If you were thinking about starting a business in Denver, Colorado, one of the most important designations to make is whether your business will be a sole proprietorship or an LLC. This decision will greatly affect the legal standing of your business.

According to The Street, a sole proprietorship is far easier to set up, provided that you have any licenses necessary to run your business on hand. On the other hand, an LLC, or limited liability company, requires more paperwork to create.

the key difference between the two is that a sole proprietor takes on all business responsibilities as personal responsibilities. With an LLC, the business is considered separate from personal assets, provided that the business owner did not put a personal guarantee against a business loan. Thus, if somebody takes legal action against the owner of an LLC, the owner’s personal assets are protected.

There are disadvantages and advantages to both LLCs and sole proprietorships. In a sole proprietorship, there is generally only one decision-maker. If there are multiple persons running the business, then an LLC is far more common since it legally divides responsibilities.

The owner of a sole proprietorship is also far more likely to hold more business insurance, given that any legal or financial responsibilities are seen as personal responsibilities of the owner. However, the ease of setting up a sole proprietorship means that anybody in the US can become an instant business owner if they wish.

The choice between an LLC or a sole proprietorship is a big one. It is important to weigh the pros and cons before making the decision.