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Starting a Business:  Limited Liability Company vs. Sole Proprietorship

Incorporating your business as a LTD is an important step for business owners which will set you apart from your competition.

The primary difference between a Limited Liability Company (LTD) and a Sole Proprietorship (Business Name) is that you receive some liability protection by incorporating as a LTD. This is fundamental for business owners who have personal assets — especially if they use those assets to conduct some of their business. 

We will examine some other advantages to forming a LTD vs. a Business Name.

FUNDRAISING 

Every business needs some cash to run smoothly and perhaps a line of credit to buy supplies. As a Business Name, you would need to use your personal finances or take out loans, which could negatively impact your credit score.

However, as a LTD, you can take a loan under the company name and receive some legal and financial protection. Additionally, having an LTD means you can pursue other avenues for funding later on at lower personal risk.

PERSONAL ASSETS

If you choose to register a business name, your personal property could be at risk for various reasons. For example, if you default on your loans, you may be forced to liquidate your personal assets.

Owning a LTD can be the difference between retaining and losing personal property when creditors seek restitution if you find yourself in financial trouble. In this case, your liability would only extend as far as the business assets, as long as you maintain appropriate separation between your business and personal finances. Additionally, creditors would not be able to seize your LTD’ property if you had personal financial troubles.

PARTNERSHIP 

As you scale your business to profit or get additional funding, you may find that you want to take on additional partners. Bringing in business partners always comes with some degree of risk. 

As a LTD, your incorporation documents can be amended to set out each partner’s role and responsibility. If you remained a Business Name, you’d have to upgrade to a LTD if you wanted to bring on additional owners. This process can be much more complicated and cumbersome compared to adding members to a LTD.

If you’ve decided that forming a LTD is the best option for your new business, you can incorporate today with AffordableLaw and get your Certificate of Incorporation delivered to you within 7 working days.

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