LLC or sole proprietor for a trade business?
When you start out on your own, the simplest option is to just start working. That makes you a sole proprietor by default. Many trades later move to an LLC - or start with one. Here is the difference that matters.
Sole proprietor
There is nothing to form. You and the business are the same thing legally. It is cheap and simple, but every business debt and every claim against the business is a claim against you personally - your savings, your car, potentially your house.
LLC
A limited liability company is a separate legal entity. Done properly, the business's debts and liabilities stay with the business. You still pay tax on the profit through your personal return by default, so the tax side can stay simple.
Why it matters more in the trades
Trades work happens in people's homes and on job sites. Things get damaged, people trip, work gets disputed. Insurance is your first line of defence; an LLC is a second one if a claim ever goes beyond it.
The catch: you have to act like a company
An LLC protects you only if it is run as a separate business. That means:
- a separate bank account, used only for the business,
- contracts and invoices in the company's name,
- annual reports filed on time,
- no paying personal bills from the business account.
Costs
Forming an LLC means a state filing fee and, in many states, an annual report fee. Compare that with what you would stand to lose in a single bad claim.
What about taxes?
By default a single-owner LLC is taxed like a sole proprietor. As profits grow, many owners look at electing S corporation tax treatment, which can reduce self-employment tax. That is a conversation for your accountant once the numbers justify it.
Licences and names
Your trade licence may need to be held by, or linked to, your business. Check that the name on your licence, insurance and contracts matches your LLC exactly.
For most tradespeople with a van, tools and customers' homes to work in, an LLC is a sensible step - and Service Boss can file it for you in any state.