Many small businesses start by operating as a sole proprietorship since it’s the default business structure. However, as their businesses grow, they decide it’s best to formalize their businesses. Perhaps you are in this position right now, whether you want to protect your personal savings and assets from liability issues or wish to expand your business’s reach. In either case, you are likely wondering what you need to do to change your sole proprietorship to a limited liability company (LLC).
The good news is that it is fairly simple and affordable to start an LLC, especially when you work with a Pennsylvania, New York, or Delaware business attorney. Plus, you could enjoy additional benefits when you transition your business to an LLC. Before we provide an overview of the process for becoming an LLC business owner, let’s look at the reasons you may want to move away from a sole proprietorship.
Why You May Want to Switch Your Business From a Sole Proprietorship to an LLC
One of the most significant benefits of changing your status from a sole proprietor to an LLC business owner is the personal liability protection you will receive. Your personal property and assets will no longer be at risk in the event your business goes into debt or gets sued. As an LLC, you will also have flexibility in how your business is taxed and enjoy the ease of establishment.
It’s important to note that not every sole proprietorship can change to an LLC. Depending on your state and other criteria, you may need to select a different legal structure for your business. A business attorney can help you determine if it’s possible to form an LLC.
Steps for Changing Your Sole Proprietorship to an LLC
If you’re ready to grow your business and make the step from a sole proprietorship to an LLC, follow this process:
Step One: Check to See if Your Business Name Is Available in Your State
One of the first things you will need to do is select an LLC name for your business that follows your state’s requirements. This means the name:
- Must include “Limited Liability Company” or one of its abbreviations “LLC,” “Ltd,” or “Limited Liability”
- Does not infringe on another company’s trademark
- Does not include state-restricted words
You can check if a business name is available by contacting your state’s Secretary of State office or hiring an attorney to perform the search for you.
Step Two: Designate a Registered Agent
The registered agent will be responsible for communicating with the state and other legal authorities throughout the course of your business. You can act as your own agent or entrust this role to your attorney.
Step Three: File the Articles of Organization
You cannot officially form an LLC until you fill out the Articles of Organization form. It may also be referred to as a Certificate of Incorporation or Formation. After filling out the form, you must file it with your Secretary of State and pay the filing fee.
The articles of organization will require the following information:
- Business name and address
- Registered agent’s name and address
- Each business member’s name and address
- Business description
- Date of application
Step Four: Register With the IRS
When you start an LLC, you need to apply for a new employer identification number (EIN) through the IRS. Even if you have an EIN as a sole proprietor, you will still need to get a new one. This identification number will be used to open business bank accounts, file taxes, manage payroll, and receive business credit.
Step Five: Announce Your LLC
As you’re getting ready to transition your sole proprietorship to an LLC, you need to note that some states (including New York) require business owners to announce their LLC formation publicly. To make this announcement, you simply need to publish something in your local newspaper. Then, you will need to submit written proof of this announcement to your LLC filing office.
Step Six: Apply for a New Bank Account and Business Licenses and Permits
If you do not have a business bank account, you will want to open one for your new LLC. If you already have a business account, you will want to update the information to reflect your new status. In either case, make sure you share your new business name with your clients so that they can make payments to your LLC.
At this point, it’s also a good time to update your licenses and permits with your new LLC name. And you may want to consider registering for additional licenses and permits that will help your business flourish.
Receive Professional Assistance Today
Transitioning your sole proprietorship to an LLC may be the next step for your company. Because the process can be confusing at times, it’s best to work with an LLC formation attorney in New York, Pennsylvania, or Delaware. The team at Garibian Law Offices is here to provide the legal advice you need, such as selecting the right legal structure for your business, and will make the process of changing from a sole proprietor to an LLC business owner smooth. Get in touch with our team today to begin discussing the process for taking your business to the next step.