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Sole Proprietorship vs Independent Contractor

Sole Proprietorship vs Independent Contractor


What would you like to be a Sole proprietorship vs Independent contractor?

The term sole proprietorship and independent contractor has a very close relationship with each other. Most of you don’t know the real or any difference between the two. But both of these terms have different terms and conditions to be. So let’s try to disclose the point of differences between a sole proprietorship and an independent contractor.

What is a sole proprietorship?

If you are starting a business as one person, you’re automatically a sole proprietorship. Working any business on your own will be counted as a sole proprietorship. 

There are many videos and articles online that say everybody should be an LLC. But that’s not the truth for many very tiny businesses. One owner or business starting as a sole proprietorship is the most appropriate way to begin, but not in every situation.

Sole proprietorship beneficial or not

So what are the pluses and minuses of the default, a sole proprietorship? Well, first it’s the default, so you don’t have to do anything. You don’t have to pay fees to anybody and don’t have to hire an attorney. There is no need to file forms of some government. 

You exist automatically as a sole proprietorship. The other advantage is that you can have the same tax status as an LLC anyway. If you have the tax status as a pass-through entity where you declare your taxes to the IRS on your schedule, that’s the most appropriate thing for you. It doesn’t actually matter from a tax perspective if you’re doing an LLC or sole proprietorship. 

So what are the pluses and minuses of the default, a sole proprietorship? Well, first it’s the default, so you don’t have to do anything. startupbusinessbureau


Now, for a sole proprietorship, you actually still may need to file some forms. 

You may need to file a DBA, a doing business and registration, or trade name registration with your state, county, or other agency.

The big downside of a sole proprietorship is that you, as a human person, are personally liable financially for whatever happens to the business. So what does that mean? That means if your business goes bankrupt if it owes a bunch of debts to people, if someone sues because he does like what you did, you are personally liable for that so they can come after your personal assets.

Now, if you have no personal assets, maybe you don’t care. But if you have a house, if you have money that you received an inheritance, if your spouse has money, all those things can be attached to some lawsuit or debt collection.  

 Sometimes, they can go back and go after the future earnings to get a big debt settlement against you.  

 Then you’re going to have to keep paying that even after the business is gone.

What is an Independent contractor?

An independent contractor is like a service provider. He provides services to the companies or other people based on the contract. A contractor can earn money by completing tasks. As soon as the task is completed and payment is made, both parties have no liability.

Independent contractor is not an employee of any firm or company for which he is providing his services. A contractor is not liable to pay taxes but self-employment taxes.

Being a sole proprietor and independent contractor at the same time

Most people don’t know that they can be a sole proprietor or independent contractor or not? The answer is yes, you can. These are the two designations connecting to the same business. Both same liability factors same tax payment matters.

Most people don’t know that they can be a sole proprietor or independent contractor or not? The answer is yes, you can. startupbusinessbureau

Starting an LLC Limited Liability Company

Forming an LLC or limited liability company is something that any business in the United States can do. It is the way You can do it in every single state, all 50 states in the United States. Now, unlike a sole proprietorship, it costs money to form an LLC. If you do it yourself and file directly for the LLC on the website or fill out whatever forms and filing by mail with your state, then the fees are lower than if you use a filing service or hire an attorney to do it for you.

But you still have to pay the state’s fees. It could be $75. It could be hundreds of dollars. You also may need to do publishing requirements in some states, which can be hundreds and hundreds of dollars. There are a lot of fees that may not have thought about. 

Can a sole proprietor pay themselves?

Being a sole proprietor, you can not pay yourself a salary. All the profits you make can be considered salary, but it cannot specifically be called salary. But hiring any person as a sole proprietor for business purposes will be paid salary.

 Are you personally liable for your sole proprietorship?

If a sole proprietor is failed to pay the debts, his liability is unlimited. He can be sued for the payment of debts can be in the form of confession of his assets or future earning.

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