Understanding the Process
Yes, it is possible to convert a sole proprietorship to a limited liability company (LLC). As a business entity, LLCs offer greater protection, tax advantages, and other benefits compared to sole proprietorships.
When changing from a sole proprietorship to an LLC, you must examine existing contracts carefully. Your responsibilities as an LLC owner should be detailed in the operating agreement. As an owner, you have a duty of care that requires you to act in good faith and exercise reasonable care concerning the LLC.
If you follow the LLC filing instructions, we’ll provide instructions on how to get a new EIN Number and stop using your Sole Proprietorship.
The first step when changing from a sole proprietorship to an LLC is to confirm your business name is available for use by an LLC in your state. Once you’ve confirmed availability, also search the United States Patent and Trademark Office (USPTO) database to confirm the name isn’t trademarked.
Comparing Entities
There is less paperwork and regulations in a sole proprietorship. Sole proprietors aren’t required to pay unemployment tax on their income but will need to if they have an employee.
Converting your sole proprietorship to an LLC protects your personal assets from lawsuits against your business.
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.
Advantages and Disadvantages
What are the disadvantages of changing from a sole proprietorship to an LLC?
Advantages of an LLC: Limited liability, pass-through taxation, and ease of establishment. Steps to change from sole proprietorship to LLC: Confirm your business name, file articles of organization, draft and execute an operating agreement, and tie up your loose ends.
After creating your LLC, get your EIN. Open a business bank account to separate your business dealings from personal transactions.
It’s common for entrepreneurs to consider changing from a sole proprietor to an LLC as their business grows.
Seek professional advice before changing your business structure.
Maintain your “corporate veil” when changing to an LLC by keeping personal and business assets separated.
Step-by-Step Conversion Guide
Can I change my EIN from sole proprietor to LLC?
You can change from a sole proprietorship to an LLC. The typical steps include:
- Confirm your business name is available for the LLC.
- File articles of organization with your state.
- Draft and execute an operating agreement outlining members and LLC purpose.
- Cancel any DBAs filed for the sole proprietorship.
- Transfer assets from the sole proprietorship to the LLC through contributions, sales or assignments.
- Get a new EIN for the LLC.
When changing structures, some professionals in certain states can’t form an LLC and must pick a different entity. Seek advice on risks before deciding if an LLC meets your needs.