What Is the Difference Between Incorporated & Sole Proprietorship?
The Internal Revenue Service defines a sole proprietorship as an unincorporated business owned by one person. An incorporated business is a legal entity with its own taxes and liabilities separate from the owners.
Types
There is only one type of sole proprietorship. Incorporated businesses have three types: the C corporation, the S corporation, and the limited liability company or LLC.
Features
Depending on the state, sole proprietorships might have to file only tax and "doing-business-as" forms. Incorporated businesses are legal entities that must file articles of incorporation forms.
Function
Sole proprietorships and incorporated businesses both help self-employed people figure out how much they are taxed every year, and in what areas they might be legally liable.
Benefits
A sole proprietorship does not cost a lot to start, and it can be transferred with the owner wherever he moves to. Incorporated businesses offer more protection for personal assets.
Raising Money
A sole proprietorship raises money through sales, personal savings, and loans. Owners of an incorporated business can do the same but can also issue bonds and stocks.
Considerations
All business owners should buy business insurance to protect them against lawsuits. Although incorporated businesses have some legal protection, the owner's personal assets can still be at risk.
