Great question! If you’re running a small business, it’s important to understand how these two business structures differ so that you can make a more well-informed decision regarding which to register as.
First, let’s talk about the similarities. Both sole proprietorships and LLCs benefit from pass-through taxation. In other words, any income generated by the business is treated as the owner’s income, which has many benefits in relation to business flexibility and taxes.
The downside of tying business and personal finances together in this way in a sole proprietorship is that it also usually means the owner absorbs all financial liability. Sole proprietorships treat the business owner and the business itself as one legal entity. If the business experiences losses or gets into debt, the owner is responsible. This makes it riskier for the individual and is something a lot of owners want to avoid
LLCs, on the other hand, have limited liability. The business and the owner are distinct legal entities, and the business itself absorbs all liability, so your personal finances are less at risk. At least this is how I understand it, but I’m no expert. If you want to learn more about both LLCs and LLC holding company, I found a lot of useful information on https://cindysnewmexicollcs.com/Advantages/LLC-Holding-Company-Structure