How Do I Decide Between Forming an LLC or Sole Proprietorship?

Sole proprietorship of a natural person, also known as sole proprietorship, is an organizational form of an enterprise. A sole proprietorship, referred to as a sole proprietorship, refers to a for-profit economic organization that is invested by a natural person and all assets are owned by the investor. Sole proprietorship is a very old form of enterprise, which is still widely used in business operations today. Its typical characteristics are personal investment, personal management, personal self-financing and loss.

Sole Proprietorship

A sole proprietorship is an enterprise that is individually funded, owned and controlled by the individual, that the individual bears the operating risks and enjoys all the operating income. Unincorporated natural person companies cannot independently bear

Sole proprietorship concept

A sole proprietorship refers to a business entity established in China in accordance with the sole proprietorship law, invested by a natural person, the property is owned by the investor, and the investor bears unlimited liability for corporate debt with his personal property.

Basic characteristics of sole proprietorship of natural persons

A sole proprietorship enterprise is one of the three basic forms of an enterprise. It has four basic characteristics, reflecting its differences from other enterprise forms, and also reflecting the basic attributes of this enterprise form. The basic characteristics of a sole proprietorship are:

1. A sole proprietorship is an enterprise invested by a natural person. This feature requires that the investment entity of a sole proprietorship must be a natural person. The investment form is a sole proprietorship, that is, one person's investment. The investment of a non-natural person and two or more persons does not meet the basic attributes of a sole proprietorship.

2. The property of a sole proprietorship is owned by the investor. This feature is determined by the previous feature. The sole proprietorship of an enterprise's property should only be owned by the investor and should not be owned by others. This establishes the basic property relationship of the sole proprietorship and determines its The operating results also belong to individual investors.

3 Investors in sole proprietorship enterprises bear unlimited liability for corporate debts with their personal property. This is because the sole proprietorship is owned by the individual investor, and the income is owned by the individual, and the corporate risk should also be borne by the individual; the investor's investment in the sole proprietorship's property and other personal property are inseparable, which constitutes a liquidation enterprise The basis of debt, and thus this form of responsibility, is an important feature of a sole proprietorship.

4 A sole proprietorship is a business entity invested by one person. This means that it must be a subject that actually exists, is engaged in production and operation, and can actually enjoy rights and bear responsibilities, and cannot be a fictional market subject.

The above four basic characteristics make individual sole proprietorships different from other enterprise forms. Of course, there are other differences, but this is the basic distinction criterion.

Sole Proprietors

The draft amendments to the new "Company Law" are to be submitted to relevant departments for review. The draft proposes that a natural person may invest in the establishment of a limited liability company with a minimum registered capital of 50,000 yuan. The 50,000 yuan can be used in cash, or in kind, intellectual property, non-patented technology, land use rights, equity, etc., and the amount of cash contribution is not less than 30%. This form must be marked as "one-person limited liability company". Compared with other limited liability companies, how does "one person limited liability company" bear different risks? Here is an extra layer of risk considerations. The one-person company's capital personnel have limited strength and there are transaction risks. The law may have related system designs to avoid this risk. For example, shareholders' capital verification is more stringent, regular external accounting and auditing systems, and some detailed special regulations of internal company agencies, which do not allow one-person companies to set up one-person companies, shareholders not to set up multiple one-person companies, and so on.