From Simple Start to Smart Growth: Sole Prop or LLC?
Starting as a Sole Proprietor is easy — but as your business grows, forming an LLC can offer protection, credibility, and tax flexibility. Here’s how to decide when to make the switch.
Maya
Home Pastry Chef
Profile:
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32 years old, based in Evanston, IL
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Runs a home-based bakery specializing in custom cakes
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Works full-time as a pastry chef, uses weekends for client orders
Why She’s a Sole Proprietor:
Maya started small — taking word-of-mouth orders for family and friends. Her startup costs were minimal, and she wanted to test her concept before investing in a formal business structure.
Her Priorities:
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Simplicity: No paperwork or upfront fees
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Flexibility: Freedom to scale up or slow down
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Word-of-mouth reputation
Her Challenges:
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Personal liability for product-related issues
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Keeping business income separate from personal funds
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Managing taxes and permits alone
When She’ll Consider an LLC:
When she starts selling through retail outlets or hiring help for large events.
Jordan
IT Consultant
Profile:
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41 years old, from Springfield, IL
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IT and automation consultant working remotely
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Former corporate analyst who now serves multiple clients independently
Why He’s a Sole Proprietor:
Jordan transitioned from employment to freelancing. He didn’t want to deal with complex paperwork while testing if his freelance income could replace his salary.
His Priorities:
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Tax deductions for home office and equipment
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Fast invoicing and payment processing
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Independence from corporate hierarchy
His Challenges:
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Self-employment taxes (15.3%)
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Risk of contract disputes or liability for client errors
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Difficulty separating personal and business finances
When He’ll Consider an LLC:
When his client list grows and he wants to protect personal assets or appear more credible to enterprise clients.
Alicia
Graphic Designer
Profile:
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27 years old, lives in Chicago’s Pilsen neighborhood
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Freelance graphic designer and illustrator
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Works with small businesses and nonprofits
Why She’s a Sole Proprietor:
Alicia started freelancing right after college. She wanted to build her brand identity quickly and didn’t have the budget for an LLC yet.
Her Priorities:
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Affordable tools for invoicing and payments
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Freedom to choose clients and projects
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Simple tax setup for 1099 income
Her Challenges:
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Managing inconsistent income
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Building business credit
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Protecting her intellectual property
When She’ll Consider an LLC:
When she starts licensing designs, collaborating with other creatives, or opening her own design studio.
Marcus
The Skilled Tradesman
Profile:
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38 years old, based in Aurora, IL
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Owns a small HVAC installation and repair business
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Works with both residential and commercial clients
Why He Formed an LLC:
After years as a sole contractor, Marcus realized that one accident or damaged property claim could put his personal assets at risk. Forming an LLC gave him legal protection and credibility when bidding for larger contracts.
His Priorities:
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Liability protection for client work and equipment
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Professional credibility to attract commercial projects
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Ability to hire apprentices without personal risk
His Challenges:
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Managing paperwork and compliance (annual reports, insurance)
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Understanding how to pay himself properly through his LLC
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Tracking business vs. personal expenses
His Future Goals:
Expand into neighboring counties, hire two full-time technicians, and eventually open a small service office.
Priya & Elena
The Boutique Partners
Profile:
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29 and 31 years old, from Chicago, IL
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Co-founders of a sustainable skincare line
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Started selling products online and at local pop-up events
Why They Formed an LLC:
When their side business started gaining traction, they needed a structure that allowed shared ownership while protecting both founders from personal liability. The LLC made it easy to divide equity and outline roles in an Operating Agreement.
Their Priorities:
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Clear partnership structure with defined profit splits
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Protection from product liability and online sales risks
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Access to business bank accounts and funding
Their Challenges:
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Balancing creative and operational responsibilities
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Managing manufacturing costs and supply chain logistics
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Maintaining compliance as sales expand beyond Illinois
Their Future Goals:
Scale production, secure a wholesale partner, and eventually reclassify as an S-Corp for tax advantages.
Daniel
The Consultant Turning Professional
Profile:
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45 years old, based in Naperville, IL
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Business strategy consultant for mid-size tech companies
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Former corporate executive who now runs his own practice
Why He Formed an LLC:
Daniel wanted to separate his personal finances from his growing consulting income and present a professional image when working with corporate clients. The LLC gave him structure, tax options, and credibility.
His Priorities:
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Professional image with enterprise clients
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Ability to deduct business expenses cleanly
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Option to elect S-Corp status for tax efficiency
His Challenges:
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Managing cash flow and quarterly estimated taxes
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Choosing between contractor support and hiring staff
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Keeping up with administrative filings
His Future Goals:
Bring on two associate consultants and develop a small advisory firm under the same LLC umbrella.