Ask HN: Should I start as sole proprietorship or LLC?
I am setting up one person business. Should I register my business as sole proprietor or LLC.
3 comments
LLC is usually the right answer but it can vary depending on what state you are in and what you are doing. One key thing is in a lot of states a single member LLC as a disregarded entity (IRS) will not have all the same protections as a multi-member LLC. Of course those protections are only critical in terms of like a personal bankruptcy or lawsuit etc, but nonetheless you should understand them.
A lot of the information can be found on legal zoom and other corporation creation sites. If you are just trying to run a small business in your state, the like best scenario is an LLC within your state. I dislike sole proprietor for the fact you are more exposed personally in most cases.
A corporation also isn't a bad thing you can elect a Subchapter S in which case your taxes are pass through and so it is very similar to an LLC and can be better in some circumstances, especially in some states where single member LLC's don't have the same level of protection a multi-member LLC does or a corporation does.
Also, typically, you can chat with an attorney during a consultation and figure out which one to use and then use something like legalzoom or the company corporation etc to setup the company. Just remember if you setup an LLC you need to have an operating agreement etc or the company really isn't safe, and the OA isn't something most corporation formation companies do for you, but you can find templates .
Last point, if you plan on any VC type level of fundraising then all the above is not what you want to do. But just as a point, you can raise money for an LLC from some angels/high net worth people, it isn't rare to see happen -- but VC's won't do it in general.
disclaimer, IANAL but do have current LLCs and have had both LLC's, corporation (S & C) in the past for various businesses.
A lot of the information can be found on legal zoom and other corporation creation sites. If you are just trying to run a small business in your state, the like best scenario is an LLC within your state. I dislike sole proprietor for the fact you are more exposed personally in most cases.
A corporation also isn't a bad thing you can elect a Subchapter S in which case your taxes are pass through and so it is very similar to an LLC and can be better in some circumstances, especially in some states where single member LLC's don't have the same level of protection a multi-member LLC does or a corporation does.
Also, typically, you can chat with an attorney during a consultation and figure out which one to use and then use something like legalzoom or the company corporation etc to setup the company. Just remember if you setup an LLC you need to have an operating agreement etc or the company really isn't safe, and the OA isn't something most corporation formation companies do for you, but you can find templates .
Last point, if you plan on any VC type level of fundraising then all the above is not what you want to do. But just as a point, you can raise money for an LLC from some angels/high net worth people, it isn't rare to see happen -- but VC's won't do it in general.
disclaimer, IANAL but do have current LLCs and have had both LLC's, corporation (S & C) in the past for various businesses.
You should get a good tax person - let them advise you on your situation - do not take advice from random ppl on the internet.
LLC is there right answer for most businesses, but without any more detail it's hard to say with complete certainty.
It's also hard to say with certainty because I'm not a lawyer, just a person who has done this many times. That said, all the usual legal stuff applies that you should take my suggestion with a grain of salt. Good luck.
It's also hard to say with certainty because I'm not a lawyer, just a person who has done this many times. That said, all the usual legal stuff applies that you should take my suggestion with a grain of salt. Good luck.