• September 10, 2019

SP Versus LLC: The Battle of the Ownership Types

For those that are about to start a business or restructure into a different type, then you’ll be having a war inside your mind. The two combating sides will most likely be sole proprietorship and limited liability company.

There are many different pros and cons to each and it really does depend on what kind of business and future outlook you want. It’s important to get this bit right because type comes second to what your ambitions are. For many people, they want to make big profits and are ready to take on risks. For others, they don’t mind have slow but consistent growth and not having to bear the brunt of taking personal risks. Here are the key differences to help you choose which path to walk.

Full Control and Full Risk

Sole proprietorship is something that we see as perhaps the most normal. You and you alone own the business, you are the face of your business quite literally and you bear all the fruits and losses. But let’s look at it closer.

  • Firstly, you and your business are legally entwined. You’re seen as one single entity in the eyes of the law. So if your business is hit with a scandal such as a faulty product that harms a customer, you are held responsible even if your business is blamed.
  • There are no fees needed to start this type of business but you must make sure your business name is unique, at least within the region of your operations.
  • For taxes, the owner is taxed based on the income of the business and your own, therefore it’s one in the same.
  • You are personally liable for anything that goes on in the business, such as abusive work environment, inadvertent money laundering and harm to customers.

Limited and Separated

The limited liability company type is perhaps the most popular for small business owners instead of entrepreneurs. The benefits of an llc are much more financially oriented. For example your finances are not the same as the business finances.

  • For taxes, your income is taxed and not the business itself. However many members there are, your incomes are subject to taxation but profits made by the business are not.
  • The ownership is split into members, so there is no one sole owners.
  • The members are seen as separate entities in the eyes of the law, therefore if the business is sued, it does not mean the owners can be sued.
  • There is usually a fee needs to be paid in order to register as a member.
  • With regards to losses, they are not personal. If the business goes bankrupt that does not affect the personal wealth of the members.

For someone who wants full control of their business, they must accept full responsibility as well. To limit your liability in different areas, you will need to have expert legal framework set up such as a terms and conditions agreement for buying your products and services. For an LLC, you sacrifice full control of your business for a far safer financial outlook and legal liability.

A pretty interesting post, huh?

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