7 Key Differences Between LLCs, Sole Proprietorships, and Corporations

As a Business Entity Formation Attorney, I know that choosing the right business entity for your company is a big decision.

You have a lot of different options.

You could form your business as a sole proprietorship, a corporation, or a limited liability company (LLC), among other business structures.

Each type of business structure has advantages and disadvantages, so each structure needs to be evaluated in light of your business’ particular needs. Below are seven key differences between sole proprietorships, corporations, and LLCs.

1. Cost to Set Up. The cost to set up a sole proprietorship is virtually free, while it can cost a tidy sum of money to set up a corporation or an LLC due to the fees associated with the initial formation of the entity, filing fees, and annual fees that are paid to the state.
2. Complexity of Formation. Formation of a sole proprietorship involves very little – if anything – in terms of formal organization. On the other hand, corporations and LLCs require more formalities when it comes to formation of these business. The formation of an LLC requires slightly more paperwork than the formation of a corporation.
3. Formalities After Formation. A sole proprietorship does not have to adhere to any formalities after formation. Conversely, an LLC and a corporation have a number of formalities that must be satisfied after formation. For instance, an LLC must maintain records for the business affairs of the LLC that are separate and apart from the owner’s personal affairs, and a corporation is required to hold director and shareholder meetings and obtain approval from the board of directors for major business decisions.
4. Liability. In a corporation, the shareholders are not liable for the debts of the corporation by virtue of their status as a shareholder. Similarily, in an LLC, the economic interest owners of the LLC are generally not liable for the debts of the company. However, in a sole proprietorship, a sole proprietor is on the hook for the liabilities of the business.
5. Owner Transferability. Transferring ownership of a sole proprietorship is quite challenging. A new bank account must be set up and new tax identification numbers are necessary in order to transfer ownership of a sole proprietorship from one person to another. Similarly business assets, such as licenses and permits, must be transferred individually from the owner of a sole proprietorship to the new owner. On the other hand, ownership interest in an LLC or corporation can be easily transferred with little to no disruption to the business operations of the LLC or corporation.
6. How Long the Business Entity Can Last. If a sole proprietor dies, the sole proprietorship dies with them. But for a corporation or an LLC, the business can endure long after those who were involved in the original formation of the business have passed away.
7. Who Can Own the Entity. Sole proprietorships can only be owned by an individual, and an LLC can similarly be owned by an individual. However, LLCs and corporations can both also be owned by other businesses.

Contact An Experienced North Raleigh Business Attorney

Choosing between different types of business entities can be confusing. Each type of business entity offers its own advantages and disadvantages which need to be carefully considered. As an experienced Raleigh Entity Formation Attorney with over 20 years of experience, I can help you determine which type of business entity is right for you.

North Raleigh Law is located in Raleigh, North Carolina, and serves clients throughout the Triangle Area in Wake County, Durham County, Orange County, Chatham County, Vance County and Franklin County, including Raleigh, Durham, Chapel Hill, Zebulon, Wake Forest, Fuquay, Cary, Clayton, Henderson, Oxford, Pittsboro, Apex and Holly Springs.