LLC or sole proprietorship — choosing your business structure

Once you start selling products or services regularly, you have entered the world of business taxation and legal responsibility. The key question is not whether you are running a business—it is what legal form that business will take. This choice affects your personal liability, your tax bill, how much paperwork you must file, and what fees you owe to the state. For immigrants and visa holders new to the United States, understanding sole proprietorship and limited liability company (LLC) structures is essential before you take the first step.

Sole Proprietorship: the Simplest Path, With Full Personal Risk

A sole proprietorship is automatically created the moment you begin selling under your own name or a trade name. You do not need to file any documents with the state, pay a formation fee, or register anything official. There is no legal separation between you and your business. You are the business.

This simplicity comes with a major downside: unlimited personal liability. If your business is sued, if a customer is injured, or if you accumulate business debts you cannot pay, creditors can go after your personal assets—your home, car, savings account, and anything else you own. There is no wall between what your business owes and what you owe personally. This is a serious financial risk if your work involves any injury risk, interaction with customers, or the handling of other people's money or property.

A sole proprietor must also pay self-employment taxes on all business income. These taxes (for Social Security and Medicare) total 15.3% on your net earnings, in addition to federal and state income taxes. Many sole proprietors must make quarterly estimated tax payments to avoid penalties.

When a Sole Proprietorship Makes Sense

A sole proprietorship is appropriate if you are offering a low-risk service (freelance writing, consulting, tutoring), operating from home with minimal client contact, or testing a business idea before committing more money. Many people start as sole proprietors and later convert to an LLC as their business grows and liability risk increases.

Limited Liability Company (LLC): More Protection, More Complexity

An LLC is a formal business entity you must create by filing papers with your state. This process establishes the LLC as a separate legal entity, distinct from you personally. That separation is the core benefit: if the business is sued or accumulates debts, creditors generally cannot touch your personal home, car, or savings.

Formation and State Filing Fees

To form an LLC, you file articles of organization with your state government (usually the Secretary of State or equivalent agency). Each state sets its own filing fee. State fees range from approximately $40 on the low end to $500 on the high end. Most states charge between $50 and $150 for the basic filing. Some states have particularly low fees (Kentucky around $40, for example), while others are higher (Massachusetts can be several hundred dollars). You must check your specific state's Secretary of State website for the current fee—they do change.

Registered Agent Requirement

Most states require an LLC to maintain a registered agent—a person or service with a physical address in the state who is authorized to receive legal documents on behalf of the LLC. If you live in the state where you are forming your LLC, you can often serve as your own registered agent using your home or business address. If you are not in the state, you must hire a registered agent service (which adds an additional annual cost, usually $50–300 per year, depending on the provider and state).

Taxation of Single-Member LLCs

By default, a single-member LLC (owned by one person) is treated by the IRS as a sole proprietorship for tax purposes. You still file Schedule C on your personal tax return and pay self-employment taxes at the same 15.3% rate. The liability protection is the main difference, not the tax treatment. However, an LLC does give you the option to elect S corporation status if your business income is high enough, which can result in tax savings in some cases. This is a decision you should discuss with a CPA or tax professional.

Non-Citizens and Work Authorization: a Critical Distinction

A critical point for immigrants and visa holders: you can own a U.S. business without being a citizen or green card holder. However, working in that business is a different matter. This distinction trips up many foreign nationals.

Ownership vs. Employment: What You Can and Cannot Do

Green card holders can own a business in any structure—sole proprietorship, LLC, corporation, or partnership—and work in it. You have the same legal rights as a U.S. citizen when it comes to business ownership. No citizenship is required. Other visa holders (H-1B, F-1 student visa, L-1, E-2, etc.) can also own a business, but the right to work in that business depends on your immigration status and visa type. You can be a passive investor or board member without working authorization. You cannot be employed by the business or perform daily operations without proper work authorization.

The key rule: if you perform work while physically present in the United States and draw a salary or income for that work, you must have work authorization specific to that employment. This applies whether you own 100% of the company or not. The U.S. immigration law prohibits all gainful employment without proper work authorization; it does not matter whether you own the business or work for someone else. Violating this rule can lead to deportation and permanent bars to future visas.

How to Navigate Business Ownership Without Work Authorization

If you want to own and operate a business but do not yet have work authorization, you have a few paths. You can remain a passive owner and hire U.S. citizens or green card holders to run the daily operations. You can manage the business remotely from outside the United States via phone and video calls (which does not violate work authorization rules). You can also structure the business and later apply for a work visa—sometimes using the business itself as the basis for a visa petition. Different visa categories have different rules: E-2 investor visas allow active business management for treaty country nationals; L-1 intracompany transfer visas allow foreign company executives to come manage U.S. subsidiaries; H-1B sponsorship requires the business to demonstrate a specialty occupation and be able to pay prevailing wages. Each path is complex and requires immigration law guidance.

State Registration is Only Half the Job: You Also Need a Local Business License

A common mistake: forming an LLC with your state and thinking you are done. You are not. Most cities and counties also require you to register for a local business license, and sometimes a business tax registration. These are separate from state-level formation. You must apply at your city or county level, typically through the city or county clerk, assessor's office, or department of finance. Requirements vary widely by location.

What Local Licensing Involves

A general local business license gives you permission to operate a business within that city or county limits and ensures the city or county collects any applicable taxes from you. Some jurisdictions require licenses based on income thresholds—for example, if your gross income exceeds a certain amount per year. Some require licenses only if you hire employees, use a trade name (DBA—doing business as), or operate in a specific industry. Your city or county website should list what triggers the requirement and the application process.

Industry-specific licenses (for food service, healthcare, real estate, alcohol sales, childcare, etc.) are often separate from a general business license and may be issued by state agencies rather than the city. Check both your city and your state for what applies to your work.

Other Local Requirements

• Zoning compliance: your business must be allowed to operate at your location (home-based businesses, retail storefronts, and warehouses all have different rules)
• DBA registration (fictitious name registration): if you operate under a name other than your legal name, you may need to register that name at the county level
• Building permits and health permits: if you are renovating a space, handling food, or performing certain services
• Sales tax permit: if you are selling goods or certain services, your state requires you to register for a sales tax permit and collect tax on sales

Your city or county clerk's office, business licensing division, or local chamber of commerce should have a checklist or guide for your specific area. Many offer online registration, reducing the need to visit in person.

Making the Choice: Sole Proprietorship vs. LLC

The decision comes down to your risk tolerance, the nature of your work, and your growth plans. A sole proprietorship is free and fast to start. An LLC costs more money upfront and requires ongoing annual filings. However, the liability protection of an LLC may be worth the cost if your business involves any risk to others, handles money, or will grow beyond a part-time side hustle.

If you are a freelance writer, consultant, or virtual service provider operating from home with minimal client contact and low injury risk, sole proprietorship is often sufficient. If you are opening a retail store, offering services in people's homes, hiring employees, handling customer funds, or building a business you plan to scale, an LLC provides valuable protection. Many business owners start as sole proprietors and convert to an LLC once the business is generating meaningful income and carrying higher risk.

Your Checklist Before Launch

1. Decide on business structure: sole proprietorship or LLC
2. If LLC, check your state's Secretary of State website for filing fees and required documents
3. If LLC, determine whether you need a registered agent (and budget for the annual fee if hiring a service)
4. File your LLC articles of organization or confirm you are operating as a sole proprietor
5. Register for a local business license with your city or county
6. If required for your industry, apply for state and local industry-specific licenses and permits
7. Register for federal Employer Identification Number (EIN) with the IRS if you are an LLC, hiring employees, or running a sole proprietorship with a trade name
8. If you are a foreign national or visa holder, verify that you have work authorization to work in your business, or structure it as a passive investment
9. Set up a calendar reminder for all annual renewal deadlines (LLC annual report, business license renewal, registered agent fee, and any annual franchise tax payments)
10. Keep your business and personal finances separate by opening a business bank account

Starting a business as an immigrant or visa holder is entirely possible and within your rights, but it requires attention to both business law and immigration law. Take the time to get the structure right from the beginning; it will protect you, your personal assets, and your legal status.