If you work as a sole proprietor but are nervous about getting sued, you should find out how to change from sole proprietor to LLC. Doing so will help you protect your personal assets, such as your car and house, in case your business is sued.
You cannot protect yourself from this event if you don’t form a business entity, such as an LLC.
The information below will guide you in learning how you can work on your own, but keep your business affairs separate from your personal finances.
Once you read the information, you can work with a business attorney to form the LLC. If you wish to book a call to speak to us here – https://mollaeilaw.com/start, you can do so anytime to help you legally.
How to Change from Sole Proprietor to LLC When You Work at Home
If you want to change from a sole proprietor to LLC, when you work at home, you can set up an LLC in a low-cost state, such as Wyoming.
To establish a limited liability company, you need to follow the steps below. They cover most of the steps you will need to follow in most of the states in the US.
How to Change from Sole Proprietor to LLC in 7 Easy Steps
If you want to know how to change from sole proprietor to LLC easily, you will need to contact an attorney before you begin. Book a call to speak to us here: https://mollaeilaw.com/start.
That way, you can have the legal back-up you need to ensure legal compliance. The following steps should be reviewed before you begin anything.
#1 Obtain an Articles of Organization Form from the State Where You Plan to Establish Your LLC
You can get this form from a state’s Secretary of State office. Find out if you will need to post a notice about the formation of the LLC in a newspaper. The only states, now, that require this posting are New York and Arizona.
#2 Select a Business Name
Select a business name for your LLC and see if it is available. Some of the prohibited words include “insurance,” “incorporated,” and “corporation.” Instead, your business LLC name should conclude with “LLC” or “Limited Liability Company.”
The business name you choose must be unique, and cannot be like another business name currently on file.
#3 Complete the Articles of Organization Document
When filling out this form, you will have to fill out your business’s name and general purpose. The principal address should be listed too.
You will also need to add the name and address for a registered agent. This person or entity should be able to accept documents connected to your business during the week. If notice is served on your LLC, the registered agent must accept the notice on your behalf.
A registered agent may also provide other services, such as the filing of documentation or reminding an LLC about a franchise tax filing date.
#4 Publish a Newspaper Notice Locally
If applicable, publish a notice in a newspaper before you submit and file your Articles of Organization or a similar form of the document.
#5 Submit the Form for the Articles of Organization
Send the Articles of Organization to the Secretary of State and pay the filing fee. Depending on the state, the fee may range from $400 to as much as $900.
#6 Draft an Operating Agreement
Your operating agreement should cover member contributions and operational policies. It also should contain how profits are distributed. Terms for leaving are also included.
#7 Establish the LLC Where You Wish to Do Business
If you are primarily doing business in one state, such as California, it is best to establish your LLC in California. Otherwise, you can set up your LLC just about anywhere in the US.
Low-cost states, with respect to filing, include Wyoming, Delaware, and Nevada. Consult with a legal specialist to see which venue is best for you.
You will like establishing an LLC, as you will safeguard yourself from lawsuits and can file your taxes on your personal income tax return. As a sole proprietor, you don’t enjoy personal asset protection. Therefore, taking the above steps will help clear the way for you to conduct business with fewer worries about disputes.
How to Change from Sole Proprietor to LLC Business Bank Account
If you work on your own and use a personal bank account for business activities, you should change from a sole proprietor to LLC business bank account right away. You want to keep your personal and business finances separate.
While a sole proprietor may add money to a personal account, an LLC business is distinguished in this respect. To open a business LLC bank account, you will need the following documents:
- A copy of the LLC’s articles of organization or similar document.
- Your federal tax identification number or an Employer Identification Number (EIN). We can help in this respect. You will want to book a call to speak to us here: https://mollaeilaw.com/start.
- A copy of the operating agreement, or a similar piece of paperwork that shows who can sign on your behalf.
It pays to do your research before you meet with a banker to ensure that you have all the proper documentation.
How to Change from Sole Proprietor to LLC and Claim Tax Deductions
You will also have to consider your taxes when you change from sole proprietor to LLC. You can deduct your start-up costs and list other deductions when you form this legal entity. For example, you can deduct organizational or start-up costs during your business’s first year.
Start-up costs involve what you pay to create the LLC. Basically, these costs involve all the expenses that occur before you receive money from customers.
The organizational costs include the cost of registration, attorney fees, and the costs tied into the legal paperwork. You just cannot deduct attorney fees for drafting customer agreements, as these types of contracts are not created for organizational purposes.
What Happens Next?
Owning and operating an LLC is a fun and exciting venture. However, you need to know what to do to comply with a state’s mandates. That is why you should not go it alone.
You will need legal assistance to set up the LLC and to help you with legal obligations, once it is founded.
For ongoing assistance, book a call to speak to us here: https://mollaeilaw.com/start. Take that first step today.
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