Form an LLC Business Versus a Sole Proprietorship

If you want to start a business, you are likely wondering whether you should set up as a sole proprietor in or to form an LLC business? Owners of a limited liability company receive protection that you cannot get with a sole proprietorship. Plus, without the use of a legal entity, you are restricted in the areas of growth, expansion, and business continuity.

LIMITED LIABILITY IS ESSENTIAL TO BUSINESS OWNERS

The United States is notorious for the number of lawsuits filed everyday and small businesses are one of the major targets. This is because a business is created to generate money and lawsuits are almost always about money. The sad truth is that the more successful you get, the more likely you will be sued.

When you operate as a sole proprietor, you are your business- there is no separation. If someone sues your business, they will sue you personally. Accordingly, it is not just your business assets at risk but everything you own- your house, money in your personal bank accounts, your automobiles, jewelry, anything you own.

The better method is to form an LLC business. The limited liability company is an independent legal entity. If your company ever became a target for a lawsuit, the owners of the LLC are not automatically personally liable because there is a layer of protection between owners and the company.

A sole proprietorship stands out and attracts predatory attorneys looking to attack for money. They think thoughts like: This man runs a successful sole proprietor business. If sued, even if we do not have a strong case, everything he owns will be at risk so he will likely pay us something worthwhile to settle.

OTHER BENEFITS OF AN LLC BUSINESS OVER A SOLE PROPRIETORSHIP

The limited liability company is designed for small business. Many need to raise capital and an LLC business gives you a vehicle that can easily take in investments. You can raise money by issuing membership units in the LLC. It is very difficult and costly to structure investments in a sole proprietorship.

When you form an LLC business, the laws provide for flexibility when it comes to operating the business. So, you could run the business with a management structure as simple as a sole proprietor business or, if you have more than one member, you can create the necessary management and governance processes to tailor them to your business needs.

The point here is that the LLC has so much more flexibility to address the necessary matters that come along with business growth.

If you were to become incapacitated or to die, what happens to your sole proprietor business? There is no legal concept of business continuity. However, if you form an LLC business in NJ, an LLC is separate and so continues as a business enterprise despite what happens to its owners. This will result in a much easier transition period for your heirs and family.