LLC Vs. Sole Proprietorship: What Are the Differences?

Having a million-dollar business idea isn't enough to set up your dream company. It would help if you had a proper understanding of the legal and financial framework required to support your business. There are different forms of business entities each with its own set of legal and tax advantages.

In this post, we will discuss some of the differences between LLCs and sole proprietorship:

Basic differences

A sole proprietorship is the easiest business entity to form. Just as the name suggests, the founder is the only legal owner of the company. You can create it with any name that you want. More or less, you simply need to file the necessary documents, pick the company's name, file a DBA (Doing Business As) Form and obtain the required licenses. Licenses vary based on geography and industry. Any financial liability, lawsuit, fine, or debt is the responsibility of the business owner.

On the other hand, a limited liability company is more of a blend of a corporation and a business partnership. The term 'limited liability' means that the business owner is often protected against many types of financial liabilities related to the company.


A sole proprietorship company ceases to exist when the business owner:

a. Sells the business

b. Retires

c. Dies

However, an LLC could potential live beyond the death of the member/owner. As an LLC owner, it’s also highly recommended that you have an operating agreement. The operating agreement should speak to what happens when a member passes away.

Ease of Raising Money

In the case of a sole proprietorship, the business owner needs to raise money alone. If the business is relatively new and lacks credibility in the market, it may be more difficult for the owner to get loans. The loans also largely depend on the business owner’s personal credit history. Similarly, if the business operations aren’t able to pay back the loan, the owner would probably be on the hook and this could also affect their credit score.

On the other hand, an LLC may have better capital raising options. There could be multiple members and each could contribute money or assets to the LLC, for example. Once established, the LLC might qualify for a business loan, and maybe even a business loan with no personal recourse against the member(s). However, having an LLC does not guarantee that the LLC will qualify for a loan becuae the lender may reject your request for a loan.

Owner Control

Sole proprietors have complete control over their business and earnings. They have the legal right to make any decision, including how to use the proceeds. In the case of an LLC, there is centralized management and it can either be run by the member(s) or the manager(s). There are a variety of ways that the LLC could be managed. Typically they’re either member managed or manager managed. You may also be able to outsource management functions and appoint an external manager to handle the day-to-day affairs.

If you're based in Houston, Austin, San Antonio, get in touch with us. The team of attorneys at Mike Massey Law can set up your LLC for only $250 plus filing fees.They can create an operating agreement as well, typically for $150 to $200. Here are the details.

26 views0 comments

Recent Posts

See All

Mike Massey JD, MBA, MPA just might be the 195th most interesting person in Texas. He has 4 college degrees and he's working on a 5th:  BBS Accounting; MPA Master's in Professional Accounting; JD Law Degree; MBA Master's in Business Administration; BBS in Biblical Studies (in progress).

Read More


  • Yelp Social Icon
  • LinkedIn Social Icon
  • Facebook Social Icon


Austin Westlake: 418 Grace Ln, Austin, TX 78746

Houston: 10810 Katy Fwy, #102,  Houston, TX 77043

San Antonio: by appointment only

Austin Arboretum: In process of relocating

¡Se habla español!

Subscribe to our newsletter

© 2020 Mike Massey Law.  Managing Attorney Mike Massey, 8911 Capital of Texas Hwy, Ste 3210, Austin, TX, 78759.  Email:  Phone: 888-407-2407.  Mike Massey, Texas Bar # 24032584. The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established. Privacy Statement.  Prices can vary based on your unique situation and potential add-on services.  Prices for in-office (in person) meetings typically cost more than virtual meetings that are done over the phone instead of in person.  Prices for virtual estate planning do not include an execution ceremony or notary, as those services are not available with our discounted virtual estate planning packages. If your a personal injury case client on a contingency fee, then if we do not win, you will not be responsible for attorney's fees, court costs, or litigation expenses, but if we do win money for you via a settlement or court verdict, then attorney's fees, court costs, litigation expenses and unpaid medical bills will be taken from your share of the recovery. Mike Massey Law is not responsible for your unpaid medical bills.

FAQ's, Q&A, Answers, Information on this site: The materials presented on this site are intended for informational purposes only. These materials should not be used as legal advice applicable to the reader's specific situation. In addition, our provision of this information to the reader in no way constitutes an attorney-client relationship. No action should be taken on information provided within this website without counsel from a professional attorney. The request or receipt of any information from this website or any of the attorneys in our employ does not signify our acceptance to represent the recipient of this information.  It is our intention that all materials posted on this site be up to date and correct. However this information is subject to change without notice and should not be relied upon for accuracy and pertinence to the reader's specific circumstances.

*Note on Contingency Fees: No attorney’s fees unless you recover. Court costs, litigation expenses, and medical bills are paid from your share of the recovery. If there is no recovery, you will not be responsible for any court costs or litigation expenses, except for unpaid medical bills.