• Jill@Apex

LLC vs. Sole Proprietorship DEBUNKED!

Thinking about starting a small business or already have one and still don’t know what LLC or Sole Proprietorship even mean? That’s okay, you’re not alone. No legal jargon, no tax jargon, no NOTHING jargon -- just facts.

LLC stands for ‘Limited Liability Company’ and that is STILL, not helpful. So, let’s break it down further.

‘Limited Liability’ is a type of legal structure for a business where a loss will not exceed the amount invested into the business. Basically, YOUR assets are not at risk if your company tanks. (Investopedia, 2019)

LLC = Your company is responsible and YOU are LESS responsible.

I need to use a spell checker to even spell Sole Proprietorship correctly… so, let’s break that down, too.

When a Sole Proprietorship is established, no legal entity is created making the business owner responsible for all debts and liabilities incurred. (Investopedia, 2019)

Sole Proprietor = You are the only one RESPONSIBLE for everything.

Now that we have conquered the definitions, let’s use each in an example.

  • Cedric Bates and Korbyn Harper both own small businesses.

  • Cedric has a landscaping business setup as a Sole Proprietorship

  • Korbyn has a pressure washing business registered as an LLC

(Sole Proprietor) Example #1- Cedric is mowing the grassy area of a commercial property when all the sudden, his trailer that carries his supplies, comes loose and injures someone and causes extensive amounts of property damage. The property owner decides to sue Cedric.

(LLC) Example #2- Korbyn is pressure washing the outside and sidewalk area of a commercial building and somehow, a rock picked up by the spray of his pressure washer is launched through a closeby building’s window. The rock injures an employee inside of the building. The building owner decides to sue Korbyn.

Who is better protected in the event of a lawsuit?

If you said the LLC, Korbyn, you would be correct. The LLC keeps him and his personal assets separate from his business. In a sense, his business gets sued, not him.

When sh*t get’s real and you, or one of your employees, is responsible for doing something negligent, EVEN if you didn’t mean to, a Limited Liability Company offers more protection for the owner and members.