Can You Start a Business Without an LLC?

Can you start a business without an LLC? Yes! You could launch a business online today as a sole proprietor or create a partnership for your business without forming an LLC. However, another question might be, should you start a business without an LLC? That depends on your business goals, financial structure, and personal assets. 

For most business owners, the time it takes to form a business entity pays off significantly in the long run. Read on to understand the options for businesses without an LLC and why you might want an LLC for your company. 

How to Start a Business Without an LLC?

To start a business without an LLC, the simplest path is to do nothing and start operating the business. You can launch a sole proprietorship without any legal filings. Depending on the business, you might need business licenses or permits. With this option, you miss some key protection. Here are alternatives to an LLC you can consider, with the pros and cons of each.

1. Sole Proprietorship

A sole proprietorship is an unincorporated business. As soon as you decide to create and run a business on your own, you’ve created a sole proprietorship. You’re personally liable for all business expenses and liabilities with a sole proprietorship. You’re also responsible for reporting all business income on your income tax return and paying self-employment tax. 

By definition, a sole proprietorship only has one owner. You don’t need to file any specific forms or annual reports with the government for a sole proprietorship, making it an easy business to establish and dissolve. While sole proprietorships are popular with small business owners and contractors, they don’t offer the liability protection of an LLC. 

The advantages of a sole proprietorship are the ease of setup and administration. The major disadvantage of starting a business as a sole proprietor is the lack of liability protection, which could expose your personal assets to business liabilities. 

If you start a business without money, you might choose a sole proprietorship. For example, you could start a handyman business, but if your ladder falls and breaks a window at a client’s house, you could be personally liable for the damages. 

2. Partnership

A general partnership is formed by two or more individuals joining to form a business together. With a general partnership, the partners agree to share a jointly-owned business’s responsibilities, assets, profits, and financial and legal liabilities. Partnerships may be divided equally, or one partner may own the majority of the business. 

In the case of a limited partnership, one partner has unlimited liability. This person is called the general partner. The other partners, called the limited partners, have liability limited to their investment in the business. Limited partners also tend to have limited control over the company. 

Profits in partnerships are passed through to personal tax returns. The general partner with unlimited liability must also pay self-employment taxes. The company’s precise relationship, percentage ownership, and control are documented in a partnership agreement or operating agreement. 

Like a sole proprietorship, you don’t need to file any specific documentation to form a partnership. For that reason, partnerships are easy to create and dissolve. However, you also lack liability protection, and both partners could be liable for business debts or risk personal assets in the case of a lawsuit. 

The advantage of a partnership is simplicity. You and a partner can decide to start a business and don’t need to file anything. The disadvantage of starting a business as a partnership is the lack of liability protection. Each partner is liable for the partnership’s debts. Likewise, if the partnership doesn’t have a clear operating agreement, there could be disagreements over operations, management, profit distribution, or other business decisions. 

3. Corporation

A corporation is a legal business entity. That means it exists independently of its owners. A corporation can be made up of individuals, groups, or other corporations. In addition to conducting business, a corporation can own property, assets, and liabilities.

This means corporations can profit, be taxed, and be held legally liable independent of the owners. Business owners often choose to open corporations for strong liability protection. 

Corporations can also be more costly to form and maintain. They require additional filings and must meet specific legal requirements. Generally, a corporation is the best choice for large businesses or businesses that plan to offer shares one day.

Two types of corporations are recognized by the IRS: C-corporations and S-corporations. 

​​A C-corporation is taxed separately from its owners, and it must file a corporate tax return (Form 1120) and pay taxes at the corporate level. This can also mean double taxation for owners. 

An S-corporation generally is not taxed separately, instead is a pass-through entity. An S-corporation must file an informational federal return (Form 1120S) but generally doesn’t pay income tax at the corporate level. 

The advantage of a corporation is that it offers the strongest legal protection. Corporations are also advantageous if you plan to grow the business and bring in additional shareholders in the future. The disadvantages of starting a business as a corporation are the additional startup and maintenance expenses, and accounting and paperwork required to maintain the corporation in good standing. 

Why Start a Business with an LLC?

A limited liability company or LLC offers liability protection similar to a corporation, with the simple administration of a sole proprietorship or a partnership. LLCs are fast and generally inexpensive to create and maintain. You will file with the Secretary of State and pay a filing fee between $40 and $500, depending on the state. 

These business entities can protect the owner’s personal assets while adding legitimacy to the business. Whether you want to sell on Amazon or start an LLC as a creator to protect personal assets, an LLC offers a simple, fast, and low-cost setup.  

There are significant advantages and benefits of starting an LLC. You could even have an LLC without a business. Here’s an overview of why this business structure might be best for your company. 

1. Liability Protection

In case of legal issues or debts related to the business, the owner’s personal assets are typically protected. This means that if there is a court case against the business or any other issue, your personal savings, home, and property are protected. 

2. Pass-Through Taxation

LLCs benefit from pass-through taxation, which means that the business itself does not pay taxes. Instead, the profits and losses of the business are reported on the owners’ individual tax returns. This simplifies tax preparation and accounting and helps you avoid the double taxation corporations face (corporate tax plus individual income tax). 

3. Easy Formation and Maintenance

Forming an LLC is relatively straightforward and typically involves filing the necessary paperwork and paying the required fees. Additionally, the ongoing maintenance and record-keeping requirements for an LLC are generally less burdensome compared to other business structures, such as corporations. While most states require LLCs to file a simple annual report, that’s usually the extent of the required paperwork. 

4. Flexibility in Management and Ownership 

An LLC business can have multiple owners, known as members, who can either manage the company themselves or appoint managers to handle day-to-day operations. This offers greater flexibility in creating a management structure that suits your business. 

With an LLC, you can add or remove members at any time, making it simple to buy out a member or adapt the structure to changing business needs. You can also opt to be taxed as an S-corporation, offering additional potential tax savings for owners in certain cases. 

5. Credibility and Professionalism

Operating as an LLC signifies to clients, customers, and partners that the business is established and serious about its operations. You can create a website, business cards, and other materials with the official company name. You’ll also be able to apply for an employer identification number, making it easier to open a business bank account and hire employees.  

Choosing the Best Structure for Your Business

You have options in business formation. And you also have the option to switch business structures. If you’ve been operating for years as a sole proprietorship or a partnership, you could still form an LLC. 

A limited liability company can add credibility to your business while protecting your personal assets. With simplified administration and fast filing, forming an LLC could be the next step for your company. Get doola’s fast formation services to form an LLC in all 50 states. doola will also help you in applying for an EIN and opening a business bank account so you can focus on building your business. 

FAQs