Indiana LLC vs Sole Proprietorship — Protection for $95
A sole proprietorship requires no filing in Indiana but provides zero liability protection. A $95 LLC formation creates a legal barrier between personal assets and business debts under Indiana law. This guide compares both. For formation, see how to form an Indiana LLC.
Quick Comparison
| Factor | Indiana LLC | Sole Proprietorship |
|---|---|---|
| Formation cost | $95 | $0 |
| Biennial cost | $32 (every 2 years) | $0 |
| Liability protection | Yes | None |
| Tax treatment | Pass-through (same) | Schedule C (same) |
| Credibility | Higher | Lower |
| EIN | Recommended | Only if employees |
The Liability Shield
Sole proprietorship: You ARE the business. Personal assets (home, savings, car) exposed to all business claims.
Indiana LLC: Separate legal entity. Under Indiana Business Flexibility Act, members are not personally liable for LLC obligations. Charging order protection limits creditor remedies against member interests.
Tax Treatment — Identical
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Get StartedA single-member Indiana LLC is taxed the same as a sole proprietorship:
- Schedule C on personal return
- 2.95% Indiana state tax + county tax on net income
- 15.3% federal self-employment tax
- Same deductions available
The difference is legal protection, not taxation.
The $95 Question
Annual effective cost of liability protection: $95 (formation, one-time) + $16/year (half of $32 biennial report). Compare to cost of one lawsuit: $10,000-$100,000+.
FAQ
Does the LLC change my taxes?
Not by default. Single-member LLC = disregarded entity = same tax treatment as sole proprietorship.
When should I upgrade from sole proprietorship?
Now, if you have any meaningful liability exposure (clients, contracts, services, physical products). The $95 cost is negligible compared to risk.
Can I convert later?
Yes. Form your Indiana LLC and transfer business activities. See our conversion guide.