In: Accounting
Individuals who are sole proprietors or who have formed single-member LLCs report business income on Schedule C of Form 1040. Provide information as to why sole proprietors would benefit from organizing their businesses as single-member LLCs. Are there any liabilities that you would still retain by the LLC status? If so, please explain.
The main benefit of single member LLC over sole properietorship is the concept of limited liability. In case of an LLC, the shareholder is not personally liable for the debts of the business. The extent of his/her liability is the amount of equity that the shareholder has in the business, which means that he/she can't be held accountable for any additional debt and operating liabilities that the company has.
The major disadvantage is increased paperwork and hassle. LLCs are required to publish many documents such as Articles of association and annual reports which is not required in case of a sole proprietorship.
Liability:
Every partner of an LLC would be liable, for the purpose of the business of the LLP, an agent of the LLP but not of the other partners. Liability of partners shall be limited except in case of unauthorized acts, fraud and negligence. But a partner shall not be personally liable for the wrongful acts or omission of any other partner. An obligation of the limited liability partnership whether arising in contract or otherwise, is solely the obligation of the limited liability partnership. The liabilities of LLC shall be met out of the property of the LLC.