How to Change (Convert) Sole Proprietorship to LLC

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There technically isn’t a way to “convert” a Sole Proprietorship into an LLC, since a Sole Proprietorship isn’t a business entity. A Sole Proprietorship is simply you operating a business as yourself. There is no separate and distinct legal entity filing with the state. A Sole Proprietorship business is simply created by you just operating your business activities. It’s that simple. In order to change a Sole Proprietorship to an LLC, you stop using the Sole Proprietorship and then form an LLC.

Now, if you operate a Sole Proprietorship and are doing business under a name besides your first and last name, then you’ll likely have filed a Fictitious Name or DBA (“Doing Business As”). A DBA may also be called an Assumed Name or Trade Name, depending on the state or county where it is filed. After you form your LLC, you will cancel/withdrawal this name.

Incorporating a Sole Proprietorship

A lot of people ask, “how can I incorporate a Sole Proprietorship?” That is the wrong use of language, since the verb “incorporate” means to form a C-Corporation.

However, the term “incorporating a Sole Proprietorship” is mostly used by people who want to stop operating as a Sole Proprietorship and form an LLC in order to protect their assets.

Now that we got that out of the way, let’s discuss how to change (or “convert”) your Sole Proprietorship to an LLC.

The first thing you’ll do is form an LLC. You can read our best state to form an LLC article first, then select your state below. The short version of “what’s the best state” is that you should form your LLC where you are doing business. If you don’t have a storefront or retail location, this will likely be the state where you reside. If you’re buying real estate with your LLC, you’ll need to form the LLC in the state where the property is located.

Need help with your LLC? Have a professional LLC service file for you:
Northwest ($39 + state fee) or LegalZoom ($149 + state fee)

How to form an LLC:

 

After you file for your LLC with the state, you’ll need to wait for the LLC to be approved.

If you have a Sole Proprietorship business under your own name (and you don’t have a DBA/Fictitious Name), then you’ll just start operating under the new LLC. Make sure to open an LLC bank account, order new business cards, update your website, domain name and hosting, update your business license or permit (if applicable), and make any other changes/updates where needed so your business material now reflects your LLC name.

If you have a Sole Proprietorship business and have a registered a DBA/Fictitious Name, you’ll still need to take care of the above (updating your business information). Then you’ll need to cancel your DBA filing. This may be referred to as withdrawing your DBA or revoking your DBA, again, depending on the state or county where the DBA was registered.

You don’t have to cancel the DBA right away. You should take care of the LLC filing first as well as updating the IRS if you already have an EIN.

The easiest thing to do with your EIN when changing from a Sole Proprietorship to an LLC is to get a new EIN for the LLC and then cancel your EIN for your Sole Proprietorship (after you file your final tax return in April).

As with the Fictitious Name, you don’t have to cancel your EIN right away (and you shouldn’t). After forming your LLC, it’s easiest to get a new EIN and then cancel the old one. This is the method that we recommend.

If you want to keep the history of your existing business or keep your EIN for other reasons, you can “transfer” EIN from your Sole Proprietorship to your LLC. You can only do this though if your LLC is a single-member LLC (1 owner) and:

  • the LLC will be taxed as a Disregarded Entity/Sole Proprietorship (this is the default tax status for single-member LLCs)
  • the LLC won’t be taxed as a C-Corp
  • the LLC won’t be taxed as an S-Corp
  • the LLC doesn’t have employees
  • the LLC doesn’t employee tax liability
  • the LLC doesn’t have excise tax liability

If your single-member LLC meets the requirements above, then you can mail a letter to the IRS requesting the EIN be changed from your Sole Proprietorship to your LLC.

We’ve provided a free letter below that you can use to send to the IRS.

If your LLC doesn’t meet the requirements above, or you formed a multi-member LLC, or you prefer to start fresh with a new EIN, skip ahead a section for instructions on how to obtain a new EIN for your LLC.

Change EIN from Sole Proprietor to LLC

In order to change your EIN from your Sole Proprietorship to your LLC, you’ll need to send a request letter to the IRS.

You’ll need to include your existing Sole Proprietor EIN number, your phone number, your mailing address, and mention that the LLC meets the requirements mentioned above. You’ll also want to include a copy of your approved Articles of Organization (which may be called a Certificate of Organization or Certificate of Formation, depending on where you formed your LLC).

The IRS will then mail you back a confirmation letter in 30-45 days, confirming that your existing EIN has been transferred.

Here is a free IRS template letter you can use to switch over your EIN:

IRS Letter: Change EIN from Sole Proprietor to LLC

IRS mail or fax instructions:

If LLC's principal business address or location is in:Mail letter to:Or fax letter to:
Connecticut, Delaware, District of Columbia, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, West Virginia or WisconsinInternal Revenue Service
Cincinnati, OH 45999-0023
Fax: 859-669-5748
Alabama, Alaska, Arkansas, Arizona, California, Colorado, Florida, Georgia, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Tennessee, Texas, Utah, Washington, Wyoming, or any place outside of the United StatesInternal Revenue Service
Ogden, UT 84201
Fax: 801-620-7116

New EIN for LLC

If you are getting a new EIN for your LLC, make sure to follow one of our How to Form an LLC courses. They include sub-lessons that will show you how to get a new EIN number for your LLC.

You can also see our national EIN lesson here:
https://www.llcuniversity.com/irs/apply-for-ein-for-llc-online/

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Matt Horwitz
Founder & Educator at LLC University
Forming an LLC shouldn't be so complicated. Our step-by-step guide will make the process a breeze – and no complex legal jargon! We teach people how to form an LLC for free in all 50 states. We hope you find our free guides and resources helpful in your entrepreneurial journey.
Leave a Comment (29) ↓

29 Comments

  1. patrcik February 12, 2018

    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.

    reply
    • Matt Horwitz February 14, 2018

      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.

      reply
  2. Sheri Ashley February 17, 2018

    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?”

    reply
    • Matt Horwitz February 21, 2018

      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.

      reply
  3. Lyn April 6, 2018

    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.

    Thank you!

    reply
    • Matt Horwitz April 8, 2018

      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.

      reply
  4. Rubi April 17, 2018

    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.

    reply
    • Matt Horwitz April 17, 2018

      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.

      reply
  5. Bess May 5, 2018

    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?

    reply
    • Matt Horwitz May 16, 2018

      Hi Bess, yes, I believe so, but I recommend calling the IRS to double-check. Thanks.

      reply
  6. Adam May 23, 2018

    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?

    reply
    • Matt Horwitz June 17, 2018

      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.

      reply
      • Amy July 17, 2018

        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?

        reply
        • Matt Horwitz August 12, 2018

          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.

          reply
  7. Maria May 27, 2018

    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?

    Thanks again!

    reply
    • Matt Horwitz June 17, 2018

      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.

      reply
  8. David June 11, 2018

    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?

    reply
    • Matt Horwitz June 18, 2018

      Hi David, great question. No, the DBA doesn’t need to match the LLC name. Hope that helps.

      reply
      • David September 14, 2018

        How do we notify the State of New York about the change, if at all?

        reply
        • Matt Horwitz October 17, 2018

          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.

          reply
      • David December 7, 2018

        Just wanted to let you know that the information you are providing is inaccurate. the IRS doe NOT allow you to covert a Sole Prop to an LLC. they require you to obtain a new EIN number. I submitted everything as you indicated and was denied. Spoke with them on the phone and they confirmed this is not done.

        reply
  9. Lanette September 1, 2018

    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?

    reply
    • Matt Horwitz October 12, 2018

      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.

      reply
  10. Ray October 9, 2018

    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.

    reply
    • Matt Horwitz October 25, 2018

      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.

      reply
  11. Lisa October 15, 2018

    Hi Matt,
    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?

    reply
    • Matt Horwitz November 22, 2018

      Hey Lisa! I’m not 100% sure re: the bookkeeping, as I have someone do our books. I’d run this question by an accountant and/or bookkeeper for the details. Your LLC can issue 1099s to independent contractors. Hope that helps.

      reply
  12. Jim December 1, 2018

    Hello Matt, your website and the service you provide is incredible. Also the Q&A you administer is extremely helpful! Thank you for what you do. It is greatly appreciated. If I have an EIN that was initially established for my individual 401(k) [e.g. during IRS online application I selected “View Additional Types…” on the ” What type of legal structure is applying for an EIN?” page of the application, then selected “Employer Plan (401k, Money Purchase Plan, etc)] can I use that same EIN for a newly formed Husband & Wife LLC in California? If not, then will it matter that the EIN used to set up my individual 401(k) is different than a new EIN established for the new LLC? My wife and I would like to continue to fund the individual 401(k) (adding my wife as a second participant) by using income from the new LLC for example.

    reply
    • Matt Horwitz December 5, 2018

      Hi Jim, thank you very much! I appreciate that :) It’s likely that you can’t use that EIN for your Husband & Wife LLC (aka Qualified Joint Venture LLC) and it shouldn’t matter that the 401(k) and LLC EIN are different. Having said that, we don’t often deal with 401(k)s, so you would want to double-check that with the IRS and/or an accountant. Thanks for your understanding!

      reply

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