Sole proprietorships and limited liability corporations are both small business structures, but LLCs offer legal and tax protections that sole proprietorships do not, including limited personal debt liability, increased access to capital and easy ownership transfer, according to LegalZoom. However, LLCs require more paperwork and are more expensive to form than sole proprietorships.
Sole proprietors report business or taxable income on their own personal tax documents, whereas LLC members utilize a hybrid of partnership and corporate company structures in order to report business income separately from personal income, notes Bloom, Bloom and Associates, P.C. Investors can invest in LLCs more easily because creditors cannot hold them personally responsible for company debts. Sole proprietors can lose personal property such as houses or cars to creditors if their businesses go into debt.