What are the main differences between LLC and sole proprietorship?

A sole proprietorship is the simplest business structure where the owner and business are legally the same entity. This means the owner has unlimited personal liability for business debts and lawsuits, putting personal assets like a home or savings at risk. It requires minimal paperwork and setup costs. An LLC, or Limited Liability Company, creates a separate legal entity that protects the owner's personal assets from business liabilities. This is the key advantage. An LLC requires filing articles of organization with the state and paying associated fees. Both structures offer pass-through taxation, meaning profits are reported on the owner's personal tax return. An LLC generally provides more credibility with customers and lenders, while a sole proprietorship is simpler and cheaper to maintain.