8

As a followup to my previous question, what benefits are there for an LLC vs. a Sole Proprietorship? What are advantages and disadvantages to both and also vs. just being paid as a person?

11

In my experience (and I'm a programmer, not an accountant) it comes down to this:

  1. LLC gives you the liability protection of a Corporation without the hassle of keeping minutes of meetings and filing 2 sets of taxes.
  2. Sole Proprietor is cheap & easy, but does not give you any liability protection
  3. If you get paid 'as a person', the employer is expected to use a W2 if they pay you more than, I think, $600

By liability protection, I mean that if you should screw something up (or the client believes you broke something), who's responsible? With an LLC or Corporation it's typically the company that's responsible, so they could sue the company for all its assets, but couldn't take your house. However, as a Sole Proprietor, you're personal assets are not protected.

There are exceptions when your LLC or Corp might make you liable personally, for example if you have conducted them such that there is a blurred line between personality and company (for instance I think if you don't have a separate account)

LLCs are also state specific, so the rules (and costs) vary state to state.

  • 1
    Regarding the sole proprietor liability question, you can purchase insurance coverage to help protect yourself from some of these risks. – bstpierre Aug 5 '10 at 0:10

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