Working-alone guide

Sole proprietor, LLC or corporation, and when you need an EIN

Tax-year note: Tax information on this page applies to the 2026 tax year (returns filed in 2027), from IRS pages checked in November 2026. Figures and dates are labelled with their tax year where they appear. Check current IRS pages before you rely on them.

"Should I form an LLC?" is one of the first questions people ask when they start working for themselves. Online, the answer is often "yes, today," usually from someone selling formation services. The Small Business Administration's guidance is more measured: structure affects day-to-day operations, taxes, liability and paperwork, and changing later is possible but can have consequences. This guide summarizes how the SBA describes the common structures, and how the IRS handles EINs.

The default: sole proprietorship

The SBA says a sole proprietorship is easy to form and gives you complete control. You are automatically considered one if you do business activities but do not register as any other kind of business.

The important trade-off, in the SBA's words: a sole proprietorship does not produce a separate business entity, so business assets and liabilities are not separate from your personal ones, and you can be held personally liable for the business's debts and obligations. The SBA adds that it can be hard to raise money this way, and suggests sole proprietorships can suit low-risk businesses and owners who want to test an idea before forming something more formal.

Limited liability company (LLC)

The SBA describes an LLC as combining benefits of the corporation and partnership structures. Key points from its page:

• LLCs protect you from personal liability in most instances.
• Profits and losses can pass through to your personal income without corporate taxes.
• Members of an LLC are considered self-employed and must pay self-employment tax. See self-employment tax explained.
• In many states an LLC can have a limited life; when a member joins or leaves, some states may require dissolution and re-formation unless an agreement covers it.

The SBA suggests LLCs can suit medium- or higher-risk businesses and owners with significant personal assets to protect.

Note the qualifier "in most instances." The SBA's insurance page adds that the protection from an LLC or corporation has limits, and suggests business insurance can fill gaps. See business insurance types.

Corporations

According to the SBA, a C corporation is a legal entity separate from its owners, with the strongest protection from personal liability, but higher formation cost and more extensive record-keeping, operational processes and reporting. Corporations pay income tax on profits, and in some cases profits are taxed twice: at the company and again when dividends are paid.

An S corporation, the SBA explains, is designed to avoid that double taxation by passing profits and some losses through to owners, but must file with the IRS for S corp status, has special limits, and still follows the strict filing and operational processes of a corporation. State treatment of S corps varies.

Partnerships

For two or more owners, the SBA describes partnerships, including limited partnerships and limited liability partnerships, as the simplest shared structure. If you are going into business with someone, a written partnership agreement matters regardless of form.

Changing later

The SBA cautions that while you may convert to a different structure later, there may be restrictions based on location, and it could result in tax consequences and unintended dissolution, among other complications. It recommends consulting business counselors, attorneys and accountants.

A simple way to think about the decision

Questions to write down and bring to a professional:

1. What could go wrong in my work, and how expensive would it be?
2. Would insurance cover those risks?
3. What personal assets would be exposed as a sole proprietor?
4. What does forming and maintaining an entity cost in my state each year?
5. Will I take on partners or investors?

Names: what a DBA does and does not do

If you work under a name other than your own legal name, the SBA says you might need to register a DBA, also called a trade name, fictitious name or assumed name, with your state, county or city. Registering a DBA does not provide legal protection by itself. Requirements vary by structure and location, so check local government offices.

EIN: the federal tax ID

The SBA describes an Employer Identification Number as your business's federal tax ID. It is free to apply. The IRS's own EIN page says you can get one directly from the IRS online in minutes for free, and warns: beware of websites that charge for an EIN; you never have to pay a fee for one.

The IRS also notes the online application must be completed in one session and expires after 15 minutes of inactivity, and that it should be used if the principal place of business is in the U.S. or U.S. territories and the responsible party has an SSN or ITIN. If you are forming a corporation or LLC, the IRS says to form it with the state first, or the EIN application may be delayed.

When do you need one? The IRS and SBA list situations such as having employees or operating as a corporation or partnership. The SBA notes that sole proprietors can often use a Social Security number with a bank, though some open an EIN anyway, for example to give clients a number other than their SSN. Check the IRS page for the current list for your case.

Beneficial ownership reporting

The IRS EIN page mentions that some corporations, LLCs and other entities may be required to report beneficial ownership information to FinCEN, and links FinCEN for the current rules. These requirements have changed over time; check FinCEN.gov directly if you form an entity.

Rules on formation, fees and reporting are set by your state and federal agencies and change. Check the current pages before you file anything.