LLC vs sole proprietorship: which one fits your business?

LLC vs sole proprietorship comes down to one question: do you want a separate company, or do you want to do business in your own name? A sole proprietorship is just you, so every contract, debt and account is personally yours. An LLC is a company you own, with its own name, its own accounts and liability that stays with the company. For founders outside the U.S., the LLC is also what gets you a U.S. business at all.

What is the difference between an LLC and a sole proprietorship?

The IRS defines a sole proprietor as someone who owns an unincorporated business by themselves. There's nothing to form: you trade under your own name. An LLC (limited liability company) is formed with a State by filing the Articles of Organization, the document that creates the company.

How are they taxed: LLC vs sole proprietorship?

By default, closer than most people think. A U.S. sole proprietor reports business profit on Schedule C of their personal Form 1040. A one-member LLC is, by default, a disregarded entity for federal income tax, so the IRS looks through it to the owner. An LLC with two or more members is a partnership by default, and either kind can elect to be taxed as a corporation with Form 8832.

For an owner outside the U.S., a one-member LLC owned by a foreign person has its own yearly filing: see Form 5472. Where you pay tax depends on where you live and what the business does, not on the State where you form it.

Why do founders abroad choose an LLC?

Because a sole proprietorship can't give you a U.S. company. Clients, platforms and banks that want a U.S. business want an entity with a name, an EIN and an account in that name. Freelancers and consultants in Germany and France form one for that reason.

• Separation. Business money in business accounts, personal money in yours.
• Liability. The company's obligations stay with the company, within the limits of the law.
• Partners. Add members as you grow; see single-member vs multi-member LLC.
• Privacy. New Mexico's Articles don't have to list owners, so your name stays off the public record.

Comparing the LLC with the other company type, the corporation, is a separate question: LLC vs corporation.

When is a sole proprietorship enough?

When you're testing an idea alone, in your own country, with small amounts and no need for a U.S. company. Once you sign with U.S. clients, sell through U.S. platforms or take on a partner, the LLC is the cleaner structure. Consultants and agencies make that switch most often: see a U.S. LLC for consultants and agencies.

How do you form the LLC?

With EXNNA it takes about two minutes: a company name, two backups, the number of members and an email. No ID documents are needed. You sign the service agreement online and pay in U.S. dollars or your local currency, where available, by card. The State usually approves in 1–3 business days.

You get the Articles of Organization and an Operating Agreement in PDF and editable DOCX. New Mexico asks for no annual report and no annual State fee. See our pricing or form your LLC online.

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