When looking at starting a business, especially a home based or handcrafted business, there are two types of business structures to think about: LLC (Limited Liability Corporation) or Sole Proprietor. Each of these have benefits based on their set up.
Sole Proprietor
A Sole Proprietor is the easiest business to set up and create. It has only one owner and that owner is the one who is legally responsible for everything concerning the business. In fact, sole proprietorships can even be created without setting up an alternative TIN (Tax Identification Number). In the United States, a person’s social security number will work with a sole proprietorship. This is due to the fact that the owner and business are generally considered one and the same. You are your business and your business is you.
The drawback to sole proprietor has to do with the fact that you and your business are considered one entity. If something happens and your business is sued, you are responsible, and your personal assets can be taken. Plus, if something happens to you and you die, your business dies with you. You cannot will your business to another individual because you were your business. For this reason, you may want to incorporate.
LLC
A Limited Liability Corporation is one step up from Sole Proprietor. It can still be run by one owner, and you can change up those in charge of certain aspects of the business if you choose. It is still simple to set up an LLC, although in some states the cost to do so may vary.
The benefit to an LLC is in its name: limited liability. With sole proprietors, if the company is sued, the owner is sued. In an LLC, the liability is limited. The company is a separate entity from the owner. If there is a problem, the company is held responsible, and not the owner. Only the assets from the business can be taken, and not the owner’s.
The other benefit to LLC, besides taxes, is that one can will the business to another person. The business you worked so hard to build can continue to grow after your death and leave a legacy for others. It doesn’t have to die with you. It was this aspect that made me choose to incorporate my business into an LLC as soon as I was able. My business was named after my grandchildren, and they are always in my sewing studio helping and learning. I know that one day, they will take over the business. Therefore, having it as an LLC will allow me to add them as officers and eventually as CEOs of the business.
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