One of the most common questions I hear from new business owners in Orlando is whether they should form an LLC or just operate as a sole proprietor. It sounds like a simple question, but the answer depends on what you do, what you own, and what kind of risk you are comfortable with.
I am going to walk through the basics of both structures so you understand the tradeoffs. But I want to be clear up front: I am a tax professional and business consultant, not an attorney. This is general educational information. Every situation is different, and you should consult with a qualified professional - lawyer, accountant, or both - before making a decision about your business structure.
The simplest starting point: Sole Proprietorship
A sole proprietorship is the default structure. If you start doing business as an individual without filing any formation paperwork with the state, you are a sole proprietor. There is no separate legal entity. You and your business are the same person in the eyes of the law.
The upsides are straightforward. No formation cost. No annual fees. No separate tax return for the business. You report your business income and expenses on Schedule C, which goes right on your personal Form 1040. If you are just starting out, testing an idea, or working part-time as a freelancer, sole proprietorship is often the simplest way to go.
The downside is the big one: personal liability. If your business gets sued or cannot pay its debts, creditors can go after your personal assets - your house, your car, your savings. There is no legal wall between you and the business.
The step up: Limited Liability Company (LLC)
An LLC creates that wall. It is a separate legal entity registered with the Florida Division of Corporations. If the business is sued, the LLC itself is on the hook, not you personally. That protection is the main reason most small business owners choose an LLC once they have assets to protect or customers who might sue.
Forming an LLC in Florida involves filing Articles of Organization with the state, paying a filing fee (around $125), and designating a registered agent. You will also need to file an Annual Report each year, which currently costs $138.75. These are small costs compared to the protection an LLC provides.
For tax purposes, a single-member LLC is treated the same as a sole proprietorship by default. You still report everything on Schedule C. The difference is the legal protection, not the tax treatment. Multi-member LLCs file a separate partnership return (Form 1065) and issue K-1s to each member.
Key differences at a glance
| Factor | Sole Proprietorship | LLC |
|---|---|---|
| Formation cost | None | ~$125 filing fee |
| Annual cost | None | $138.75 Annual Report |
| Personal liability protection | None | Yes (separate legal entity) |
| Tax filing | Schedule C on Form 1040 | Schedule C (single-member) or Form 1065 (multi-member) |
| Self-employment tax | 15.3% on net earnings | 15.3% on net earnings (same) |
| Paperwork burden | Low | Moderate (formation + annual report) |
| Professional credibility | Moderate | Higher (LLC signals a formal business) |
When sole proprietorship makes sense
- You are testing a business idea and do not have significant assets yet.
- You provide low-risk services where lawsuits are unlikely.
- You are the only person in the business and plan to stay that way.
- You want to minimize startup costs and paperwork.
When an LLC makes sense
- You have personal assets (home, savings, investments) you need to protect.
- Your work involves customer premises, contracts, or higher liability risk.
- You plan to hire employees or bring on partners.
- You want the business to build its own credit and reputation.
- You are in a regulated industry or need licenses that require a formal entity.
What about an S-Corporation?
Once your business is consistently profitable, you might hear about S-Corp election. An S-Corp can save you money on self-employment tax by letting you split your income into salary and distributions. But it comes with more paperwork, payroll requirements, and stricter rules. Most businesses do not benefit from S-Corp status until they have at least $60,000 to $80,000 in net profit. It is worth discussing with a tax professional when you reach that point, but it is not a decision you need to make on day one.
How MLPS can help
MLPS works with small business owners in Orlando every day. We help with business formation paperwork, tax planning for your chosen structure, bookkeeping setup, and the annual reporting requirements that keep an LLC in good standing. We can also help you think through which structure fits your situation and connect you with an attorney if legal advice is needed.
If you are thinking about starting a business or changing your current structure, give us a call. We will walk through the numbers and make sure you understand what you are getting into before you file anything.