(Corporations & Non-Profits are extremely complex so I’m covering the most common & simple structures) The sole proprietorship is the simplest way to operate a business. If you’re self-employed or conducting any kind of business and haven’t picked a formal business structure, then by default, you’re operating as a sole proprietor. The biggest advantage of the sole proprietorship is that it’s simple to form and maintain. Since there’s no separation between the sole proprietorship and the owner, any income earned by the business is considered income earned by the owner.
A sole proprietor owner just needs to keep track of all the business’ income and expenses and report it on a Schedule C with their personal tax return. However, the biggest drawback of the sole proprietorship is that the owner is personally liable for any debts of the business. So if your sole proprietorship business runs into financial trouble, creditors can come after your personal property and savings. Likewise, you’ll be personally liable for any lawsuits brought against the business. Unless you hire employes you’ll use your SSN# INSTEAD of a EIN. If your business isn’t in your name you need a DBA (doing business as). . .
The LLC (Limited Liability Company) is a hybrid of a sole proprietorship and corporation. This structure is very popular among small businesses, and for good reason. The LLC limits the personal liability of the owners, but doesn’t require much of the heavy formality and paperwork of the corporation. This makes it a great choice for business owners that want liability protection, but don’t want to deal with exhaustive meeting minutes, addendum filings, or other paperwork you’d need to file as a corporation. The LLC gives you flexibility to choose how you want to be taxed. For example, you can structure your LLC to be taxed as a C Corporation or more commonly as an S Corporation (where the business doesn’t file its own taxes).