LLC vs Sole Proprietorship
Which business structure is right for your contracting business? Take the quiz and compare the options.
Find Your Best Structure
Answer 5 quick questions to get a personalized recommendation
compare_arrows Side-by-Side Comparison
Feature
LLC
Sole Prop
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Personal Liability Protection
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speed
Ease of Setup
Medium
Very Easy
payments
Startup Cost
$50-$500
$0-$50
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Annual Fees
$0-$800/yr
None
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Tax Filing
Schedule C (or elect corp)
Schedule C
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Professional Image
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Easier to Get Loans
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Can Have Partners
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LLC
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Pros
- Personal assets protected from business lawsuits
- More professional image with "LLC" in name
- Easier to open business bank accounts & credit
- Can add partners or investors later
- Pass-through taxation (avoid double taxation)
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Cons
- State filing fees ($50-$500 to form)
- Annual fees in some states
- More paperwork to maintain
- Separate business records required
Sole Proprietorship
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Pros
- Free or nearly free to start
- Simplest business structure
- No annual filing requirements
- Complete control of business
- Easy tax filing on personal return
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Cons
- Personally liable for all business debts
- Home, car, savings at risk in lawsuit
- Harder to get business loans
- Cannot add partners without restructuring
- Less professional appearance
The Real-World Decision
Most contractors start as sole proprietors because it's free and simple. The question is: when should you switch to an LLC?
Consider an LLC when:
- Annual revenue exceeds $50,000
- You're hiring employees or subcontractors
- You work on larger projects ($10K+)
- You want to build business credit
- You're concerned about personal liability
Stay Sole Prop if:
- You're just starting out
- Revenue under $30K/year
- Working small, low-risk jobs
- Want maximum simplicity
LLC Costs by State (Annual)
- Colorado$50 filing + $25 annual report
- California$800 minimum franchise tax (even with no revenue)
- TexasNo state income tax, no annual fee
- New York$25 initial + biennial filing
Some states like California make LLCs expensive - others make them nearly free.