Self employment taxQUESTION: Is there a difference between a single member limited liability company and a sole proprietorship?

ANSWER: Both a single member LLC and a sole proprietorship are similar in that they are businesses that are run by one person. However, the two are different entity types, so they differ from one another in significant ways. For a long time, LLCs could only be formed by two or more members, until the single member LLC came along. Now one person can run an LLC, and still get all of the asset protection from a regular LLC.

A sole proprietorship, on the other hand, is a business entity run by one person, but without the asset protection of an LLC. The business owner is still tied to the business, legally. This entity is simple and inexpensive to choose and operate whereas an LLC can be pricier and more complicated to keep going.

For more information, please see my related article on How to Form an LLC.

Got a question for Deborah? Ask it in the comment section.

Are you looking to open a small business? Here are a few more helpful articles from Deborah Sweeney to get you started:

10 Things to Know When Starting  a Business in 2014 
Should I Form a Manager-Managed LLC?
What is an EIN and Why Do I Need One? 
Do I Need a Business License?
How to Form an LLC

Image credit: Flickr user Phillip Taylor