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