Conversion Process Overview
To convert a sole proprietorship to a limited liability company, you’ll file the same paperwork as you would if you had created the LLC from scratch. You’ll also update sole proprietorship registrations, bank accounts, and contracts to reflect the change.
As individual states govern business entities, you must follow your state’s procedures for changing a sole proprietorship to an LLC. You may have to cancel your sole proprietorship’s trade name or Doing Business As (DBA) before you can form an LLC. You may not be able to keep your same name depending on state naming laws. Like any LLC, you must select a registered agent, file articles of organization, and draft an operating agreement.
Benefits of Converting to an LLC
It’s not very complicated to change a sole proprietorship to an LLC. Let’s go over why someone might want to do this, if there’s an ideal time to switch from a sole prop to an LLC, and some of the benefits of doing this.
It is essential to consider all the potential benefits of this change and any associated risks and LLC costs. The primary benefit of switching from a sole proprietorship to an LLC is the increased protection of personal assets.
How to Change from Sole Proprietorship to LLC
Should I convert my sole proprietorship to an LLC? Yes, if you are currently running a sole proprietorship, converting to a limited liability company (LLC) can offer greater protection, tax advantages, and other benefits.
- Check your business name.
- Cancel your sole proprietorship’s DBA (if necessary).
- Select a registered agent.
- File articles of organization.
- Draft an operating agreement.
- Establish a separate bank account for your new business.
- Update relevant registrations, licenses, and permits.
Final Considerations
It is an exciting moment in the growth of your business when you decide it’s time to convert from a sole proprietorship to an LLC. Particularly if your business originated as a side hustle and has blossomed into a full-time income, it may be time to look at formally organizing your company.
Before making a decision on if you should convert your sole proprietorship or LLP into a limited liability company, it is strongly advised that you explore and plan the above matters carefully.
After your LLC is approved, simply stop using your Sole Proprietorship. You’ll only want to operate under your LLC moving forward. You must also be aware that as an LLC, you might have to pay state fees and business taxes that you wouldn’t be responsible for as a sole proprietor.
In conclusion, switching from a sole proprietorship to an LLC can be an excellent decision for many business owners, but it’s essential to carefully weigh all the potential benefits and risks before making a final decision.