Can You Have a Business Without an LLC?

It is a common misconception that a business must be a Limited Liability Company (LLC) to operate legally. In reality, you can have a business without forming an LLC, as it is just one of several legal structures available. Simpler alternatives exist, which are often the default status for new business owners. These structures, such as sole proprietorships and general partnerships, provide a path to begin commercial activities without the formal registration process an LLC requires.

Operating as a Sole Proprietor

A sole proprietorship is the most straightforward business structure for an individual owner. It is the default classification for anyone who begins to conduct business without registering as a different legal entity. This means the moment you start selling goods or services, you are automatically operating as a sole proprietor. There are no formal actions or documents required to establish this business type.

Legally, there is no distinction between the business and its owner. This results in unlimited personal liability, meaning the owner’s personal assets, such as their home, car, or savings, can be used to satisfy business debts or legal judgments. If the business cannot pay its bills or loses a lawsuit, creditors can pursue the owner’s personal property to cover the outstanding obligations.

A sole proprietorship is a pass-through entity, so the business itself does not file a separate tax return. The owner reports all business income and expenses on Schedule C, “Profit or Loss from Business,” which is filed with their personal Form 1040 tax return. The net profit from the business is then included with the owner’s other personal income, and the owner pays self-employment taxes for Social Security and Medicare.

Forming a General Partnership

When two or more individuals decide to own and operate a business together without forming a separate legal entity, they automatically create a general partnership. Much like a sole proprietorship, a general partnership can be formed without filing any formal paperwork with the state. While not legally required, it is highly advisable for partners to create a written partnership agreement to outline responsibilities, contributions, and how profits and losses will be divided.

Partners are subject to joint and several liability. This means that each partner is personally responsible for 100% of the business’s debts and legal obligations, regardless of which partner incurred them. If the business is sued or cannot pay its debts, a creditor can pursue the personal assets of any single partner to satisfy the entire amount owed.

Similar to a sole proprietorship, a general partnership is a pass-through tax entity. The partnership itself does not pay income tax but files an annual information return, Form 1065, “U.S. Return of Partnership Income,” with the IRS. The partnership then provides each partner with a Schedule K-1, which details their individual share of the partnership’s financial results. Each partner uses this information to report their portion of the profit or loss on their personal tax return.

Using a Doing Business As Name

A “Doing Business As” (DBA) name, also known as a fictitious or trade name, is not a legal business structure. It is a registered name that a business can operate under that is different from its legal name. For a sole proprietor whose legal business name is their own, a DBA allows them to operate under a more descriptive name like “Main Street Bakery.” A general partnership can use a DBA to operate under a name other than the partners’ last names.

The purpose of a DBA is for branding, marketing, and establishing a professional identity. It allows a business to present a distinct name to the public. Registering a DBA is often a requirement for opening a business bank account under the trade name. The registration process typically involves filing a form with a state or local government agency and paying a small fee.

Registering a DBA does not alter the underlying business structure or provide any liability protection. A sole proprietor operating under a DBA is still a sole proprietorship with unlimited personal liability. The DBA is merely an alias; it does not create a separate legal entity that shields the owner’s personal assets from business debts.

Key Differences in Liability and Taxation

The most significant distinction between operating without an LLC and with one lies in liability protection. Sole proprietorships and general partnerships expose owners to unlimited personal liability, meaning there is no legal separation between personal and business assets. In contrast, a primary reason for forming an LLC is to gain limited liability, which creates a legal shield between the business and its owners, protecting their personal assets from most business-related claims.

Another difference is tax flexibility. Sole proprietorships and partnerships have a fixed pass-through tax structure. An LLC, however, offers more versatile tax treatment. By default, a single-member LLC is taxed like a sole proprietorship, and a multi-member LLC is taxed like a partnership. However, an LLC can elect to be taxed as an S corporation or a C corporation by filing specific forms with the IRS, which can sometimes offer tax advantages.