Which is better for my cleaning business: LLC vs. sole proprietorship?

For many cleaning businesses, an LLC (Limited Liability Company) often emerges as the better choice between LLC vs sole proprietorship.

Your choice of business structure can have sweeping implications for your cleaning business, shaping everything from your personal liability to your tax obligations. Let's look at the differences between LLC and sole proprietorship so you can choose the best structure for your business.

What is an LLC?

The magic of an LLC lies in its name — "limited liability." This means that as the business owner, you're not personally liable for the company's debts and lawsuits.

On the flip side, LLCs require more paperwork, may have higher initial costs and are subject to more regulations than sole proprietorships.

What is a sole proprietorship?

You have direct control over your business decisions and profits. A sole proprietorship is also easy to set up, requires less paperwork and fees than an LLC and its tax preparation is generally straightforward.

However, there's no legal distinction between you and your business. So, if your cleaning business faces a lawsuit or incurs debt, your personal assets could be at risk.

Comparing LLC and sole proprietorship for a cleaning business

1. Liability protection

Given the nature of cleaning services, there's always the potential for accidents, damages or client disputes that may lead to legal claims or debts.

• LLC: Offers limited liability protection to keep your personal assets separate from business debts and legal claims.
• Sole proprietorship: No separation between you and the business, meaning your personal assets could be at risk in case of a lawsuit or business debt.

2. Taxes and accounting

Keeping track of income, expenses, and deductions for tax purposes is a shared responsibility for sole proprietorships and LLCs.

• LLC: Choice to be taxed as a sole proprietorship, partnership or corporation, providing significant tax advantages.
• Sole proprietorship: Reports all business income and expenses directly on your personal tax return, so business profits are subject to self-employment taxes.

3. Management and ownership

The flexibility in ownership and management structure can be a significant advantage of an LLC, especially for a cleaning business looking to expand or diversify.

• LLC: Possibility of multiple owners or members sharing management and ownership responsibilities. By contributing different resources and expertise, the business can be more resilient.
• Sole proprietorship: You directly manage and control all business aspects ranging from operations to financial decisions. While total control can be appealing, it also means you carry all the responsibilities and burdens.

Choosing the right business structure for your cleaning business

Your chosen business structure can significantly impact your liability, taxes and management — all critical factors for the success and sustainability of your business. Based on our comparison, an LLC offers the most flexibility and protection.

Your cleaning insurance coverage should offer you the same. No matter which business structure you follow, NEXT can offer you affordable business insurance tailored to your business needs.

Get a custom quote in less than 10 minutes by answering a few questions online. Once your insurance has been activated, you can immediately access your certificate of insurance and share it with your clients through the NEXT app.

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