Part of our guide to the registered agent service in Illinois. More guides on this topic
If you're selling something and you never filed anything, you already own a business. It's a sole proprietorship. You didn't sign up for it. It just happened.
The U.S. Small Business Administration puts it this way: you're "automatically considered to be a sole proprietorship if you do business activities" without registering as another type of business.
So the real question in LLC vs sole proprietorship isn't how to start. It's whether to file. And the answer comes down to one thing: how much risk is sitting on your personal name.
Why this matters: A sole proprietorship and its owner are the same person in the eyes of the law. If the business owes money or gets sued, the claim can reach your personal savings, your car and your home.
Side by side
| Sole proprietorship | LLC | |
|---|---|---|
| How you start | Automatic. Start selling. | File with your state |
| State cost | $0 (a DBA if you use a business name) | $35 to $520 to file, plus yearly fees |
| Personal liability | You're personally on the hook | Protected "in most instances" (SBA) |
| Federal taxes by default | Your personal return | Same. A one-owner LLC is taxed like a sole prop |
| Self-employment tax | Yes | Yes |
| Registered agent | Not required | Required in every state |
| Yearly upkeep | Usually none at the state level | Annual report or fee in most states |
| How it looks to banks and clients | Fine for small jobs | Easier for contracts, leases and bigger clients |
Sources: SBA, Choose a business structure; IRS, Single member limited liability companies.
Taxes don't change unless you ask them to
This is the part most people get wrong. Forming an LLC doesn't change your taxes by default.
The IRS says "an LLC with only one member is treated as an entity disregarded as separate from its owner." In plain words: your one-owner LLC's income still goes on your personal return, same as before. An LLC with two or more owners is taxed as a partnership by default.
The SBA adds that LLC members "are considered self-employed and must pay self-employment tax contributions." The LLC doesn't save you that either.
You can elect a different tax treatment later, such as an S corporation. That's a tax choice, not a different kind of business. Talk to a CPA before you make it.
What the LLC does change
It puts a wall between the business and you. SBA says LLCs "protect you from personal liability in most instances." A business debt or a lawsuit against the business generally stays with the business.
The wall only holds if you treat the LLC like its own thing:
- Open a separate business bank account and run every business dollar through it.
- Sign contracts in the LLC's name, not just yours.
- File the annual report on time so the LLC stays in good standing.
The wall has limits. If you personally guarantee a loan or a lease, that guarantee is yours, LLC or not.
It makes you look like a company. Banks want formation papers and an EIN to open most business accounts. Landlords, bigger clients and some platforms ask for an LLC before they'll sign. We list what banks ask for in What You Need to Open a Business Bank Account.
It adds paperwork. A filing fee, a yearly report in most states, and a registered agent. Budget for it. Here's what it costs in your state.
In Illinois and don't want your home address on the record? A Lobi Virtual Office gives you a Chicago street address with a suite number from $50/mo, plus 50% off your first year of registered agent. See virtual office plans
Five signs it's time to file
1. You're signing contracts with clients or vendors.
2. You're hiring, even one person.
3. You have a partner. Without an LLC or other entity, two people doing business together can be treated as a general partnership.
4. A mistake on the job could cost more than you can cover from savings.
5. A bank, landlord or client asked for your LLC paperwork.
If none of these are true yet, staying a sole proprietor while you test the idea is a fair call. If you're using a business name, register it as an assumed name (DBA) in your state. We explain how in USPS Form 1583, EIN, and Assumed Name.
No Social Security number? You can still form an LLC
You don't need an SSN to own an LLC. Plenty of owners start with an ITIN, then get an EIN for the business. We walk through it step by step in From ITIN to EIN to Your Own Business.
The bottom line
A sole proprietorship is free and fast. An LLC costs a little and protects a lot. If real money, real contracts or real people are involved, file.
Lobi Space files LLCs in all 50 states, with registered agent service and, in Illinois, a business address if you don't want your home on the public record. If we get a filing wrong, we fix or amend it at our cost. See filing prices.
Get it done at Lobi
| Service | What you get | Price | Start |
|---|---|---|---|
| File an LLC or corporation | Launch package: the filing, your EIN, an operating agreement or bylaws, and 1 year of registered agent | $195 plus state fees, regular $295 (limited time) | Start my LLC |
| Virtual office (Illinois) | A Chicago street address with a suite number, mail handling and a member portal. 50% off your first year of registered agent | From $50/mo plus $95 setup | See virtual office plans |
| Registered agent, any state | We accept legal papers and state notices and scan them to your portal. In states other than Illinois, a trusted Lobi Space partner serves as your registered agent. | $95 first year (limited time), then $125 a year | Buy registered agent |
| Business mailbox (Illinois) | A real Chicago address for mail and packages, scanned to your portal | From $30/mo plus $95 setup | See mailbox pricing |
| Virtual phone number | A local 312 number with call forwarding and voicemail to email | From $15.95/mo | Get a business number |
| Meeting rooms | Rooms for client meetings in Pilsen, 2-hour minimum | From $75/hr | Book a room |
| Notary | Walk-in notary, including USPS Form 1583 | $25 each | Notary services |
Also at Lobi: private offices, day offices and a podcast studio in Pilsen. Not sure what fits? Build your plan.
Frequently asked questions
Do I pay more taxes with an LLC than a sole proprietorship?
Not by default. The IRS treats a one-owner LLC as disregarded from its owner, so its income still goes on your personal return. Self-employment tax applies to both.
Do I need to file anything to be a sole proprietor?
No state filing. You're a sole proprietor as soon as you do business without registering another structure. If you use a business name, register it as an assumed name (DBA).
Can I form an LLC without a Social Security number?
Yes. Plenty of owners start with an ITIN and then get an EIN for the business.
*Current as of November 2026. This article is general information, not legal or tax advice. Ask a CPA before choosing how your business is taxed.*
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