Differences Between Sole Proprietorship and Limited Liability Company

Sole proprietorship and limited liability company are two different types of businesses, and there are many differences between them. Factors such as the size of the business, its scope, costs, and the management model preferred by the owners can determine which type of business a business chooses.

Here are some key differences between sole proprietorship and limited liability company:

Liability: A sole proprietorship is operated by a single person and all debts, tax liabilities and legal responsibilities of the business are on this person. In a limited company, the partners bear limited liability only with the capital they have invested.
Management: The sole proprietorship is managed by a single person and decisions are taken alone. In a limited company, the partners have equal rights in the management and the decisions are taken by majority vote. In a limited company, the partners contribute to the financing of the business with the capital they invest.
Tax: The sole proprietorship is subject to personal income tax rates and the profit of the business is declared in the income of the business owner. In a limited company, the profits of the business are taxed at the company's corporate tax rate.
Costs of Incorporation: Incorporation costs of a limited liability company may be higher than a sole proprietorship. A formal process is required for the establishment of a limited liability company and a certain capital share must be invested.

For these reasons, small-sized enterprises generally operate as sole proprietorships, while medium and large-sized enterprises They generally operate as limited liability companies. However, because every business has different needs and circumstances, business owners should choose the type of business that best suits their needs.

Differences Between Sole Proprietorship and Limited Liability Company