in a lawsuit or someone damages your property, you won’t have any recourse to fall back on.
This can prove extremely costly in the future and damage your business beyond repair.
You also won’t have as flexible a tax structure and may not qualify for savings that an LLC would. Overall, while a sole proprietorship saves you time and money in the short term, it can cause a lot of long-term issues.
As a result, LLCs are ideal for most businesses looking to protect themselves against future problems.
Getting Started
Now that you understand the differences between a single member LLC and a sole proprietorship, it’s time to set up a business structure in Florida. Boyer Law Firm is committed to discussing your options and helping you come up with ways to protect both your business and personal assets.
We’ll assist you with the paperwork and technicalities needed to register your business as a Florida entity, so you won’t need to worry about dotting your i’s and crossing your t’s. Schedule a consultation to talk with a quality FL attorney.
