Compare LLC to Sole-Proprietorship & Partnerships?
There are several differences between a Limited Liability Company structure and Sole-Proprietorship & Partnership structure.
The biggest difference is liability, owners of an LLC are not liable for the debts incurred by the LLC. The debt is held by the company and its respected assets. Owners can become liable in the case of Negligence or Fraud. If the ownership conducts business according to laws of the governing state and the business ends up incurring debt that it is unable to repay, the LLC ownership is able to walk away from the debt incurred by the LLC.
The only exception is if the owners of the LLC personally guarantee debt. In this instance, the owners that signs the personal guarantee will be liable for that specific debt.
Recommendations: Business Rocket recommends to never sign a personal guarantee for any business debt, it is better to establish favorable terms over time. For example, if the LLC is a restaurant and all the suppliers will offer 30-day terms under a personal guarantee but only offer Cash-On-Delivery without the personal guarantee; it is best to accept the Cash-On-Delivery terms and establish credit over time with that particular supplier. Usually within 6-9 months, suppliers will start accepting terms.
Limited Liability Companies have a flexible tax structure, you have a choice of: Sole-Proprietorship Tax Structure, Partnership Structure (Multi-Member LLC’s), and a Corporate tax structure. Business Rocket recommends speaking with a licensed accountant about which structure is right for you.
Start-up Costs and Maintenance
It is more expensive to start-up a limited liability company than a partnership or sole-proprietorship. Additionally, a Limited Liability Company is required to file annually or bi-annually reports with their respected governing agencies.
Depreciation of Assets and Tax Deductions
Limited Liability Companies can take advantage of certain tax deductions that are not permitted by a partnership or sole-proprietorship. These d