When a Sole Proprietor Should Consider Another Entity

A sole proprietor has unlimited personal liability for business debts and claims. Any business that signs contracts, takes on staff, serves customers on premises, or operates equipment has real exposure. An LLC creates a liability shield for a few hundred dollars a year.

Above ~$80K of net profit, the S-corp election (made by an LLC or corporation) typically saves more in self-employment tax than the added complexity costs. Schedule C income gets the full 15.3% SE tax; S-corp distributions don't.

Two people can't operate as a single sole proprietorship. A multi-member LLC (partnership for tax) or other entity becomes necessary the moment ownership is shared. Trying to do it through a 'joint' Schedule C creates audit risk and uneven liability.

Liability shield. Separate bank account requirement. State filing fees and annual reports. Tax filing stays the same (Schedule C) unless you elect otherwise.

Separate tax return (Form 1120-S). Payroll for the owner. Reasonable compensation analysis. State-level filings and possibly state-level S-corp tax. Self-employment tax savings on distributions.