A simple, yet great explanation of what you should consider:

Sole Proprietorship

The positive: There is no easier way to launch a business than as a sole proprietor — basically, you just start working.

You ARE the business. Indeed, if you want to name the business something other than your legal name, you’ll need to file a “Doing Business As,” or DBA, name in the states in which you’re engaging in business. But that’s really all: It’s simple and inexpensive.  Even the taxes are easy: You pick up all the profits and losses of your business on your individual tax return, and you don’t need to file a separate return for the business.

The negative: A sole proprietor has zero liability protection. So, if someone gets sick from one of your vegan goodies, they can sue you personally. If they win, they will have access to all of your assets: your money, home and cars, among other assets.

If you were selling scarves instead of food, a sole proprietorship might be for you.  But any business with potential liability (that can’t be sheltered with insurance) should not be a sole proprietorship.

Limited Liability Company

The positive: The biggest benefit of the LLC over the sole proprietorship is that the LLC shelters you from liability.  A potential plaintiff would have to sue the LLC — and if he or she wins, the person would generally be limited to the assets of the LLC (not your personal assets).  A single-member LLC is taxed in the same way as a sole proprietorship: The profits and losses flow through to your individual tax return.  But, unlike a sole proprietorship, you can add one or more partners.  While you give up the simplicity of filing your business’s profits and losses on your own tax return at that point, the LLC still gives you the benefit of pass-through taxation.

The negative:  An LLC is a statutory entity, which means that you’ll need to file a certificate of formation (this document has different names in different states) and pay filing fees to set up the entity.  This is a simple process: You can generally find the directions to file, along with a sample form, on a state web site. Or you can work with a filing company that will charge a fee to process the filing.

This was a great simple explanation written by Lori Herberman for Entrepreneur.com. Please read the full article here: http://www.entrepreneur.com/article/241546

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