Lori Hoberman for Entrepreneur writes: Q: With starting a home-based vegan foods business, is it better to set up as sole proprietor or LLC?
A:
I considered this question a few months ago when I started my own law
firm. Sole proprietorship is so simple and inexpensive and thus, so
appealing. But after researching the issue, I chose the LLC instead.
While my law firm might not be as tasty a venture as your vegan foods
business, the issues we face in choosing our business entity are the
same.
Here’s what you should consider:
Sole Proprietorship
The positive: There is no easier way to launch a business than as a sole proprietor -- basically, you just start working.
Related: Choose Your Business Structure
You
ARE the business. Indeed, if you want to name the business something
other than your legal name, you’ll need to file a “Doing Business As,”
or DBA, name in the states in which you’re engaging in business. But
that’s really all: It’s simple and inexpensive. Even the taxes are
easy: You pick up all the profits and losses of your business on your
individual tax return, and you don’t need to file a separate return for
the business.
The negative: A sole proprietor has zero
liability protection. So, if someone gets sick from one of your vegan
goodies, they can sue you personally. If they win, they will have access
to all of your assets: your money, home and cars, among other assets.
If
you were selling scarves instead of food, a sole proprietorship might
be for you. But any business with potential liability (that can’t be
sheltered with insurance) should not be a sole proprietorship.
Limited Liability Company
The positive: The
biggest benefit of the LLC over the sole proprietorship is that the LLC
shelters you from liability. A potential plaintiff would have to sue
the LLC -- and if he or she wins, the person would generally be limited
to the assets of the LLC (not your personal assets). A single-member
LLC is taxed in the same way as a sole proprietorship: The profits and
losses flow through to your individual tax return. But, unlike a sole
proprietorship, you can add one or more partners. While you give up the
simplicity of filing your business’s profits and losses on your own tax
return at that point, the LLC still gives you the benefit of
pass-through taxation.
The negative: An LLC is a
statutory entity, which means that you’ll need to file a certificate of
formation (this document has different names in different states) and
pay filing fees to set up the entity. This is a simple process: You can
generally find the directions to file, along with a sample form, on a
state web site. Or you can work with a filing company that will charge a
fee to process the filing.
0 comments:
Post a Comment