The verb “convert” (as in converting a Sole Proprietorship to an LLC) is not the best verb to use.
Technically, there is no such thing as a “conversion” from a Sole Proprietorship to an LLC.
Rather, you are “changing over” from a Sole Proprietor to an LLC. Meaning, you simply form an LLC and then stop using your Sole Proprietorship.
This means you’ll:
- Form an LLC
- Get a new EIN Number
- Stop using your Sole Proprietorship
- Cancel/withdraw your DBA (if applicable)
- Transfer any assets or property to your LLC
- Update contracts and agreements
- File a “final” tax return for your Sole Proprietorship
- Open a new business bank account for your LLC
Where should I form my LLC?
You’ll want to form an LLC where you’re legally doing business. For most people, that’ll be their home state. For more information, please read what’s the best state to form an LLC.
How to create an LLC
After you’ve determined what state to form your LLC in, please see our LLC filing instructions page for all 50 states.
Do I need a new EIN for my LLC?
If you already have an EIN (Employer Identification Number) for your Sole Proprietorship, you won’t be able to use that for your LLC. You’ll need to get a new EIN Number after your new LLC is approved.
If you follow the LLC filing instructions (mentioned above), we’ll provide instructions on how to get a new EIN Number.
For more details, please see: Do I need a new EIN if I change from Sole Proprietor to LLC?
Stop using your Sole Proprietorship
After your LLC is approved, simply stop using your Sole Proprietorship. You’ll only want to operate under your LLC moving forward.
Cancel DBA/Fictitious Name
If your Sole Proprietorship has a DBA (Doing Business As) or Fictitious Name (aka Trade Name or Assumed Name), you’ll want to file a cancellation or withdrawal form with your county or state.
Transfer assets from yourself to your LLC
You can transfer assets owned by your Sole Proprietorship to your LLC by:
- making a capital contribution,
- by sale, or
- by assignment.
A capital contribution means you are using your Sole Proprietorship’s assets as “cash” to purchase ownership interest (called LLC Membership Interest) in the LLC.
On the other hand, you can assign assets/property to your LLC or your LLC can purchase assets/property from yourself (your Sole Proprietorship).
You’ll want to speak with an account, since depending on the value of the assets being transferred, there could be tax benefits to one method over another.
If you need to transfer domain names or digital assets, please see the following pages:
Update your contracts and agreements
If you’ve entered into business contracts or agreement under your personal name, you can either:
- Assign those contracts/agreements to your LLC (check the language in the contract to see if this is allowed and/or permission is needed from both parties), or
- Carry out your duties under the current contracts/agreements and then have your LLC renter/renew those contracts or agreements.
File a Final Tax Return
There isn’t technically a need to file a “final” tax return for a Sole Proprietorship, but you can if you’d like to.
You can simply write “Final Return” at the top of your Schedule C. But again, it’s not required.
Open a new business bank account for your LLC
After your LLC is approved and you have your EIN Confirmation Letter from the IRS, you can open an LLC bank account for your new company.
We recommend reading how are LLCs taxed and then speaking with an accountant. While most people will file their taxes in a similar fashion, it’s a good idea to speak with a professional to make sure everything is taken care of properly.
Places to update
Now that you have your new LLC, you’ll want to update your business name.
Here are some places to make updates:
- your website
- marketing and advertising
- business license and/or permit (you may need to re-apply)
- business checks
- business cards
83 comments on “How to Change (Convert) Sole Proprietorship to LLC”
Disclaimer: Nothing on this page shall be interpreted as legal or tax advice. Rules and regulations vary by location. They also change over time and are specific to your situation. Furthermore, this comment section is provided so people can share their thoughts and experience. Please consult a licensed professional if you have legal or tax questions.
I own commercial property(paid off) as Sole Proprietorship but now i want to sell the property to my new LLC .after I sell it to my LLC, then my LLC will pay me monthly mortgage payment to me for the next 20 years.so my question is, do I need to register the bill of sale or (mortgage lien)with deed office so i can have priority to the property i am selling in incase if the LLC fail or incase of lawsuit judgment against the LLC???
I am going to transition from Sole Proprietor to SMLLC. I sell craft supplies online so I have inventory. How do I record the transfer on the books on both ends?
Hi Jennifer, I’m not 100% sure how it’s documented from a bookkeeping perspective, but you can assign all the property from yourself to the LLC. Or you could contribute the property to the LLC in exchange for LLC Membership.
I recently registered a sole proprietorship 2 weeks ago, I haven’t any transactions or deals under the business name ( due to getting everything ready, permits, licenses, bank accounts .)
What I have to do to change to a LLC Business? Where to go to do the change?
Hi Antonio, I apologize for our slow reply. You can simply stop operating as a Sole Proprietorship and form an LLC. We have information on LLC formation in every state.
Thank you for this article.
My situation: (in Virginia)
Created a partnership in December 2020 in my county. We want to change it to an LLC. From what I understand, it’s better to just create a new LLC rather than just try to convert it. I submitted an LLC application for my state for the same name as the partnership. I tried to create an EIN but IRS is giving me back the 101 error, which seems to say name not available. How do I connect the original EIN to my new LLC? Or did I mess this up?
Hi Justin, you’re welcome. There is no such thing as “converting” a General Partnership to an LLC. You would simply form a Multi-Member LLC and transfer any assets and assign contracts from the GP to the LLC. Your LLC will need a new EIN. Please see EIN reference number 101. This means you can’t apply for the EIN online, but you’ll need to do so by mail or fax. Please see here: Apply for EIN for an LLC with Form SS-4. After you file a final Partnership return for the GP, you can deactivate the EIN. Hope that helps.
You have great info, thank you! My LLC was recently approved and I received a new EIN. While filing for the new EIN it mentioned Form 8832 if we don’t wish to accept the default status of either partnership to disregarded entity. I’m still clueless if I should file Form 8832 or what it is. If it helps I live in CA.
Hi Darlene, if you don’t know what Form 8832 is, it’s unlikely you need to/want to file it. Please see How are LLCs taxed? What the IRS is trying to say is that if you don’t want to accept the default tax classification of an LLC (a Single-Member LLCs is taxed like a Sole Proprietorship and a Multi-Member LLC is taxed like a Partnership), you can file Form 8832 and have your LLC taxed as a C-Corporation or you can file Form 2553 and have your LLC taxed as an S-Corporation. Hope that helps.
A lot of useful info here! I recently switched from a sole proprietor to LLC. My question is, can I still count the years I was in business as a Sole Proprietor for loan and credit purposes?
Hi Lee, thank you! It depends on the how the underwriter interprets “years in business”. There isn’t an official “black and white” answer to this. We recommend speaking/emailing with the the lender(s).
Great info here! I recently switched from a sole proprietor to LLC. I operated as a sole proprietorship with a DBA in the name of “Linda Finds”. I am an Amazon reseller and live in NYC. I intend to use my LLC, named “Linda’s Marketplace” for my Amazon business. However, I would also like to sell jewelry and was thinking of separating the Amazon business from the jewelry business. Can I continue to use my DBA, “Linda’s Finds” for my jewelry business?
Hi Linda, thank you! If you continue using “Linda’s Finds”, it will be you operating as a Sole Proprietorship. It sounds like you want that to be a part of your LLC. If that is the case, you’ll want to contact the County Clerk in New York where you filed the DBA (Assumed Name) and cancel that filing. Then file another one (this time, owned by your LLC) under the same name, “Linda’s Finds”. Hope that helps :)
Hi, i recently made the switch from sole proprietorship to an LLC (i’m the only owner with employees).
My business name still remains the same except it now has “LLC” at the end, how do i inform IRS about this? I cant get ahold on anyone and is my name automatically changed once i’ve been approved and registered to the state?
Also would i need to get a new EIN? Or can i keep the one i had for as sole proprietor since i’ve used it to file taxes in 2020
Hi Elizabeth, your LLC will need a new EIN. You don’t need to file anything with the IRS to “change the name”, since there is no name to be changed. You formed an LLC and that is not a “name change”. Hope that helps :)
My husband owns a sole proprietorship doing business strictly online. He has an EIN number and DBA in Texas.
We just moved from Texas to Florida.
Husband would like to keep everything the same if possible.
Can he keep the business address (PO BOX), EIN and DBA in Texas and conduct his online business in Florida as usual or are there steps that he needs to take with Florida to get it transferred over?
If he keeps the business address, does he keep paying the sales tax to Texas or does it go to Florida even if it is strictly an online business?
Thank you for your help!
Hi Vanessa, because a Sole Proprietorship isn’t registered with the state (it “follows” your husband around because it is him), there is nothing to do to “move” the Sole Proprietorship. The EIN is a federal number, so that stays the same. Regarding the DBA in Texas, you can cancel/withdraw that if he’s no longer doing business in Texas. You’ll need to contact the County Clerk in Texas where the DBA was registered for instructions.
He will need to register a Fictitious Name in Florida (see Sunbiz: Florida Fictitious Name Registration) and renew it every 5 years (see Sunbiz: Fictitious Name Renewal). A DBA in Florida is called a Fictitious Name. He must also publish a notice about the Fictitious Name in a newspaper.
Sales tax is paid based on sales tax nexus and not a business address. Hope that helps :)
I have been operating as sole proprietor for 2020 not knowing if things would take off (they did). Got an EIN recently for tax purposes, though I believe I chose sole proprietor. not LLC. Now, I’m realizing it’s likely better to have an LLC. Should I get a new EIN for a single member LLC dated the first of 2020 – or is that even possible (to retroactively setup). Or keep things as sole proprietorship for 2020 and register for LLC for 2021? Trying to think of things from tax standpoint. Also, is LLC the way to go? What’s the difference between sole proprietorship and LLC sole proprietorship?
Hi A, simply getting an EIN and checking off “LLC” is not how you form in LLC. In fact, that is how you apply for an EIN for a non-existent LLC ;) LLCs are formed at the state level, not at the federal level. So if you decide to form an LLC, you file with the state, wait for the LLC to be approved, and then apply for an EIN (and open an LLC bank account).
Your question needs to be looked at through two “lenses”.
First: LLC vs Sole Proprietorship. From a legal perspective, the LLC provides personal asset protection. A Sole Proprietorship doesn’t.
Second: “Sole Proprietorship vs LLC Sole Proprietorship”. This is really a tax question that should be phrased like this: Sole Proprietorship vs LLC taxed as Sole Proprietorship”. Meaning, by default, an LLC with 1 owner is taxed like a Sole Proprietorship. So a Sole Proprietorship and a Single-Member LLC (taxed in its default status) pay taxes in the same way.
Said another way, from a tax perspective, a Sole Proprietorship and an LLC taxed like a Sole Proprietorship are the same, however, from a legal perspective, they are very different. Hope that helps :)
First, I want to thank you sincerely for all these valuable information. Simple yet precise, and very easy to understand and so instrumental for a pre-novice entrepreneur like me!
I live in New York and will get an office in Nassau county from January for an e-commerce business involved in importing fashion goods from China. I already spent a few thousand dollars mostly on making samples & purchasing goods, but couldn’t decided whether it will be better to have my LLC formed within this month December 2020, or have it formed next year January 2021, because I want to write off these expenses on my personal tax return. Or, should I better file tax return as a sole proprietorship for this year (by quickly obtaining EIN and DBA name within this month) and change it to LLC next year January?
Hey Jennifer, thank you :) And you are very welcome! Okay, gotcha. It’s actually easier than you think. As a Sole Proprietorship, you can write off the expenses, so there is no need to rush to do an LLC for that in 2020. Furthermore, you don’t need an EIN or a DBA for your Sole Proprietorship. They are both optional. Plus, there is very little point, since you are very soon forming an LLC in New York.
Also, you can actually file the New York LLC right now (instead of waiting until 2021), but use an Optional Effective Date of 1/1/2021. That means your LLC gets filed in December, but doesn’t go into effect until 2021. So from a tax perspective, your accountant would just file a Schedule C for your Sole Proprietorship for 2020 (when taxes are filed in April 2021), however the Schedule C for your LLC isn’t filed until April 2022.
Also, please read about the New York LLC publication requirement before you start. We have information on how to save money on the newspaper publication fees. Hope that helps.
Thanks a million for your prompt answer and it clarifies everything! I do hope more entrepreneurs like me could find you sooner and get the benefit of your advice. (I made a small donation last night to support your website and I hope to do more in the near future when my business grows!)
You are very welcome Jennifer :) And thank you! Thank you for the donation and for the kind words!
Thanks for this website. Extremely helpful resources.
My business is operating under a SP in Florida.
My boyfriend is opening a new business and we wanted to create an LLC & house both business under it.
1- When we create one LLC for both business and we get a new EIN, can I keep my SP EIN to keep operating my business and he uses the new LLC EIN for his biz or do we both have to use the new LLC EIN for both businesses under the LLC.
2- Same for the bank account, when we create the LLC for both business
and we get a new LLC bank account, can I keep my SP bank account to keep operating my business and he uses the LLC Bank account for his or do we have to use the same LLC bank account for both businesses under the LLC, even when its two separate businesses.
Thanks again for your help.
Hi Paola, we recommend checking out Can I have two businesses under one LLC?
No, you won’t be able to use your old EIN after forming an LLC. After your LLC is approved, you’d apply for a new EIN for the LLC. That EIN for your new LLC would be used for any and all business activities for the LLC.
No, you can’t keep the same bank account as that bank account is owned by you personally as a Sole Proprietorship. After your LLC is approved, you’ll want to open a new LLC checking account. You may want to consider forming two separate LLCs. It can make bookkeeping and finances easier. And it doesn’t make your LLC liable for your boyfriend’s business activities and vice versa. Hope that helps.
Hello! Come tax time, how do we bookkeep for the mid-year conversion from SP to LLC? I have several incurred expenses and revenue generated between 1/1/2020 and 11/20/2020 (date of LLC formation) as a SP. Do I need to file a return for the SP up until 11/20 and then a different return for the LLC from 11/20-12/31? I’m a single member LLC now.
Hi Matt, yes, you are correct. You’d file a return for the Sole Proprietorship and one for the LLC. Hope that helps.
Thank you so much for this amazing resource!
I need to convert my sole proprietorship to an LLC and wanted to know if you think it would be better to form my LLC at the end of the year (December) or at the beginning of the new year. Does it matter?
Hi Jessica, you are very welcome! Yes, it does matter. And in some states (depending on the LLC annual filing fees), it matters more. For example, if your LLC goes into existence in 2020 (depending on the state where you’re forming your LLC), it may need to file an LLC Annual Report (and pay a fee) in 2021. However, if your LLC goes into existence on or after 1/1/2021, that Annual Report isn’t due until 2022.
Also, depending on how your LLC is taxed, this may also push your first tax filing requirement due date from 2021 to 2022.
But there is a “best of both worlds” scenario: You can file your LLC now, but use an LLC effective date of 1/1/2021. This way, you file your LLC now, but your LLC won’t go into existence until 2021. Please keep in mind though, that you’ll need to wait until 1/1/2021 until you can open an LLC bank account and begin business activities. Hope that helps :)
Great, thank you! :) I really appreciate the prompt and thorough response.
You’re very welcome Jessica!
First of all, thank you for your great website. It is laid out very simply and easy to follow! You also saved me from possibly spending way to much to pay someone else to help form my LLC (which is one reason I have put it off so long)!
I am planning on moving from a sole proprietor to a newly formed LLC on the 1st of the year. I own 2 enclosed trailers and an older vehicle that are paid in full and have no liens. These trailers and vehicle are used only for the business and are registered as commercial vehicles in my state. Do I need to “sell” them to the LLC once it is formed? Can I give them to the LLC and just sign the titles over from my personal name to the LLC?
I also own some other equipment valued at $2K to $3k total and various small tools that are used only for the business, Is there anything I need to do to show that the LLC “owns” these assets? or is that even necessary and the LLC can just start using them (perhaps I give those to the LLC also)? Just want to see if I need some kind of paper trail to show where these things came from?
Hey Greg, thank you very much! And thank you for the kind words. You want to actually transfer ownership from yourself to your LLC. And a paper trail is smart. You can sell the trailers and the vehicle from yourself to your LLC. You can use a Bill of Sale and you’ll transfer the title. And the same for the personal property (equipment, tools, etc.). While there is no title with the personal property, a Bill of Sale with a list of items will do fine. Regarding how much to sell things for, the general rule of thumb is “fair market value” from an accounting standpoint. Hope that helps.
My husband and I each have our own businesses, let’s call them Sara Smith Photography and James Smith Video Productions. They are both currently sole proprietorships using DBAs. We would like to form one LLC and utilize two DBAs, Sara Smith Photography and James Smith Video Productions. In order to do that (in NY), would we each need to withdraw our current DBAs with the county and re-file the DBAs under the LLC? Or is there an option to modify DBAs to reflect the change?
Hi Sara, thanks for the example names! It really helps us understand what you’re trying to do. The answer is neither. What you’ll likely want to do is form a new LLC (let’s call it Smith Studios LLC). Then both you and your husband (individually) will assign (aka transfer ownership) of your DBAs from yourselves personally to the new LLC. This way, Smith Studios LLC can do business under the following 3 names:
Let us know if this is something you’d like to do. We don’t believe the NY Division of Corporations has an assignment/transfer form for an Assumed Name. Someone from our research team can look into this and we’ll reply back here in a week or two. Hope that helps.
Thank you so much! That is incredibly helpful. I would very much appreciate your team looking into this for us!
You got it Sara ;) Expect a reply here soon!
Hi Sara, we have an update for you! So what I told you initially isn’t correct. You can still accomplish what you want, it’s just that the process of getting there is different. The reason for this is that in New York, Assumed Names for Sole Proprietorships are filed at the county-level and Assumed Names for LLCs are filed at the state-level. So it’s actually rather simple:
Here are instructions (and a link to the form) from the state: New York Division of Corporations: Certificate of Assumed Name. For the Discontinuance forms, you’ll need to contact the county where you first registered the Assumed Names and ask for their forms and instructions.
Oh, and one final note: The state-level Assumed Names filing don’t have any renewals. It’s just a $25 initial filing fee per Assumed Name and they last forever (or until you file a Discontinuance with the New York Division of Corporations). Hope that helps!
Thank you so much, Matt! I really appreciate the research and the detailed answer. That helps tremendously!
You’re very welcome Sara :-)
Concerning existing contracts and client agreements, is there a proper process to transferring them to be applicable to the LLC?
Hi KM, generally speaking, you can assign the contracts from yourself/Sole Proprietorship to your LLC via a simple assignment agreement. And then notify your clients that you are now operating as an LLC. You can also notify them that the agreements have been assigned to your LLC. However, that can’t be done if the contracts/agreement specifically state an assignment is not allowed or that it requires both parties to agree in writing. Of course that last one isn’t too bad though. Hope that helps.
Thanks Matt your site is awesome. I used Northwest for my LLC and it worked great.
Thanks so much KM! You’re very welcome. We think you’ll be very happy using Northwest Registered Agent!
Hi Nate, thank you for this – its informative. Im a little confused on business names, you mentioned “After your LLC is approved, simply stop using your Sole Proprietorship. You’ll only want to operate under your LLC moving forward.” – for example, if my business is AcmeData formed under a sole proprietorship (assuming this is the “dba”), could I use the same name with the addition of “LLC” when I change to an LLC? Such as AcmeData LLC? And what exactly would I be canceling? The dba of AcmeData?
Hi Vinnie, we totally understand. Switching from a Sole Proprietorship to an LLC can feel a bit “nebulous”. In your example, you can form an LLC called AcmeData LLC and begin operating under that LLC. You can also cancel/withdraw the DBA name if needed. However, if allowed in your state, you can instead transfer/assign the DBA of AcmeData from yourself to AcmeData LLC. Hope that helps.
Thanks, Mate, is the scenario you described above accepted in New York? I would like to transfer/assign my NYC DBA to an NYS LLC
Hey Gbenga, no, it’s different in New York. DBAs in New York are called Assumed Names. As per Section 130 of the New York General Business Law, if the Assumed Name is owned by your Sole Proprietorship, it would have been filed at the county-level with the County Clerk (in the county where you’re doing business). If an Assumed Name is to be owned by an LLC, it needs to be filed at the state-level with the New York Division of Corporations. The form is called the Certificate of Assumed Name. You can can find the form here: NY Division of Corporations: Certificate of Assumed Name.
Said another way, because Assumed Names in New York don’t have rights to their name, you’ll essentially be filing the same Assumed Name, but this time with the state, and this time it’ll be owned your LLC. Additionally, you can contact your County Clerk and ask for instructions on how to withdraw/cancel the Assumed Name owned by you (aka your Sole Proprietorship). P.S. Make sure to only file the Certificate of Assumed Name with the New York Division of Corporations after your New York LLC is approved. Hope that helps!
I have an existing sole proprietorship and I’m about to start another one in a completely different industry. Between the IRS and reddit, I believe I should be using the same EIN because they’re considered a “collected group”. I have a fictitious name I’d like to use for my new business. If all goes well, it may become an LLC. Could I keep the same DBA?
Hi Kathy, it depends on the state (or county) in which the Fictitious Name is filed. If allowed, it’s usually called an Assignment of Fictitious Name. In essence, you would transfer the right to use the Fictitious Name from yourself to your LLC. Hope that helps!
I am thinking about changing to an LLC. Right now I use a certain email address for my Sole Proprietorship.
If I keep the same or a similar name for the LLC, do I have to stop using the old email address or can I use the same one?
I would so appreciate your response!
Hey S, no, you don’t have to stop using your old email address. You can continue to use that email address, or any email you’d like when operating your LLC. Hope that helps.
Thank you Matt! :)
I opened a LLC in October. On Jan 1 it went live. I now want to close my sole prop. How do I transfer the unpaid accounts receivables?
Hi Lisa, that would likely be through an assignment, but we recommend speaking with an attorney about the best way to draft that. Hope that helps.
I opened a sole prop under a dba, would i have to change the dba name or would it be transferred over when opening a llc?
Hi Nate, you can just operate under the LLC’s true name and cancel/withdraw the DBA name (attached to your Sole Proprietorship). However, that’s a general reply. Can you provide the name of the DBA and the new LLC (or a similar version of the names for privacy). There are a few ways to go about this, but it depends on what the current names are and what you’re trying to do. Thanks.
Thank you for all the great information. I am sole proprietor without a DBA and considering transferring to an LLC. Would I create new bookkeeping records (start fresh) for the LLC? Also, I understand from IRS website that 1099 forms have to be under a person, not a business, so would I have to keep my sole proprietor EIN for those and essentially have two sets of accounting books?
Hello. I have a DBA and Ein number from NY state, monroe county aged 3 years. I would like to form a new LLC in North carolina state and transfer over the existing ein number from NY. Is this possible? If so, once the ein is transferred to the LLC can i add members later on or does it have to stay a single member LLC for the remainder of its existence.
Hi Ray, if you’re going to add Members, it would be best to get a new EIN for your new LLC. Hope that helps.
How do you pay loans you incurred as a sole proprietorship if you change to an lc? Currently we pay those from our business account but if we switch to the llc do we still pay from the business account?
If the LLC assumed those liabilities when you converted/changed over to an LLC, then you can pay them from the LLC’s business bank account. Hope that helps.
Looking to open an LLC and transfer my EIN from my sole proprietorship which has a DBA, as described in your page above. Does the LLC name need to match my DBA name in order for my tranfer to be accepted by the IRS?
Hi David, great question. No, the DBA doesn’t need to match the LLC name. Hope that helps.
How do we notify the State of New York about the change, if at all?
Hi David, you have an Assumed Name, you can cancel it by filing a Certificate of Discontinuance of Assumed Name. Then when you file your state taxes for your Sole Proprietorship, you can mark them final. Please check with an accountant on that last part though. Hope that helps.
Hi, Matt. Thank you for this valuable guidance! I am stuck on whether to apply for new EIN. I have been working as in independent contractor (counseling) and have EIN and NPI (sole proprietor). I want to form an LLC and thought it would be less confusing to transfer the EIN, but I am wondering if I am missing out on any advantages I might have by getting a new EIN instead. Created LLC would be single-member. Am I missing something?
Hi Maria, you’re very welcome! There aren’t really pros and cons, it’s just more so if you’re currently using the EIN and there’s history you want to keep, you can transfer it to your LLC by sending a letter to the IRS. If you don’t need the EIN, it’ often cleaner from an organizational standpoint to get a new EIN. Hope that helps.
Hello i just went from DBA sole proprietor to a single member LLC. I was wondering if as a single member LLC if i’m still taxed as a sole proprietorship do i still need a separate bank account? If so do i then need to start paying myself as an employee which means i would be taxed twice or can i use the business bank account for personal use?
Hi Adam, yes, by default, a Single-Member LLC is taxed as a Sole Proprietorship. Yes, the LLC needs a separate bank account. No, you shouldn’t pay for personal expenses from the bank account. Meaning, writing checks and/or charging the debit card for personal use. Instead, just withdrawal money from the business bank account (or transfer to your personal account) and then use from there. This would be an LLC distribution instead of paying personal expenses directly from the business account. No, you don’t need be an employee of the LLC. You can just take distributions any time you’d like. Hope that helps.
Thanks for this explanation. Does the same apply for a multi-member LLC? Can any member withdraw funds from the LLC bank account at any time? (transfer to personal account for personal expenses) How about deposits? How does money become associated with the LLC, as opposed to being personal money? What type of accounting is required for deposits and withdrawals?
Hi Amy, it depends on how the LLC Operating Agreement is drafted, but usually, yes, that’s how it’s set up as default. Meaning, most Member-managed LLCs give all Members access to the business bank account. When you capitalize the business bank account (make initial deposits) and document it, that’s how it becomes the LLC’s money. There is no specific type of books that are required for accounting, but having books, whether done in a spreadsheet or done with software is a good idea. If you want to form an LLC, but only have 1 Member retain control, you could setup a Manager-managed LLC where one person makes all management and financial decisions and the other Members take a passive role. We have more details here: member-managed LLC vs manager-managed LLC. Hope that helps.
I need to keep the EIN of a sole proprietorship to maintain health insurance contracts. If we go through the process as described to transfer the EIN to an LLC can the LLC file to be taxed as a corporation eventually?
Hi Bess, yes, I believe so, but I recommend calling the IRS to double-check. Thanks.
I registered my DBA in Texas in 2016, but have no earnings from it. Now, I want to form LLC and my question is should I apply for new EIN for LLC even if I didn’t use it for my sole proprietor business yet? Thank you for all the information on your website.
Hey Rubi, yes, you’ll want a new EIN for the LLC. Make sure you form your LLC in Texas, wait for it be approved, THEN get the new EIN. You should also cancel/close out your old DBA to keep your records organized. You’ll need to contact the county in which it’s registered for instructions. Hope that helps.
Hello. I’m changing my sole proprietor business to LLC. I have a registered DBA and EIN. I called NH State registry and they were no help at all :( I’m so confuse.
I would like to know if I should discontinue my DBA first then file my LLC? I’m changing my DBA name a little bit (adding a new word) and I’m adding my husband as an owner. Any advice would be greatly appreciated.
Hey Lyn, no, you don’t have to discontinue the DBA first before forming your LLC. Also, if you’re “adding your husband as owner”, then the more technical way to explain that is you and your husband are forming an LLC, which will be a Multi-Member LLC. So if I understand correctly, you’ll form an LLC with your husband, wait for it be approved, then get a new EIN for your LLC. Hope that helps.
I received a new EIN for my single member LLC. I understand that I am basically closing one business and opening another. My question is “Is there any reporting I am going to have to do for the transfer of assets and liabilities from my sole proprietorship to the LLC?”
Hi Sheri, great question. You can enter language into your LLC’s Operating Agreement for assuming the liabilities, however, depending on what they are and who the debt is owed to, the debt holder may not agree to transfer the liabilities to the LLC. What kind of liabilities are you referring to? Regarding the transferring of assets, there are two common ways to do so. First is a straight sale using a Bill of Sale to document you selling the assets to the LLC. The second is that you can use the assets as your capital contribution to become a member of the LLC. In other words, you transfer your assets to the LLC (via the LLC Operating Agreement) and then you become an LLC Member. Under “IV. Capital Contributions” in the Operating Agreement, list your assets their current fair market value (and enter your % interest as “100%”). If you need more room, you can instead write “See Attachment 1”, then make a new document and lists all the assets. I also recommend speaking with an accountant in case there is any tax liability you can reduce. If the assets are vehicles or real estate (or any asset with a title), those assets will also need to be retitled to the LLC. Hope that helps.
Is it possible to retain my sole prop EIN when converting from a sole member LLC (with employees) to a single-member LLC? Based on the article, a sole proprietor with employees is not able to retain the EIN.
Hi Patrick, can you rephrase your question please? I don’t understand. A sole member LLC and a single-member LLC are the same thing.