1. Legal Structure and Formation

Sole Proprietorship

• It is the simplest form of business, owned and operated by a single individual
  
• No formal registration is required in most countries to create a sole proprietorship
  
• The business and the owner are legally the same
  
• It does not have a separate legal identity
  

LLC (Limited Liability Company)

• An LLC is a registered legal entity, separate from its owners (called members)
  
• Requires formal incorporation through the government (e.g., MCA in India or Secretary of State in the U.S.)
  
• The company is recognized as a distinct legal person
  
• Operates under its own name and can own property, sue, or be sued
  

2. Liability Protection

Sole Proprietorship

• The owner has unlimited personal liability
  
• Personal assets can be used to pay for business debts or legal judgments
  
• No legal shield exists between business and personal risk
  

LLC

• Offers limited liability protection to its owners
  
• Personal assets of members are generally protected from business debts and lawsuits
  
• Members are only liable up to the amount they invested in the business
  

3. Taxation

Sole Proprietorship

• Business income is reported on the owner’s personal income tax return
  
• Profits are taxed at individual income tax rates
  
• The business is not taxed separately
  

LLC

• Often treated as a pass-through entity for tax purposes (income passes through to members’ personal returns)
  
• Can choose to be taxed as a corporation or partnership in some jurisdictions
  
• Offers flexibility in how it is taxed depending on number of members and local laws
  

4. Ownership and Management

Sole Proprietorship

• Owned and controlled by one individual only
  
• The owner makes all decisions and is fully responsible for operations
  
• Cannot issue shares or bring in co-owners without changing the structure
  

LLC

• Can be owned by one or multiple members
  
• Members may manage the business themselves or appoint managers
  
• Ownership can be transferred or expanded through defined processes in the operating agreement
  

5. Compliance and Administrative Burden

Sole Proprietorship

• Minimal paperwork and compliance requirements
  
• No mandatory reporting or audit unless income crosses certain limits
  
• Easiest and least expensive to start and maintain
  

LLC

• Subject to higher regulatory compliance, such as filing annual returns, maintaining books of account, and statutory audits (if applicable)
  
• Requires periodic renewal, tax filings, and disclosures to remain in good standing
  
• Incorporation costs and ongoing maintenance are higher