When To Change from a Sole Proprietor to an LLC
It's time to make the switch to an LLC when you are ready to earn a profit and grow your business. This is because sole proprietorships are only good for very low-profit/low-risk businesses.
Forming an LLC allows owners to take on risk and grow their business.
By switching from a sole proprietor to LLC you will:
- Increase peace of mind
- Increase credibility
- Protect your savings, car, and house
- Protect your privacy
- Increase business growth
- Allow for accelerated growth
- Allow for greater profit
Steps to Convert a Sole Proprietorship to an LLC
You've decided to take the next step in growing your business and protecting your personal assets.
These are the steps you will need to take to form your LLC:
- Name Your LLC
- Choose an LLC Registered Agent
- File Your LLC's Articles of Organization
- Create an LLC Operating Agreement
- Get an EIN
Using an LLC formation service is helpful for converting sole proprietorships to LLCs. We usually recommend using a formation service because the free year of registered agent service that is included is worth 2-3x what it costs to form the LLC.
Step 1: Name Your LLC
First, you must give your business a unique name—one that's distinguishable from all other business names in your state. Our LLC Name Search guide is helpful here.
You might already have a DBA name for your sole proprietorship (or partnership) that you will want to carry over to your new LLC. The steps for transferring or converting a DBA name vary from state to state.
You may also need to contact your state for specific directions on how to transfer your DBA registration. You can find your state's contact information on our Form an LLC guides.
Business Naming Help
Step 2: Choose a Registered Agent
Your LLC registered agent accepts legal documents and tax notices on your LLC's behalf. You will list your registered agent when you file your Articles of Organization.
Step 3: File Your Articles of Organization
The Articles of Organization, also known as a certificate of formation or a certificate of organization in some states, is the document you'll file to register your LLC with the state.
Step 4: Create an Operating Agreement
An LLC operating agreement is a legal document that will outline the ownership and member duties of your LLC.
Step 5: Get a New EIN or 'Transfer Existing EIN
Get an EIN
An Employer Identification Number (EIN) is a number that is used by the US Internal Revenue Service (IRS) to identify and tax businesses. It is essentially a Social Security number for a business.
EINs are free when you apply directly with the IRS. Visit our EIN guide for instructions for getting your free EIN.
Transfer an EIN
According to the IRS, sole proprietors that incorporate (eg., form an LLC or corporation in IRS language), must get a new EIN.