"Tip of the Week" - The Art of Selecting the Proper Business Entity

The Illinois Business Law Journal, a publication of the students of the University of Illinois College of Law, has put together a very succinct and useful piece comparing and contrasting the various business entities one may establish as an entrepreneur.  As I've stated before, I prefer the LLC for a myriad of reasons.

V. Limited Liability Company: Legal Description, Liability, Tax Benefits

A limited liability company (LLC) is called so because the owners, also called members, are only subject to limited liability for the debts and actions of the company. [17] While the members will not be liable for the mistakes of the company, they will be held liable for any individual mistakes the member makes. [18] Registering the company as an LLC also has tax benefits. [19] "LLCs are a 'pass through' tax entity, which means company profits are passed through the business and taxed solely on the member's individual tax returns." [20] Additionally, the members of an LLC report all gains, losses, credits and deductions as income on their personal tax returns. [21]

But now you can compare and contrast for yourself based upon your own unique circumstances.

Comments

[Chuck Newton]

My position is that for solos business entity selection stuff is over thought, over sophisticated, and worried about too much. It use to be where a solo had some tax benefits for being incorporated or having a professional association or you could have some specialized retirement plan, but none of this is true any longer. Anything other than a sole proprietorship is costly in set up and in tax preparation. It also subjects you to hirer costs from everything from bank accounts to telephone fees. Everybody has opinion on this, but I would strongly suggest that you get no extra protection as solo from any business structure other than your own good name. You do get the opportunity to be charged more for everything you do.

[Andrew]

For a solo is there any practical difference between an LLC and being a sole proprietorship? Since an LLC won't protect you from your own torts, only those of your fellow members, if you're truly on your own, it would not appear to make a difference at all.