Changing A Sole Proprietorship To An LLC
If you’re a budding entrepreneur, there are various business formations to consider. Most business owners without employees will opt for a sole proprietorship. This formation is easy to set up and it’s cheap to do.
However, things change over time and as your business grows, you may decide that a sole proprietorship no longer fits your needs. You may want to hire employees or get a business partner. These things are easier to do when you have an LLC.
Why Switch to an LLC?
There are several main reasons why an LLC is better than a sole proprietorship and why you might want to switch to one:
- An LLC will protect your personal assets. With a sole proprietorship, your personal accounts and assets could be used to pay business debts. This isn’t the case with an LLC, though. Forming an LLC helps protect your personal assets if the business is sued.
- You want a business partner. With a general partnership, your liability exposure increases because you are still liable for your partner’s actions. An LLC can protect you.
- You want to hire employees. You can hire employees as a sole proprietor, but you’ll need to stay on top of employment and tax laws. Operating as an LLC may be easier to account for employee compensation and taxes.
- You can save money on taxes. Sole proprietors still have to pay payroll taxes, or self-employment taxes. You may be able to save money by forming an LLC and electing S-corporation taxation. Under this method, you would only pay payroll taxes on your reasonable salary, not on the company’s total profits.
Switching to an LLC
Follow these steps to change your business to an LLC:
- Confirm business name. The first thing you’ll need to do is confirm that your business name is available as an LLC. You’ll need to do a business name search on the secretary of state website.
- File articles of organization. File the articles of organization with the relevant state agency and pay the applicable filing fee. Articles of organization require basic information about the LLC, such as name and address..
- Draft and execute an LLC operating agreement. This is an agreement between LLC members that outlines the rights and obligations of the members.
- File a Form SS-4. You will need to file an SS-4 to obtain an employer identification number (EIN). This is a nine-digit number the IRS assigns to businesses for tax purposes.
- Apply for a new bank account. Having a business bank account will keep your personal and LLC assets separate.
Learn More About Sole Proprietorships
Sole proprietorships are great for those just starting out, but as your business grows, your needs may change. An LLC can help accomplish your goals and getting one is not that hard.
Orlando sole proprietorship lawyer B.F. Godfrey from Godfrey Legal can make the process easier. Save time and money with our help. To schedule a consultation, call (407) 890-0023 or fill out the online form.
Source:
forbes.com/advisor/business/how-change-sole-proprietorship-to-llc/
