In short
A sole proprietorship is the simplest way to start in the US: no formation filing, no fees beyond local licenses, but you are personally liable for business debts. An LLC (limited liability company) is registered with your state for a fee, separates personal and business liability and is taxed like a sole proprietorship by default. In the UK, the equivalents are sole trader and private limited company.
How to decide
- 1
Assess your risk
Low investment and low risk: a sole proprietorship is often enough. Contracts, staff, inventory or physical services: consider an LLC.
- 2
Compare costs
LLC filing fees and annual fees vary a lot by state. Some states charge little, others several hundred dollars per year.
- 3
Think about paperwork
An LLC needs an operating agreement, separate accounts and annual reports in many states.
- 4
Switch later if needed
Many founders start as a sole proprietor and form an LLC once the business is growing.
UK: sole trader or limited company
Sole traders register for Self Assessment with HMRC and pay Income Tax and National Insurance on profits. A private limited company is registered at Companies House, has its own legal identity and pays Corporation Tax. Limited companies have more reporting duties.
FAQ
Do I need an LLC to sell online?
No. Many online sellers start as sole proprietors. An LLC mainly adds liability protection.
Is an LLC taxed differently?
A single-member LLC is taxed like a sole proprietorship by default. It can elect to be taxed as a corporation, which can make sense at higher profits. Ask a tax professional.
Can I use my own name as a business name?
Yes. To use a different name as a sole proprietor, many states require a DBA (doing business as) filing.
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Editorial team 5minstore · Updated: November 1, 2026. General information, not legal or tax advice.