Starting a business involves far more than picking a product or service to provide your customers. You also need to make sure your business is set up for success before you open your doors. And one of the most essential steps is to picking a business organization type for your company. Some of the most popular options for individuals starting a business are sole proprietorships and limited liability companies (LLCs). Choosing the right structure can help you mitigate your risk should you file for bankruptcy with a Milwaukee business bankruptcy lawyer. Here’s what you need to know about both options.
What Is a Sole Proprietorship?
Sole proprietorships are businesses that are owned and operated by a single person who doesn’t want to pursue a separate business identity. It’s the easiest type of business to start since there’s minimal separation between yourself and your business. Sole proprietorships are ideal for business owners operating in industries with minimal professional liability risk like authors, musicians, graphic designers, and others. All you need is your personal Social Security number and a willingness to run your own business.
But that lack of separation does come with one major downside. If you take on debt as a business owner and your business fails, you could personally be liable for all of your debts. If you declare bankruptcy as a sole proprietor, your personal assets like your house, car, and more could be used to settle your debts.
What Is an LLC?
LLCs are treated as a separate entity and are designed to reduce personal liability for business debts if the business fails. By forming an LLC, you’re effectively saying the business that you own is separate from your personal finances. That means creditors will typically only be able to use the business’s assets to settle outstanding debts if you file for bankruptcy or if a customer sues your company for damages.
LLCs can be used for both single-person companies and large multi-partner companies without issue. And they’re ideal for businesses that may have a greater amount of liability. Companies in industries like manufacturing, property management, and other similar sectors can benefit from forming LLCs.
Which Is Right for Your Business?
Both sole proprietorships and LLCs can be a good fit for certain types of businesses. But LLCs can dramatically improve your liability protection over the life of your company. If there’s a chance that a customer might sue your business for defects or other issues, or you’re worried about the long-term success of your company, starting an LLC may be a better choice.
With an LLC, your personal assets will be better shielded against lawsuits and bankruptcies. Keep in mind that your Milwaukee business bankruptcy attorney can help you understand how each type of business will impact your situation. Consult with them before making your decision.
Schedule a Consultation Today
At Kerkman & Dunn, our experienced Milwaukee business bankruptcy attorneys can help you figure out where your business stands and how best to mitigate your risk should you need to file for bankruptcy in the future. Contact us today to schedule an appointment with one of our experienced attorneys.
