Navigating Small Business Structures: LLCs vs. Sole Proprietorships

0:00:01 – Announcer

You are listening to the National University Podcast.

0:00:09 – Kimberly King

Hello, I’m Kimberly King. Welcome to the National University Podcast, where we offer an holistic approach to student support, well-being and success: the Whole Human education. We put passion into practice by offering accessible, achievable higher education to lifelong learners. On today’s show, we’re talking about LLCs or sole proprietorships, especially for entrepreneurs and a really interesting topic for today. But according to a recent article in UrbanSplatter.com, starting a business in 2025 means making smart decisions early, and one of the first is choosing your business structure. Two of the most common options are limited liability companies, LLC’s and sole proprietorships. Both of these have benefits and downsides, and your choice can impact taxes, liability, credibility, and growth. Today’s show breaks down the differences in detail, helping you decide which is best for your journey. Stay with us.

On today’s episode, we’re discussing LLCs or sole proprietorships for entrepreneurs, and joining us is Dr. Kentaya Beeler. Dr. Beeler holds a BS in accounting, a master’s of taxation and a PhD in business with a specialization in accounting. Dr. Beeler’s work experience began in New York City, where she worked as an external auditor of financial institutions for a subsidiary of the State of New York Department of Treasury. She transitioned to the public accounting industry as a tax accountant after obtaining her master’s in taxation, and then eager to expand her horizons into higher education. Dr. Beeler obtained her PhD in accounting and has worked as a professor of accounting over the last 18 years, and we welcome her back to the podcast. Dr. Beeler, how are you?

0:02:05 – Doctor Kentaya Beeler

I’m good. And you, how are you?

0:02:07 – Kimberly King
Oh, good. I’m excited to chat with you again. It’s been a minute, so why don’t you fill our audience in a little bit about your mission and your work before we get to today’s show topic?

0:02:20 – Doctor Kentaya Beeler

Well, as you’ve read my educational accomplishments, I am all about numbers and accounting and really about educating the next level of accountants. I also do some work within communities and business incubators to help individuals prepare for success with their business ideas, as well as just being tax compliant. So that is my life work within my educational accomplishments and what I do in the communities, as well as on campus.

0:02:59 – Kimberly King

I love it. I love that you are working in an area that oozes your passion, and you can hear that in your voice. Today, we are talking about LLCs or sole proprietorships for entrepreneurs, and so, Dr. Beeler, can you briefly explain what a sole proprietorship is and an LLC, are the difference and how they are different for entrepreneurs?

0:03:27 – Doctor Kentaya Beeler

Okay. Well, a sole proprietor means just that sole, one owner, an individual owner. A lot of times it starts off as a hobby and then it goes on to be a business, and so when you first want to set yourself up as a business owner, a sole proprietorship is most common, meaning that they are a single business owner. But as you start to acquire more assets and you’re starting to scale your business, many individuals look to incorporate their business, and one of the most common is an LLC, which is an acronym for Limited Liability Corporation. And so it is normally the first step that a entrepreneur moves into when they want to incorporate their business. Now, limited liability company can be more than one owner, so it is not limited to just a sole proprietor. A limited liability corporation is an actual corporation and it can have one or many owners. So that’s the difference in between sole proprietor and LLC.

0:04:57 – Kimberly King

Thank you. I feel like I’m in your class right now, so this is very interesting knowledge here. So why is the choice between an LLC and a sole proprietorship such a big deal for new entrepreneurs?

0:05:11 – Doctor Kentaya Beeler

Well, it’s really about protecting your assets, your revenues, the monies that you bring in or what you have purchased to operate your business. And so, when you just start off again like a hobby, let’s just say it’s around Halloween now. So, let’s just say someone makes costumes for kids, or treat bags. They may just do it with the parent-teacher kind of conference and they want to do it with the kids in the classroom, but then that item may become more popular. So, then they actually want to legitimize their business.

When you have not incorporated your business, then the limited liability of a corporation the LLC is not there, it does not protect. So that limited liability means that if a child gets sick or a parent decides to say the child had an allergic reaction to the treat bag or some of the fabrics from the costume, they can actually sue you. When you are a sole proprietor, all of your personal properties, assets, bank accounts, things like that are subject to the lawsuit, versus when you incorporate your business as a limited liability corporation, they can only- the person that sues the parent in this case- they can only see the maximum amount that are the assets in your corporation.

So, for example, in your personal bank account you have $10,000. Without being a limited liability corporation, the parent could sue for the entire $10,000 plus the value of your home, depending on how much they want to sue you for. But if the business owner incorporates as a limited liability corporation, and the bank account only has $500 in it, you only have some items from the Dollar Tree… So, they can only sue up to what the company owns. So I hope that is a more layman’s term example to show you the difference and why incorporating versus just operating as a sole proprietor could put your assets or your finances at risk.

0:07:49 – Kimberly King

But thank you for explaining that, and we live in a very litigious society these days, so I think that is extra protection- having an LLC. How do taxes work differently for a sole proprietorship versus an LLC?

0:08:08 – Doctor Kentaya Beeler

So not necessarily a benefit, but the structure of how you’re taxed. So, if you are a sole proprietor and you are not incorporated, you’re going to file those on your regular 1040 tax return. There is a form called a Schedule C and you would put the income that you make from the parents and the treat bags or the costumes on your personal return. If you have a regular job, it would add to your W-2, and it will be all on the same return.

Now, a little convoluted, but I’ll see how I can explain this the best way. If you are still a one business owner and you incorporate your business as a single member limited liability corporation, that means you still are by yourself but you go and you incorporate your business for the limited liability protection, the IRS considers you a disregarded entity, meaning that they don’t recognize you for tax purposes to file a separate corporate return.

So yes, you are a corporation. You do benefit from the limited liability protection as it relates to future liability or lawsuits. However, for filing taxes you do not have to file a separate corporate tax return. You still would file it on your Schedule C attached to your 1040. So for tax purposes, whether you’re incorporated as a single owner or you are unincorporated as a sole proprietor, you still would file it on your personal return. However, because limited liability corporations can be one or more members, if there’s more than one owner, then they do have to file a corporate return, which could be a 1065 partnership return or 1120S corporation return or 1120C corporation. So it just depends how many owners. But as it relates to just one owner, there would be no separate tax filing.

0:10:43 – Kimberly King

Wow, thank you. You explained that well in layman’s terms, so thank you. What are the costs of setting up and maintaining a sole proprietorship compared to an LLC?

0:10:54 – Doctor Kentaya Beeler

Well, that will vary on the state that you operate in. Each state has their own fee structure-

0:11:04 – Kimberly King 

California being the highest. I would imagine, right?

0:11:06 – Doctor Kentaya Beeler 

Maybe, so. I haven’t compared them lately to New York or other bustling business areas, but that amount is going to change. You normally can go to your state department of revenue to find out the fee structures for a limited liability corporation or if you are doing a business as a DBA, they may have a fictitious corporation fee. So it depends on the state’s actual incorporation fee structure.

0:11:46 – Kimberly King

Okay, good call. I guess I didn’t realize that it would depend on that. For a freelancer or a side hustler is a sole proprietorship usually the better choice?

0:11:58 – Doctor Kentaya Beeler

Well, it’s your only choice if you decide not to incorporate. So it just means that if you are doing a side hustle and you’re operating as a business, you are, in common terms, called a sole proprietor.

0:12:17 – Kimberly King

Okay, and I think you kind of said that in the very beginning about you know the difference. There’s a hobby versus a business, and especially if you’re single or as a single member, I guess. So that’s a good interesting switch there to think of it. Are there industries where an LLC is a must-have compared to a sole proprietorship?

0:12:42 – Doctor Kentaya Beeler

Well, anytime that you want to open a bank account and you want to start operating a business, you’re going to need some level of paperwork and most often, when you are dealing with clients, they’re going to want to either pay you with a check or electronic funds, which will all filter back to banking, and most banks want some level of incorporation if you don’t want the money to come to you personally. So, in that case sometimes you can do a fictitious name. But if you really want to be legitimate and again, limit your risk of exposing your personal finances and assets, you’re going to incorporate yourself, at the least a limited liability corporation.

0:13:43 – Kimberly King

Good advice there, and how does each structure affect an entrepreneur’s ability to raise capital or attract investors?

0:13:52 – Doctor Kentaya Beeler

Well, investors want to know that they can get their money back. If that’s a return of a dividend, meaning that they’re going to invest, put capital into your business and they’re looking for a return on the net profits of the business, then they want to know that you are a legitimate structure and so it impacts your ability to find people that trust you, trust your business idea. If you haven’t done the work to legitimize your business, then you’re not going to attract individuals that have money that they want to see a return on. It’s just not going to work because you haven’t put the minimal capital in to even incorporating your business, which can be small thousands, maybe one or two thousand, but it can be as low as um fifty nine, sixty nine dollars, depending on the state that you want to incorporate in. So if you haven’t spent two thousand, how can you expect someone to invest ten, thirty, a hundred thousand in your business idea?

0:15:07 – Kimberly King

Yeah. That’s a good point as well. What are the administrative and then the paperwork differences between running a sole proprietorship and or an LLC?

0:15:16 – Doctor Kentaya Beeler

Well, an LLC is going to require you to have articles of incorporation. They’re going to ask you in some states to have a board of directors so that you’re not making all of the fiduciary decisions just based on your own recognizance, and so they normally ask for you to have that structure, board minutes, banking, like I say, employee identification number from the IRS, state recognized paperwork, versus being a sole proprietor, you can just- the minimum gets you a fictitious name, or operate as a hobby and do business as in another name. So that’s the difference.

0:16:09 – Kimberly King

Okay, and can you switch from a sole proprietorship to an LLC later on? And then what does that process look like?

0:16:18 – Doctor Kentaya Beeler

Yeah, so remember you as a sole proprietor means that you are just a one-person business owner. That could be camouflaged as a hobby, or it can be a name that you’re putting a title on your business. So a sole proprietor is just a one-person business owner. So, yes, you would want to scale your business or, in order to really put yourself in a good position, you will want to move up to a limited liability corporation or a C corporation, but you will want to incorporate your business so that you’re performing in the business environment as an incorporated entity that is operating sound financial practices.

0:17:12 – Kimberly King

And then, how did these structures impact business credibility or how customers perceive the business?

0:17:20 – Doctor Kentaya Beeler

Well, we know that social media and social presence is more impactful now than your traditional, get to know a person, and so your brand precedes your introduction a lot of the times to customers. So if you don’t have a website, if you don’t have an incorporated name… If you don’t have a Instagram, Facebook, social media presence, if you don’t have some type of logo for a business card or digital presence, then it impacts how future businesses are going to want to do business with you.

And going back to the example of Halloween coming and selling costumes, you know, you may have our treat bags, you may have a bakery that may be interested in you coming in and putting your treat bags at the front just to give a small business an opportunity. But if you don’t have a sense of branding on the packages which requires you to incorporate your business and connect it to a bank account and connect it to a website, then you lose the credibility and overall you lose the opportunities to attract the ability to scale your business and to be more of a brand name than just a Miss King that makes you know treats. They really want to know your brand.

0:19:05 – Kimberly King

And that you know everything you’re mentioning about the website and the social media. Those all sound like write-offs. So my next question is can you talk about that the financial benefits of an LLC versus a sole proprietorship when it comes to writing off your expenses?

0:19:23 – Doctor Kentaya Beeler

I don’t necessarily think that there’s a difference with the structure other than the LLC, creating limited risk to your bank account where you’re collecting the revenue.

But what it will do is it will help you with employing professionals that actually safeguard your ability. So you will see more expenses, like the incorporation fees, the legal individuals that you paid to put your agreements together, operating agreements together, your funds that you are spending on state fees to incorporate. You’re going to have a little bit more expenses during incorporating your business for that versus just a hobby.

So, in continuation, you’re going to have limited expenditures when you’re just operating a hobby as it relates to the operating fees of structuring your business. But that does not minimize the cost to- using the Halloween business again- the cost to secure the materials for the actual costumes, the sewing machines, the candies to put in the treat bags, the cost of the treat bags, the logo preparation- all of those costs are still going to be there, whether you are a sole proprietor or whether you are a LLC. So those are the things that are not going to change whether you have a LLC or a sole proprietorship.

0:21:21 – Kimberly King

Okay, I love your examples. What is the biggest mistake entrepreneurs make when choosing between an LLC and sole proprietorship?

0:21:27 – Doctor Kentaya Beeler

The biggest mistake of a entrepreneur that is starting out is that they dismiss the importance of incorporating because they’re very excited about the idea that they have, but some miscalculate the amount of capital it takes to really properly launch your business to become successful, and so I always recommend that you go into incorporating at minimum of an LLC and spend the extra money on an accountant to make sure that you’re setting up the right type of corporation, also meeting with an attorney to make sure your structure of your contracts are correct.

It’s just not the materials that you’re buying or the digital presence. It is also making sure that you have structured your business in a way that, when the masses that the entrepreneur is looking to attract, they are able to safeguard themselves from individuals that may see them as a opportunity to have a lucrative lawsuit.

0:22:50 – Kimberly King

Well, thank you so much. This was very interesting and I know you know a lot of people are confused about the difference. So we appreciate your time and your knowledge, of course, and if you want more information, you can visit National University’s website at nu.edu. And again, thank you so much, Dr. Beeler, for your time and for all of your information.

0:23:13 – Doctor Kentaya Beeler

Thank you so much for the invite again. This was wonderful. And to all the entrepreneurs out there businesses are possible, but make sure you’ve done your research and you are setting your business up correctly so that you are not the subject of loss because you didn’t do your work in advance. So you can make money. You can make businesses. We’re coming into an economy where it’s encouraged to be an entrepreneur. Just make sure that you’re planning for success and safeguarding your monies.

0:23:52 – Kimberly King

Excellent advice. Thank you so much. You’ve been listening to the National University Podcast. For updates on future or past guests, visit us at nu.edu. You can also follow us on social media. Thanks for listening.