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When Should I Register as an LLC or Sole Proprietorship?

Greg Swanson

If your gig work is starting to feel more like a real business than a hobby, you might be wondering when to register as an LLC or sole proprietorship. Picking the right time—and the right structure—can help protect your income, simplify taxes, and give you a professional edge.

You should register as an LLC or sole proprietorship when you're earning consistent income, want legal protection, or plan to scale your services.

What’s the Difference?

Sole Proprietorship: Easiest to set up, and often automatic if you're earning money independently. But you’re personally liable for debts and lawsuits.
LLC (Limited Liability Company): Offers legal protection for your personal assets and helps you look more professional. Costs vary by state.
Taxes: Both pass income through to your personal tax return, but LLCs allow more flexibility in how you file and deduct expenses.

When Is the Right Time?

You’re Making Regular Income: Once your gig or freelance income becomes consistent, it’s smart to get formal.
You Want to Open a Business Bank Account: Many banks require a registered business name and EIN.
You’re Taking on Clients or Contracts: Some clients may prefer or require that you operate as a registered business.

Why Choose an LLC?

Legal Protection: Your personal assets (like your car or house) are protected if your business is sued.
Credibility: Clients often view LLCs as more established and reliable.
Tax Options: You can choose how your LLC is taxed (as a sole prop, S-corp, etc.), which can help you save money.

When to Stick with a Sole Proprietorship

Just Getting Started: If you’re still testing the waters or earning under a few thousand dollars per year, wait until your income grows.
No Risk or Liability: If your gig doesn’t involve contracts, equipment, or financial risks, the simplicity of a sole proprietorship may be enough.
Low Budget: LLCs can cost $50–$500 to set up, depending on your state. If you're on a tight budget, wait until you can reinvest.

Choosing between an LLC and a sole proprietorship depends on your income, goals, and risk tolerance. If you’re treating your gig work like a real business, formal registration is a smart next step. Start small, do your research, and switch structures when it makes sense for your growth.

Updated: June 26, 2025