LLC vs. Corporation vs. Sole Proprietorship: Form an LLC (3/11)

LLC vs. Corporation vs. Sole Proprietorship: Form an LLC (3/11)

In this video, I’m going to tell you why LLCs
are the best structure for the majority of entrepreneurs, why sole proprietorships offer
no protection whatsoever, and why corporations are complex and subject to double taxation. What exactly is an LLC? An LLC is a Limited Liability Company. It’s a legal entity also known as a business
structure and it can be used to run a business, or it can be used to hold assets such as real
estate, boats, or aircraft. The owners of an LLC are called members. An LLC can be owned by 1 person called a Single
Member LLC, or an LLC can be owned by 2 or more people called a Multi-member LLC. An LLC is a business structure, designed specifically
to protect your personal assets from the liabilities of the business. What is a corporation? A corporation is also a legal entity and it
is most often used to run a large company with shareholders and investors. The owners of a corporation are called shareholders. After you form a corporation, you must also
elect a board of directors to oversee the company and you must elect corporate officers
to execute and run the day-to-day business. Corporations are what we typically think of
when we hear Microsoft, Apple, IBM, McDonald’s, et cetera. What is a sole proprietorship? A sole proprietorship is when a person does
not form a business entity and they operate their business as themselves. In the eyes of the law, you are your business
in a sole proprietorship. This is a very risky setup because if your
business is sued then you are personally responsible for all of the debts and the liabilities. This means that your personal assets like
your home, your cars, and your bank accounts are at risk of being used to cover those debts
and liabilities. We’ll save you some time right off the bat. A sole proprietorship is a bad idea. A sole proprietorship offers you no protection
whatsoever. A sole proprietorship is typically set up
when someone is unaware of the options that they have when it comes to setting up their
business structure. In essence, a sole proprietorship is not protecting
anything, not you and not your personal assets. What about a corporation? In short, a corporation is not a bad business
entity but they are not for everyone. They are best suited for companies that want
to go public on the stock market via an IPO, an Initial Public Offering. Again, think Google, IBM, Microsoft, et cetera,
or corporations are best suited for companies that need to raise large amounts of money. Additionally, corporations are required to
hold annual meetings, record all meeting notes and issue shares to the stockholders. Since most entrepreneurs just want to get
their business off the ground, a corporation is usually not the best bet as it will be
too complex and costly to maintain, so that brings us back to the LLC. An LLC is a hybrid between a corporation and
a sole proprietorship. It harnesses the advantages of both while
leaving behind their disadvantages. Let me explain. The disadvantage of a corporation is what’s
called double taxation. The corporation must pay taxes at the federal
level and then the owners must pay taxes again on their dividends, on their individual tax
returns. Corporations, again, they’re also tedious
and expensive to set up. You’ll need to create a board of directors,
issue shares, as well as elect corporate officers. The advantage, however, of a corporation is
liability protection. The owners are protected from the debts and
liabilities of the business. The disadvantage of a sole proprietorship
is unlimited liability. This means the owner is completely responsible
for all of the debts and liabilities of the business. The advantage of a sole proprietorship is
what’s called pass-through taxation. Sole proprietorship income pass this through
right to the owner’s individual tax return. This means no corporate tax return and no
double taxation. Sole proprietorships are also a lot easier
to set up and they have flexible management. You’re not required to hold meetings, elect
corporate officers, or issue shares of stock, so back to the LLC, it’s the best of both
worlds. LLCs provide liability protection. Your personal assets are protected against
creditors. LLCs offer pass-through taxation and may avoid
the dreaded double taxation. Again, the LLC harnesses the advantages of
both corporation and the sole proprietorship while leaving behind their disadvantages. LLCs were adopted by state law and all 50
states nearly 30 years ago to entice more small business growth. LLCs are the most popular and the most flexible
business structure for entrepreneurs, business owners and real estate investors.

27 thoughts on “LLC vs. Corporation vs. Sole Proprietorship: Form an LLC (3/11)

  1. Thank you for your informative video.
    I have one more question. Let's say I form LLC for now, can I change that later into Inc. if I want to?

  2. i have a question. i have a llc.
    but my account said is better for me a corporation.
    but i think that is too much tax that i have to pay.
    and i don't have a big company.

  3. If I form an LLC for my online boutique, how should I set my business up so that I can pay personal taxes as well? I am the owner and the only worker for my company. I thought I could file as a sole proprietorship when I form my LLC and still be protected from my personals being at risk if my business happens to get sued…I need help understanding this.

  4. Thank you for the awesome video. Very well explained!

  5. Awesome video! Thanks for the information!

  6. It sounds like scam artist, making-money Pigs use incorporations to get away with their crimes against you.

    While honest, hard working men and woman seem to use an LLC or sole proprietorships. Interesting.

    NEVER INCORPORATE! You come across as weak, incompetent… And simply Dishonest.

  7. THUMBS DOWN… Very BAD advice!

  8. What do you recommend for Wholesaling/Flipping? A S-Corp or a LLC? I was told a S-Corp is better because of tax reasons but if a LLC can be taxed as a S-Corp, wouldn't it be the same? Can I do distributions through a LLC without self employment tax?

  9. Is a single member LLC who files taxes on Schedule C still protected? (protection of assets I mean in case of law sue)

  10. hey
    if I am opening a fast food restaurant can I open a multi member llc to protect my asset.
    and can I form a llc/ multi member llc and don't have any limited partner/ partner to put in money
    and if it's a must to have shares

  11. I finally know what llc means I want to open my restaurant and it would have a general partner and a limited partner
    but I didn't know that by using that for my business I would not protect my own or private asset.

  12. What is the best business structure for a 15 year old? I'm not worried about the time or effort I have to put into it I'm homeschooled so I have time I'm just worried about the legal issues of being a minor and trying to manage a business entity. also what are the issues that I should be worried about?

  13. Hello… very instructive video… I wanted to know if I hear you well… sole proprietorship do not pay taxes as a business but the owner does pay??? How much money can I make with a sole or with a llc?? Thank you very much and I am sorry if you already explained this

  14. Recent advice that I've received from a lawyer with very good credentials is that nowadays (thanks to changes in the law) a single shareholder corporation is comparable to a single-member LLC. The corporation model was favored because I wouldn't have to pay hefty publication fees (i'm in new york).

    Any thoughts on that advice.

  15. Thank you very much for your detailed and informative explanation.

  16. Just the piece of information i needed. Straight-forward and simple. Thank you so much sir.

  17. I have concluded the following. A 2 man LLC gets a default status as a partnership is what I am understanding when attempting to limit liability against nefarious litigation. Then in filling out a w9 as an LLC to work as a service provider the status there would also be checked off as an LLC partnership, and in the event of legal action against the LLC it is better to be a partnership than a sole proprietor. Otherwise you still can be sued as a sole proprietor.

  18. I am so lost 🙃. I am in the transition of purchasing my LLC, and I still can't fully grasp what it initially means, other than claiming my business name and EIN upon approval. Please kindly advise

  19. Corps are not double taxed dude. Do more research. Only if you pay dividends. But you do not suppose to pay yourself like that. You should pay yourself a salary instead or reimbursement. Only dividends are double taxed. You use SALARY or REIMBURSEMENTS to pay yourself. You don't have to be double taxed, only if you paying yourself dividends which you don't have to do.

  20. Hey folks, make sure to check the site for most up-to-date information: Or select your state and start forming your LLC with our free guides:

  21. Please help me. My sister and I recently filed a DBA in Florida to start a online clothing store, we decided to go for a partnership as there’s no need yo register a general partnership in Florida, if it grows we’ll become an LLC. But we’re having problems when applying for an EIN, as the application asks for a “legal name of the partnership” , would this be our last names or our fictitious name?

  22. Thumbs up excellent video! To the point without all the fluff. I watched a couple other videos and yours is the best explanation on why an LLC, is best for most folks.

  23. Hi, thanks for easy to understand videos. Excellent job. Very very helpful videos. I have a question. If we say construction enterprise. How should we take enterprise as. I means which category it comes in . Like sole proprietorship or something else. Is this legal entity protects our personal assets. If you can please answer my question . I will appreciate very much.

  24. Hi , I was just trying to figure out what reflects behind enterprises. Is it L.L.C or corporation or sole proprietorship As for example. ABC construction enterprises. Thanks for your response.

  25. Yes I am trying to find what type of business structure an existing company is using. Let’s say ABC construction enterprises.

  26. Hi I have a question so I just recently learned about llc and I have already received my business license and my ein number for my business which in an online boutique and filed as a sole proprietorship and I’m considering of switching to an llc what steps would I have to take to switch everything over ?

  27. Sounds good, I am starting a c Corp. Start Big or Go Home!

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