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What’s the Best Entity Type for a Home-Based Business?

October 30, 2018 | MaxFilings

woman working from home at her desk

You’ve decided to start a home-based business. Congrats!

There are a lot of decisions to be made now, and one of them has to do with your business structure.

Which business entity should you choose for your home-based business?

Sole Proprietorship

Sole proprietorship is the easiest and least-complicated business structure to form. You technically don’t have to file any paperwork to be considered a sole proprietorship. This doesn’t include any necessary paperwork pertaining to permits and licenses that you may need for your business type.

Some advantages of being a sole proprietor include:

  • Cost. Besides being the easiest entity to form, it’s also the cheapest. Your startup costs will mainly consist of business licenses and permits.
  • Control. You don’t have to consult with anyone before making decisions about your business, big or small.
  • Taxes. No need to do taxes twice! Your personal and business taxes can be on the same tax return.

Limited Liability Company

Forming a limited liability company (LLC) is another entity option for your home-based business, and it’s a great option for those looking for legal protection.

How does it protect you? Once you form an LLC, your personal and professional assets are separated. And if a legal matter were to arise, like a lawsuit against your business, your personal assets could not be touched.

So, if you can think of any situation where someone may try to sue your business, you may want to lean towards forming an LLC.

Some advantages of forming an LLC include:

  • Requirements. Of the different types of corporations that can be formed, the LLC has the least amount of requirements. There aren’t any annual shareholder meetings that need to be held or annual reports required.
  • Taxes. Since LLC’s don’t have a federal tax classification, the business owner can choose their tax status.
  • Flexibility. Compared to other corporations, LLCs have fewer restrictions when it comes to management and ownership.

Depending on the type of home-based business you have, you may prefer the ease of the sole proprietorship, or you may need the protection of the LLC. Your best bet would be to get legal counsel on the matter to ensure that you’ll structure your business for success.

And when you’re ready to incorporate, get started with MaxFilings!

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