LLC vs. Sole Proprietorship

Starting a business is exciting but one of the first real decisions you’ll face is how to legally set it up. Two of the simplest structures are a sole proprietorship and a limited liability company (LLC).

They might sound complicated, but the choice mostly comes down to how much protection you want, how much paperwork you’re willing to handle, and how serious you are about growing your business.

What is a Sole Proprietorship?

• A sole proprietorship is the default business structure. If you start selling products online, walking dogs, or freelancing without filing any official business paperwork, congratulations you’re already a sole proprietor.

• Taxes are simple: You and your business are the same in the eyes of the IRS. Income just flows through to your personal tax return.

• Easy to start: No formal registration required in most cases (though you might need a local business license).

• You’re personally liable: If your business gets sued or can’t pay a debt, your personal assets (car, savings, even your home) could be at risk.

Good for: Testing the waters, freelancing part-time, or running something very low-risk.

If you’re starting as a sole proprietorship, a simple bank account like our Sole Proprietor Checking can help keep your finances clean while you test your idea, with no monthly service fees to worry about.

What is an LLC?

An LLC (Limited Liability Company) is a step up in formality. You register it with your state, and it creates a legal separation between you and your business.

• Personal protection: Your personal assets are generally protected if your business owes money or gets sued.

• Flexibility: You can be taxed like a sole proprietor (called “pass-through taxation”) or choose corporate-style taxation if that benefits you.

• Costs more upfront: Usually requires filing fees with the state and sometimes yearly fees.

• More paperwork: You’ll need to file articles of organization, keep business records, and possibly draft an operating agreement.

Good for: Small businesses that are making consistent money or have risks you don’t want to personally take on.

If you decide an LLC is right for you, our Small Business Checking provides the structure and tools you’ll need as you scale, including free online banking and bill pay.

Which One is Right for You?

Think about your goals and your risk:

• Choose Sole Proprietorship if… you’re testing a business idea, freelancing casually, or don’t want to deal with paperwork yet.

• Choose LLC if… you’re making consistent money, want to protect your personal assets, or see your business growing beyond a side hustle.

If you’re just starting out, a sole proprietorship is the simplest way to get moving. But if your business starts bringing in real money or if there’s any risk involved forming an LLC can give you peace of mind and protect your personal finances.