How to Switch from Sole Proprietor to LLC (ULTIMATE GUIDE) (2023)

Switching from sole proprietor to LLC is usually a strategic move – one that is quickly done when you find out about your financial vulnerability as a sole proprietor.

We can help you in your move to step up from sole proprietor to LLC. Book a call to speak to us here: https://mollaeilaw.com/start.

Once you contact our office and start launching your new limited liability company (LLC), you will be able to rest easier at night.

To understand how to get your new LLC off the ground, you should read the following information. An LLC stands for a limited liability company, and is the ideal choice for any start-up that wishes to keep its business dealings separate from its personal finances.

 

Switching from a Sole Proprietor to LLC – What Is Involved?

When you are switching from a sole proprietor to LLC, you need to take specific steps. These steps are outlined as follows.

#1 Research and Find Out If Your Business Name Has Been Taken

The first thing you need to do is find out that your business name is already being used. Unless you plan to use your first and last names, you will need to register a business name for your LLC. Therefore, you need to check the Secretary of State’s database and see if the name you plan to use has been taken. This search can usually be done for free.

#2 File the Articles of Incorporation

Next, you will need to file an Articles of Incorporation. This important document includes the following:

• Contact name and address of your LLC business.
• The purpose of the LLC – no need to be detailed here, just give a general purpose.
• The name and address of the registered agent, or the person or entity assigned to accept the paperwork concerning your business.
• An indication, as to the management. Will your LLC be managed by members or overseen by a manager?

By contacting an attorney to help, you can get the Articles of Incorporation properly filled and submitted faster.

#3 Create an Operating Agreement for the LLC

To prevent future disputes, you should create an operating agreement for your LLC business. You do not need to create this agreement legally. However, you should still have one drafted to ensure you don’t get into a future legal jam. An operating agreement can be used to solve any disagreements with you and other LLC employees, or with customers.

It also details how the company will function if a certain member or employee leaves.

The operating agreement does not have to be elaborate – it can be just a few pages. Use it to clarify any verbal agreements and prevent any future misunderstandings.

#4 Register Your LLC with the Internal Revenue Service (IRS)

When you create an LLC business, you will need to apply for an employer identification number (EIN). Sole proprietors often obtain an EIN so they can establish a business bank account and keep their personal and business tax transactions separate.

The EIN will be used, again, for signing up for a business bank account and file taxes or to apply for business credit. This number should be obtained as well if you plan to pay employees.

#5 Apply for a Business Bank Account

If you already had a business bank account for your sole proprietorship, you will need to close this account when you set up your LLC. Therefore, you will need to open a new bank account to keep your records and accounting straight. By forming an LLC, you will now have a sharp division between your business and personal holdings.

By making this move, you can streamline your business’s transactions when you report taxes.

#6 Apply for Business Licenses or Permits

You may need certain licenses or permits to run your business and comply legally. These licenses or permits may include a reseller’s permit, professional license, or a permit from your local health department. Some states require that sole proprietors reapply for licensure if their entity changes. Contact the proper government office to find out the specific permit and licensing requirements for your business.

You can also gain information by reviewing a site, such as businesslicenses.com. This is probably the easiest way, as the platform features services and software for small business and corporate licensing. To get licensed, you only need to insert your city and state on the site, and add your industry.

 

A Bona Fide Shield

As you can see, the above steps are not too difficult to follow, especially if you contact a knowledgeable lawyer to support each step.

This is the best way to turn your sole proprietorship into an LLC and use it as a shield against being sued.

If you do not own assets, such as real estate or a new car, and work as a sole proprietor, you should buy business liability insurance to add a layer of financial protection.

Usually, converting to an LLC should be done if your personal assets, if taken, would trigger some very real financial hardships for you and your family.

 

What Happens Next?

If you are still in a quandary about switching from sole proprietor to LLC, you will learn quickly about the benefits of making this move when you contact our law firm. Switching from a sole proprietor to LLC is a smart strategic business tactic – one that will keep troubles from brewing and add to your professional standing as a start-up company.

You can learn more about switching from a sole proprietor to LLC when you book a call to speak to us here: https://mollaeilaw.com/start.

The sooner you switch from being an independent contractor to an LLC, the sooner you can improve your financial outlook – both personally and professionally.

Again, book a call to speak to us here: https://mollaeilaw.com/start to learn how to make this type of business transformation.