Review: Sole proprietorship vs LLC
This review contrasts sole proprietorships and LLCs, highlighting key differences in structure, liability, and taxation for small business owners in the US.
Quiz(9 questions)
1. What is the main liability risk for sole proprietors?
Terms in this Study Set(18)
What is a sole proprietorship?
A business owned by a single individual who is responsible for all debts.
What does LLC stand for?
Limited Liability Company; a business structure that offers personal liability protection.
True or false: Sole proprietors have limited liability.
False, because sole proprietors are personally liable for business debts.
Difference between sole proprietorship and LLC.
Sole proprietorships have no liability protection, while LLCs protect personal assets.
Fill in the blank: LLCs are more expensive to _____ than sole proprietorships.
form and maintain.
What is a major tax difference between LLCs and sole proprietorships?
Sole proprietorships are taxed once; LLCs can choose how they are taxed.
True or false: An LLC can have multiple members.
True, because LLCs can be owned by one or more individuals.
Who bears the tax burden in a sole proprietorship?
The owner reports business income on their personal tax return.
What is a key advantage of an LLC?
Owners enjoy personal liability protection against business debts.
Fill in the blank: Setting up an LLC involves more _____ than a sole proprietorship.
paperwork and fees.
Which business type is easier to dissolve?
Sole proprietorship, as it requires less formalities.
Question: What is a downside of a sole proprietorship?
Unlimited personal liability for business obligations.
What is required to form an LLC?
Filing articles of organization and paying a state fee.
True or false: An LLC requires annual meetings.
False, they are not legally required but may be beneficial.
What protects LLC members from personal liability?
The legal structure of the LLC separates personal and business assets.
Difference in management structure: Sole proprietorship vs LLC.
Sole proprietorships are managed by one person; LLCs can have multiple members.
What must sole proprietors report for taxes?
All business income on their personal tax return (Schedule C).
Which structure typically has simpler record-keeping?
Sole proprietorship, due to fewer formal requirements.
Questions in this Study Set(9)
1. What is the main liability risk for sole proprietors?
2. Which of the following is NOT a requirement for forming an LLC?
3. How are LLCs typically taxed?
4. What is a significant advantage of forming an LLC over a sole proprietorship?
5. Which structure allows for more than one owner?
6. What must sole proprietors do with their business income?
7. How often must LLCs hold meetings?
8. True or false: Sole proprietorships are easier to dissolve than LLCs.
9. What is a common disadvantage of an LLC?
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