LLC vs. Sole Proprietorship vs. S-Corp: Which Is Right for You?

When you’re starting a business, one of your first big decisions is how to structure it.
Choosing between an LLC, a sole proprietorship, or an S-Corp isn’t just paperwork — it can affect your taxes, your personal liability, and even how your business grows.

Let’s break down the basics so you can make the right choice for you.

Sole Proprietorship: The Simplest Starting Point

What It Is:
A sole proprietorship is the simplest and most common business structure. You’re the only owner, and there’s no legal separation between you and the business.

Pros:

• Easy and inexpensive to set up

• Minimal paperwork and ongoing maintenance

• You report business income and expenses on your personal tax return

Cons:

• No legal protection — you’re personally liable for business debts and lawsuits

• Harder to separate personal and business finances

• Might look less “official” to potential clients or partners

Best For:
Freelancers, consultants, and side hustlers who are just getting started and want a low-cost, low-hassle setup.

LLC (Limited Liability Company): A Step Up in Protection

What It Is:
An LLC creates a legal separation between you and your business. Your personal assets (like your home, car, and savings) are typically protected from business debts and lawsuits.

Pros:

• Limited personal liability

• Flexible management and ownership structure

• Pass-through taxation (business income usually “passes through” to your personal tax return, avoiding double taxation)

Cons:

• Requires filing with the state (fees vary)

• Some annual paperwork and compliance responsibilities

• Slightly more complex tax and record-keeping requirements than a sole proprietorship

Best For:
Small businesses that want personal asset protection and a more formal business structure without a lot of corporate complexity.

S-Corp: For Growing Businesses Looking to Save on Taxes

What It Is:
An S-Corp isn’t a type of business structure on its own — it’s a special tax election you can make once you have an LLC or corporation.
It changes the way your business income is taxed, potentially saving you money once your profits grow.

Pros:

• Potential tax savings on self-employment taxes (you can pay yourself a "reasonable salary" and take the rest of your income as distributions, which are taxed differently)

• Still offers limited liability protection

• Can make your business look more established and professional

Cons:

• More complex setup and ongoing compliance (like running payroll for yourself)

• Must meet IRS requirements to maintain S-Corp status

• Might not be worth it unless your business is consistently profitable

Best For:
Businesses with steady profits who are ready to optimize their tax strategy and willing to manage a little more paperwork.

Final Thought: Choose What Supports Your Growth

There’s no one-size-fits-all answer.
The right choice depends on your goals, your risk tolerance, your income, and how you plan to grow.
Start where you are — and remember, you can always adjust your structure as your business evolves.

If you’re feeling stuck, talking to a trusted accountant or business consultant can help you pick the path that sets you up for success.