Question: “Ali, when first starting out, is it preferable to set up a business as a DBA/Sole Proprietorship or an LLC? What are the advantages/disadvantages to each? Many thanks!”
—Sara Wise, Busy Bee Events, North Myrtle Beach, S.C.
Ali’s answer: “Hi Sara, you’re wise (no pun intended ;)) to be thinking about how to structure your business right from the start. A sole proprietorship is an unincorporated business owned by one person. (Hence the “sole”.) The most important feature to note about a sole proprietorship (SP) is that the law makes no distinction between you, the sole proprietor, and your business. Virtually all of the legal and tax consequences associated with sole proprietorships flow from this essential element.
Please note I am NOT a legal expert but here are some basics to get you started…
The main disadvantage of sole proprietorships is that you, the sole proprietor, are personally liable for all the debts of your sole proprietorship. I see that you’re an event planner, so for example, let’s say when running one of your client’s events in her home you accidentally cause some damage to her house. (I’m sure you wouldn’t, but play along with me here…). If you are an SP, that means your client can seek all of your personal and business assets to pay for the damage, including your bank accounts, cars, equipment, and perhaps even your own house. This is an extreme example but you get the idea.
A second disadvantage of conducting business as a sole proprietorship is that you may pay higher income taxes. Talk with your accountant to see if this applies to you.
By incorporating your business, you can reduce your personal risk in business and you may be able to reduce your tax rate. There are several forms your business can take, from an S-Corp to a C-Corp to an LLC. Nearly all of the clients I work with choose either an S-Corp or an LLC. For advice in this area, I recommend one of the leaders in my Platinum Tier, Jessica Eaves Matthews. She’s a renowned attorney and a huge advocate for women business owners!”
Love and success,
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