The option most small business owners ultimately consider is a limited liability company. An LLC creates a legal wall between you and your business. It costs some to set up – filing fees range from $35 to $500 depending on the state – and requires a modest amount of ongoing maintenance. Whether that tradeoff is worth it depends on your income, your industry, and how much personal risk you’re willing to take. LLCBDWhich tracks LLC formation requirements, costs, and compliance rules in all 50 US states, publishing a more comprehensive breakdown of how much it actually costs to form and maintain each structure. The comparison below is based on that data, along with IRS guidance and state-level filings.

Simplicity is real. The risk is also real. Sole proprietorship offers zero liability protection. If a customer sues your business, they are suing you personally. If the business takes on debt and can’t repay, creditors can go after your house, car, savings – anything in your name. There is no legal difference between you and the business. This is fine for a low-risk side project. This is a serious problem for anyone earning a meaningful income or working in a field where lawsuits occur.

If the business is sued, the LLC’s assets are at risk – not yours personally. If the business owes money, creditors generally can’t go after your personal accounts, your home, or your retirement savings. This protection is not complete; Courts may “pierce the veil” if you mix personal and business funds or treat the LLC as a shell. But properly maintained, an LLC provides a layer of protection that a sole proprietorship cannot provide.

For Indian professionals and NRIs who freelance for US clients or run export-oriented businesses, the difference matters in practical terms. US customers are increasingly requiring vendors to hold business insurance before signing a contract or acting as a formal entity. An LLC indicates legality. A sole proprietorship, appropriately or not, prompts a “side hustle.”

The exception is S corporation elections. An LLC can file IRS Form 2553 to be taxed as an S Corp. Under this election, you pay yourself a “fair salary” and take the remaining profits as distributions. Salary is subject to self-employment tax. There is no delivery. In a business making $120,000 in net profits, paying yourself a salary of $70,000 and taking $50,000 as distributions saves about $7,650 per year in self-employment taxes. Over five years, that’s $38,250.

The catch: The S Corp election adds real complexity. You’ll need to run payroll, file quarterly payroll tax returns, and prepare a separate corporate tax return (Form 1120-S). Accountant fees typically increase by $1,000 to $3,000 per year. The choice only makes financial sense if net profits consistently exceed about $50,000 to $60,000 annually – below that threshold, payroll costs outweigh the tax savings.

Both structures also qualify for the qualified business income (QBI) deduction under Section 199A: a 20 percent deduction on qualified business income, subject to income limits ($197,300 for single filers, $394,600 for married filing jointly in 2025). This deduction applies equally to sole proprietors and LLC owners. This is not a reason to choose one structure over the other.

Forming an LLC costs $35 to $500 depending on the state. Kentucky is the cheapest at $40 ( ₹3,400). Massachusetts is the most expensive, with $500 ( ₹42,000). Most states fall between $50 and $150. After formation, most states require annual or biennial reports ranging from $0 (New Mexico, Arizona, Ohio) to $500 (Massachusetts) or the infamous $800 California franchise tax. If you don’t live in the state where the LLC is formed, add $100 to $300 annually for a registered agent.

For a practical five-year comparison: A sole proprietorship in any state costs $0 in state fees. The total cost of a New Mexico LLC over five years is $50. The cost of a California LLC is approximately $4,070. The cost of an LLC is completely dependent on the state, which is why the state you choose matters as much as the structure.

Sole proprietorship also makes sense for very early-stage enterprises where the founder is not sure the business will survive. Paying $200 in filing fees and setting up a registered agent for a project that may not last three months is a waste of money. Start slow, validate the idea, and formalize the structure once revenue is consistent.

For Indian freelancers and IT professionals who bill US clients, an LLC also offers a practical benefit: You can open a US business bank account, accept ACH payments and invoice through a formal entity. This eliminates the wire transfer friction that many cross-border freelancers deal with. Fintech banks like Mercury and Relay serve non-resident LLC owners, making the process accessible without an in-person US trip.

If net profits consistently exceed $50,000 to $60,000, also consider the S Corp election. Self-employment tax savings can be substantial, and the additional accounting costs are a fraction of your savings. A Comparison of LLC Formation Services And state-specific requirements can help you evaluate costs before filing.

The second most expensive mistake is to build into a “cheap” position when you are actually operating in an expensive position. A Wyoming LLC sounds attractive until you realize that California, where you actually have clients and an office, still requires you to register as a foreign LLC and pay its $800 franchise tax. You have now added a state, not avoided one.

For non-resident founders, the most common mistake is ignoring US tax compliance. A foreign-owned single-member LLC must file Form 5472 annually, reporting transactions between the LLC and its foreign owner. The penalty for failure to file is $25,000 per year. Indian founders should additionally comply with RBI’s foreign direct investment reporting under FEMA, and understand how the India-US DTAA applies to their specific income streams before the first invoice is sent.

A growing number of Indian entrepreneurs building US-facing businesses – SaaS founders, IT consultants, e-commerce operators – are choosing LLCs in a big way, and with good reason. This structure provides the liability protection, tax flexibility and reliability that US customers and payment processors expect. For everyone else, the question is simple: What will you lose if something goes wrong, and aren’t the costs of an LLC worth figuring out?

Note to readers: This article is part of HT’s paid Consumer Connect initiative and has been independently created by the brand. HT does not take any editorial responsibility for the content, including its accuracy, completeness, or any errors or omissions. Readers are advised to independently verify all information.

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glacial pace towards equality

This author was a student at Jawaharlal Nehru University when in 2006, in what is now known as Mandal 2.0, Arjun Singh, the then education (or human resource development) minister in the United Progressive Alliance (UPA) government, announced the extension of reservation for Other Backward Classes (OBCs) in all centrally funded higher educational institutions. Till now these benefits were available only in government jobs.

Now, there are adequate legal/constitutional provisions to debate the issue of reservation for OBCs. The fact that it is being linked with a “creamy layer” segment and now likely to be sub-stratified to differentiate between ‘more OBCs’ from ‘lesser OBCs’ – it is believed that bodies like the Justice Rohini Commission have recommended this – is a clear indication that this is far from a black and white question.

But none of this should fool you into believing that reservation in India is a purely legal or academic debate. This was seen by the students of my generation and those who were in higher education institutions at the time of Mandal 1.0 under the VP Singh government in the 1990s and saw it for the first time on our campuses. Opposition to reservation in universities was blatantly reactionary in practice, even reaching the extent of violence. It was BR Ambedkar’s political popularity among Dalits that led to the signing of the Poona Pact, which paved the way for reservations for Dalits and tribals before independence. It is the sheer democratic weight of the OBCs that has ensured that the executive and legislature threw their weight behind it despite judicial reservations after independence.

Also read: Terms of business: So long, employment is guaranteed…

After Mandal 2.0 there has been a change in the character of elite universities and other such educational institutions. They have a lot more OBC students now. Many, if not most, of them are much less privileged than the group of students who studied at these places before the policy came into existence. One can clearly argue that our publicly funded higher education institutions are now more socially representative than before 2006. This is us, as a society, slowly but steadily, reducing a portion of the historical burden of social inequality. This should be celebrated. It should not surprise anyone that with the increasing numbers, Indian higher educational institutions have also seen an increase in subaltern or Bahujan political activism or advocacy.

However, equality in representation alone is not a guarantee of the equality of opportunity that education is expected to produce. The wave of affirmative action that followed Mandal 2.0 faced two major adversities.

The first was a lack of sensitivity about educational methods not (even if unintentionally) being changed sufficiently to meet the needs of a large group who did not bring with them the large “merit” talent of privileged students. Someone sitting in a postgraduate political economy lecture at JNU and being asked to read a text by Maurice Dobb will act very differently, depending on whether they have studied at an elite college in Delhi University or at a university in a third-tier city in Bihar or Andhra Pradesh and have never taught in English, let alone been exposed to such demanding texts. Mandal 2.0 shifted the balance of the student body towards the latter.

Second, there was the sheer inability to cope with the teaching workload in terms of volume. Mandal 2.0 also saw a 54% seat increase and a significant decline in the workload per teacher in most centrally funded universities. This has severely hampered teachers’ ability to connect personally with students. One of my teachers who taught me in my undergraduate economics course, and is largely responsible for my widespread interest in the subject, which required him to devote personal time to me, told me about this a few years ago. “When you were a student, the class was small enough that I could give individual attention to interested students. Now, if I even tried to do that, I would go crazy because the class size has now increased more than three-four times.”

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These two factors, combined, have blinded the system at large to the needs of those who deserve it most. Now, bring up the systemic bias and caste-based retaliation that is rampant in our educational institutions; And things can get significantly worse at higher academic levels, as a supervisor enjoys hierarchical powers compared to the student. In all this you have an objective basis for universities becoming ticking time bombs of latent discrimination waiting to explode. Given the hierarchy, this often ends up destroying the student rather than the system. Those stories about student suicides in institutions of higher education represent this at its most horrifying.

When seen in this larger context, it would be difficult for any rational mind to disagree with the larger intent of the widely debated UGC recommendations, which were recently put on hold by the Supreme Court. Whether these recommendations see the light of day with the same legislative/executive support as was seen in the case of reservations or whether they are allowed to be weakened or even derailed under judicial cover remains to be seen. In a way, it will also test the strength of larger subaltern politics in India whether its effectiveness is limited to just winning representation or equality after representation.

Lack of any framework for quality

However, the debate does not end here. India’s ability, or lack thereof, to exploit its demographic dividend will not be determined by the outcome of this vitally important fight (even if) for equality of representation and opportunity in education. Here’s why.

Last week, the Financial Times published a long story on China’s Genius program, which has served as a key driver of its advance into the cutting-edge field of artificial intelligence. To cut a long story short, the Chinese state identifies exceptionally talented students at an early stage, tests them through internationally recognized competitions like Science Olympiad, selects the best among them and then ensures that they get admission in the best institutions for higher education. One of the biggest incentives for a student to pursue this field is that they have to waive China’s Gaokao, a notoriously difficult university entrance exam. These talents are expected to have completed college level courses in their high school. This program has now formed a tight neck loop with China’s broader economic power.

“I have seen firsthand how China has gone from having zero AI talent 20 years ago to mass-producing them,” he (Dai Wenyuan, a Chinese tech billionaire who was also a Genius Class graduate) said. “Some of our most cutting-edge work is now done by fresh graduates. The real talents changing the world may soon be among them”, he is quoted as saying in the FT story.

China’s rapid progress in producing such talents has its roots in the Maoist era’s insistence on furthering the productive forces in the country. It started with the promotion of school education on a large scale.

Also read: Nearly 75% of higher education institutions in India are not aligned with industry needs: TeamLease EdTech Report

India, too, took the right steps in its formative years, building institutions like the IITs and even punching well above its weight in things like space technology. But it would not be an exaggeration to say that the Indian state never really achieved the Chinese zeal for identifying, shaping and grooming talents for its national economic progress like its Chinese counterpart.

The three major factors that can be listed for this failure are, a completely indifferent approach towards the quality of primary education even though some progress has been made on the quantity front, much of the educational employment being seen as a political patronage distribution exercise (even if sometimes driven correctly by notions of equity) and, on a larger scale, a complete lack of interest by domestic capital in creating a pool of super-talented students. Although there are critical voices that lament the lack of such things, it has never really even made an honest attempt to change things. There is no indication that things will change in the near future.

Dialectics with Vanishing Synthesis:

This is the classic problem of asymmetry of incentives.

Socially discriminated against, who have recently been allowed substantial entry into elite educational institutions, are still concerned about equality. It is difficult to find fault in their concerns.

The cronies of the current regime are busy clearing out the mostly imaginary left-liberal ghosts in higher educational institutions. This purification is often culminating in the institutionalization of right-wing zeal to project political hegemony. Remember the intermittent reports of absolutely ridiculous conferences and research events linking things like cancer research to cow urine?

Capital, big and small, has realized that it is not worth trying to compete with anything like its Chinese counterpart and is adjusting to a situation where returns are not necessarily tied to excellence and instead have to operate in captive markets, arbitrage or, even better, political patronage. Indian capital is happy to be at base camp at the summit rather than trying to climb the summit.

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As is clear, the first two aspects mentioned above are the main contradictions in India’s educational debates: caste and communalism. The third is the central contradiction facing India’s larger economic fortunes.

Political correctness has so far prevented the first and second strands from actually interacting with the third. Unless this wall of China is broken, India will continue to lag behind China despite lakhs of rebellions and retaliatory actions.

Maybe, this problem lies in our historical development. Unlike China, we did not abolish feudal privileges. The post-colonial Indian state may have achieved peace by avoiding violent revolution, but the incentives created in society as a result of the conflict between capital and democracy put it in danger of losing in an international war for dominance. The greatest indictment of all the good that democracy has done to us is that no one with a strong stake in democratic competition is interested in winning this war.

(Roshan Kishore, HT’s data and political economy editor, writes a weekly column on the state of the country’s economy and its political fallout, and vice versa)