If you have a very formal living room, then a traditional upholstered sofa would be the better choice.
However, if you do not have a very formal living room, then a futon should be fine. Futon frames, mattresses, and covers come in a variety of styles that fit any decor.
In addition, if you are considering a sofabed, then futons have several advantages such as less expensive, lighter and easier to move, and more comfortable for sleeping because the mattress is thicker and there is no bar in the middle.