Updated October 14, 2026. Written for first-time owners.
No, you don’t need an LLC to start a business. If you start selling and don’t file anything, you are a sole proprietor automatically. An LLC is worth it when you want business debts and lawsuits kept away from your house, car and savings. By default, a one-owner LLC pays the same federal taxes as a sole proprietor.
What changes when you form an LLC
According to the U.S. Small Business Administration (SBA) guide to business structures, a sole proprietorship is not a separate business. Your business debts are your personal debts. An LLC is a separate legal business, so in most cases your personal assets are not at risk if the business is sued or goes broke.
| Sole proprietorship | Single-owner LLC | |
|---|---|---|
| How you start | Just start working. You may still need a local license or a DBA if you use a business name. | File formation papers with your state and pay a fee. |
| State filing fee | $0 | $35 (Montana) to $500 (Massachusetts); about $100 is typical |
| Yearly state fees | None for the business itself | Many states charge a yearly or every-other-year report fee. 11 states charge $0. California charges an $800 yearly tax. |
| Personal liability for business debts and lawsuits | Yes, all of it | Usually no, with exceptions |
| Federal income tax | Profit goes on your personal return | Same, unless you choose to be taxed as a corporation |
| Self-employment tax | 15.3% on net earnings | Same by default |
| Separate bank account | Smart, but optional | Needed to keep the protection |
The fee figures come from our table of every state's LLC fees.
Taxes are the same by default
Under the IRS page on LLCs, an LLC with one owner is “disregarded” for income tax. That means its profit goes on your own Form 1040, just like a sole proprietor’s. You don’t save tax just by forming an LLC. To change how you are taxed, you would make a separate election. See LLC vs. S corp.
When an LLC makes sense
- You work in customers’ homes or on their property, or you could damage something or hurt someone.
- You are signing a lease, a loan or big contracts.
- You are hiring people.
- You have a partner. Without an LLC or other entity, two owners are a general partnership, and each can be personally on the hook.
- Customers or clients ask you to have one.
When staying a sole proprietor is fine
If you are testing an idea, the risk is low, and you have little to lose, starting as a sole proprietor is cheap and simple. You can form an LLC later. Business insurance protects you either way, and it covers some things an LLC doesn’t. See what an LLC protects.
Ready to form an LLC?
ZenBusiness files the state paperwork for you. Start your LLC with ZenBusiness
We may earn a commission if you use this link. It doesn’t change what you pay.
FAQ
Can I switch from a sole proprietorship to an LLC later?
Yes. You file to form the LLC, then move your business bank account, contracts and licenses into the LLC’s name. Many owners get a new EIN for the LLC, especially if it will have employees.
Is an LLC more expensive to run?
A bit. You pay the state formation fee once and, in most states, a yearly or every-other-year report fee. California adds an $800 yearly LLC tax.
Do I pay less tax with an LLC?
Not by default. A one-owner LLC is taxed the same as a sole proprietorship unless it elects S corp or C corp tax treatment.
Do I need a DBA as a sole proprietor?
If you do business under a name other than your own legal name, many states and counties require a DBA (also called an assumed or fictitious name). See DBA vs. LLC.
Related LLC questions
This page is general information, not legal or tax advice. Rules change and every business is different, so check with your state or a tax professional before you decide.
Last updated October 14, 2026 by StartBusinessByState.