Tag: Sole Proprietorship

  • What is a Limited Liability Company (LLC)?

    What is a Limited Liability Company (LLC)?

    There are many different ways in which a business can be formed. When forming your own business, though, there are four main types to consider, each with their own pros and cons. For this post, we will answer “What is a Limited Liability Company (LLC)?”

    A limited liability company is a hybrid between a corporation and a partnership. It is a popular business model due to its dual nature.

    Advantages of a Limited Liability Company:

    • Low start up costs.
    • The owners generally are immune from personal liability for the conduct of the business, with some rare exceptions (i.e. fraud).
    • The owners’ personal assets are generally protected from claims against the business.
    • Owners can be added or removed easily.
    • Owners can sell equity in the company to raise money.
    • Some states allow the owners flexibility to decide whether they would like business income taxed personally (“pass through taxation”) or on behalf of the business itself (corporate level).
    • A potential tax benefit of the LLC is the ability to use profits and losses of the business to offset other personal income.
    • Forming or Registering an LLC in New York State is very quick and easy with a knowledgeable business attorney.

    Disadvantages of a Limited Liability Company (LLC):

    • There are certain accounting rules that must be followed, such as not commingling business funds and the owner’s personal funds.
    • There are certain rules that owners or managers of the business must follow when signing contracts.
    • The owners and managers must follow the LLC’s operating agreement when conducting business.
    • Unlike a sole proprietorship, many states do charge a filing fee, and a nominal biannual registration fee.
    • Formal organization papers must be filed with the Secretary of State.

    A Limited Liability Company is a great way for entrepreneurs to get their business started. If you are interested in starting a business, check out our Business Formation page or consult with a knowledgeable business attorney to review the rules and requirements that you must follow in order to protect yourself. To speak with one of our business attorneys, please call (716) 853-1111 for a free consultation, or simply leave a comment below!

  • What is a Sole Proprietorship?

    What is a Sole Proprietorship?

    Businesses are omnipresent in American everyday life. When forming your own business, though, there are four main types to consider, each with their own pros and cons. A sole proprietorship, partnership, corporation, and LLC (limited liability company) all have their own unique aspects that may make them helpful or less helpful to you. For this post, we will answer “What is a Sole Proprietorship?”

    Advantages of a Sole Proprietorship:

    A sole proprietorship is a business owned by a singular owner who has complete control over the whole business. This is useful because:

    • There are generally no costs to set up.
    • The finances of the business are kept as the owner’s finances.
    • It is simple to own and operate, as there are no conflicting interests within the business.
    • There is no double taxation for business income (however, the owner must still pay normal sales and employee-related taxes).
    • The proprietorship is legally indistinguishable from the owner, and thus there is generally no paperwork to set up a proprietorship.
    • If a proprietorship becomes too large for an owner to handle, it can be converted into a partnership, corporation, or LLC, while keeping the same name, staff, and funds.

    Disadvantages of a Sole Proprietorship:

    However, there are disadvantages, especially in case of lawsuits. These include:

    • The owner is personally liable for the actions of the business.
    • There is no personal immunity from lawsuits.
    • Personal assets are at risk in the event of an adverse judgement.
    • If there is a business accident, because business funds are indistinguishable from personal funds, an unlimited amount of personal funds are legally attachable to repair damages.
    • The conversion of a sole proprietorship to a corporation or LLC can be a time consuming process as it requires the separation of business funds from personal funds, which requires meticulous accounting of the owner’s finances.
    • It is impossible to sell parts of the business to make money, as there is legally no separate business entity.

    These are just a few things to consider before operating as a sole proprietor. You should consult with a knowledgeable business attorney before starting your business. To speak with one of our business attorneys, please call (716) 853-1111 for a free consultation, or simply leave a comment below!