⚡ Quick Verdict
If your business has any risk of lawsuits, debts, or contracts, form an LLC. The cost is trivial compared to the personal asset protection it provides.
5
✅ LLC Wins
2
🤝 Ties
1
✅ Sole Proprietorship Wins
📊 Full Feature Comparison
| Feature | LLC | Sole Proprietorship |
|---|---|---|
| Liability Protection | ✅Full personal asset protection | NONE — personal assets at risk |
| Setup Cost | $50 – $500 (state filing fee) | ✅$0 (no filing required) |
| Taxation | Pass-through (same as sole prop by default) | Pass-through (Schedule C) |
| Credibility | ✅More professional (LLC designation) | Less professional (personal name) |
| Bank Account | Separate business bank account | Can use personal account |
| Raising Capital | ✅Can add members, sell membership interests | Cannot raise equity capital |
| Continuity | ✅Perpetual existence | Ends when owner dies or stops |
| Tax Flexibility | ✅Can elect S-Corp or C-Corp taxation | No flexibility |
❓ Frequently Asked Questions
When should I switch from sole proprietorship to LLC?
Switch when your business earns more than a few thousand dollars, signs contracts, has customers or clients on premises, or operates in any industry with lawsuit risk. The LLC filing fee ($50-$500) is trivial insurance against personal liability.
Does an LLC require a separate bank account?
Legally it depends on your state, but practically YES — always maintain a separate business bank account. Commingling funds "pierces the corporate veil" and can eliminate your LLC's liability protection.