LLC vs. Sole Proprietorship: Which Is Best For Your Business? - Broke in London

LLC vs. Sole Proprietorship: Which Is Best For Your Business?

Guest post by Yasmin Hopkins

Selecting an appropriate legal structure is crucial for new business success, especially when expanding into a new country. Londoners launching ventures in America face challenges related to liability protection, taxes, and cross-border compliance.

Weighing options like limited liability companies (LLCs) against sole proprietorships involves understanding critical differences in formation requirements, owner liability, administrative burdens, credibility, and more. This article explains each option and other factors to help you make the ideal choice for your new business.

Understanding Your Options

  • Limited Liability Company (LLC)

An LLC shields your personal assets from business liabilities and debts. To create one formally, you need to file articles of organisation, appoint a registered agent, and have an operating agreement. Once you have your Employer Identification Number (EIN), you can apply for a Mercury bank account for foreigners. Your US LLC must have its own bank account.

LLC ownership is divided into ‘membership interests’ instead of company shares, offering greater flexibility in allocating ownership and control privileges. Forming an LLC requires more time and money compared to a sole proprietorship but provides liability limitations attractive to co-owners seeking capped risk exposure. LLCs may have an easier time obtaining loans or investments than sole proprietorships.

As a London resident, you can still fully own and operate a US LLC. Profits are typically taxed on a pass-through basis, meaning they are reported on the owners’ personal tax returns. However, an LLC can also choose corporation tax status, providing flexibility in tax treatment. Be aware that owning a US LLC can affect UK taxes and reporting.

  • Sole Proprietorship

A sole proprietorship is the simplest business structure, allowing quick market entry by bypassing the legal formalities required for partnerships or corporations. You can instantly start by obtaining licenses and permits and then begin trading under your own name without forming a separate legal entity. Sole proprietorships also involve less paperwork and maintenance requirements compared to other structures.

This administrative ease and low startup costs make sole proprietorships attractive to lone business owners. However, the owner assumes unlimited personal liability for all business debts and obligations. Any legal or financial issues directly impact your personal assets, whether in the UK or the US. For Londoners, this risk exposure could mean UK assets get pursued for US business troubles.

Advantages and Disadvantages



  • Limited personal liability protection for business debts and legal judgements
  • Access to pass-through taxation allowing profits or losses to be reported on personal returns
  • Flexibility to choose between pass-through taxation or S corporation status


  • More paperwork and legal compliance to set up and maintain
  • Annual state fees and franchise taxes
  • Potential double taxation of distributions in some international situations

Sole Proprietorship


  • Easy, fast and low-cost formation process
  • No ongoing paperwork or state fees
  • Full control over all business decisions


  • Owner has unlimited personal liability for business debts
  • Harder to raise investment capital
  • More challenging to establish credibility with lenders and vendors

Making the Right Choice: A Londoner’s Perspective

  • Factors to Consider

Industry risks, growth plans, and liability exposure should be carefully weighed. Additionally, preferred compliance complexity, administrative burdens, and tax implications must be assessed. High-risk sectors like construction may merit an LLC, while freelance writers may lean towards sole proprietorships.

LLCs also attract investors better. LLCs limit personal liability exposure from debts or lawsuits, but administrative filings cost more than operating as a sole proprietor. However, LLC profit distributions can offset increased filing and accounting fees.

  • Specific Considerations for Londoners

London entrepreneurs should understand the implications of their visa status if they plan to work in their US LLC. Certain business activities in the US may require a US visa. Additional challenges include finding American banking and payment services and avoiding double taxation. Using entities like LLCs also depends on the visa category.

Reporting cross-border assets and income is also complex. An accountant can manage taxes appropriately and legally minimise total rates. Accessing US financial tools can be challenging without domestic credit histories or social security numbers. It could be a significant hurdle even when starting your business on a shoestring budget.

Next Steps

Research LLC formation laws in specific US states further and learn sole proprietorship permits or license needs for your business industry and locations. US-based lawyers and accountants specialising in international tax and business law can aid you with personalised guidance.

Consider checking useful London-specific government websites like and organisations like the London Business Hub. These local resources may have the information you need to set up a business properly in another country.


In summary, while LLCs require more startup work, they offer liability protection and long-term flexibility that appeal to many Londoners establishing American ventures. On the other hand, sole proprietorships involve minimal administration but expose all personal assets to business risks.

Carefully weigh priorities like liability limitations, tax planning, reporting requirements, and costs before deciding. No option is inherently “best”—make an informed decision tailored to your goals and risk tolerance by seeking professional cross-border business guidance. The US market offers significant opportunities for Londoners with the correct legal structure.