Do You Need EIN Number for Your LLC?

LLC or Limited Liability Company is one of the most popular business structures. Sole proprietors looking to grow their business prefer going the LLC way. It is also a common choice for people registering their business for the first time.

People often refer to this business structure as a hybrid structure. That is because it combines the benefits and characteristics of a corporation and a sole proprietorship or partnership.

But while most business owners know that partnerships and corporations need EIN, there is still a lot of confusion about whether an LLC needs one.

As you might know, EIN or Employee Identification Number is a nine-digit IRS assigned unique number used for tax purposes.

But does your LLC need an EIN? Let us try to find an answer to this question.

LLC Classification

To understand whether or not you need an EIN for your LLC, you first need to understand the classification of LLCs.

LLCs are state statute created entities. The IRS can treat them as a partnership, corporation, or a disregarded entity as per the number of members of an LLCs and the elections made by them.

Generally, an LLC is classified as a partnership for tax purposes if it has at least two members and has not filed Form 8832 to elect its treatment as a corporation. If an LLC has a single member, its treatment is similar to a disregarded entity which is separate from the owner with regards to income tax purposes.

Single-Member LLCs and EIN

If a single-member LLCs treatment is not like a corporation, it functions as a disregarded entity. All the activities of the LLC are reflected on the federal tax return of the owner. Reporting of all the profits and losses of the LLC is along with the personal income tax statement of the owner.

So, the owner can use his/her Social Security Number (SSN) for the tax returns and might not need an EIN. But if a single-member LLC has employees, you will need to get an EIN. Also, if you pay the excise tax, tobacco, firearm, or alcohol tax, you will require an EIN as a single-member LLC as well.

Others Reasons Why Single-Member LLCs Might Require EIN

Apart from the reasons listed above, there are some other reasons why a single-member LLC might require an EIN. Some of the reasons are-

• Your business has a Keogh plan
• You want to open a business account
• You want to obtain business licenses
• You want to obtain a credit line
• Protection against identity theft
• Filing bankruptcy

Multi-Member LLCs and EIN

Apart from single-member LLCs in some cases, all the other types of LLCs should have an EIN. Multi-member LLCs function as partnerships by default for tax purposes unless they do not elect to function as a corporation.

But as it is compulsory for partnerships and corporations to obtain an EIN, every multi-member LLC requires an EIN as well.

Applying for an EIN

Now that you know whether or not you require an EIN, the next step is to understand how to apply for it. Fortunately, applying for an EIN is very easy and can be done online. Visit the IRS website and look for EIN Assistant. To apply for EIN, you will have to submit form SS4 and provide identification and business details for the same.

Once the form submission is successful, the IRS will go through your application. If everything is fine, you will receive your EIN within 1-2 working days. Apart from the online application, you can also apply for EIN through email, fax, and phone. But applying online is the fastest and most convenient.

Apply here: https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online/

Conclusion

So, if you are a single-member LLC with no employees, it is possible that you might not require an EIN. Just your SSN would do. But if you elect corporation business structure, have employees, or fulfill any of the other requirements listed in this post, an EIN is a must.

A lot of single-member LLCs that do not need EIN still apply for one due to many reasons. Apart from single-member LLCs in some cases, all the other types of LLCs should have an EIN.

As compared to the past, applying for the EIN is now easier and faster due to the online application process. While you can still go the traditional way and apply for EIN through email, fax or phone, most businesses generally prefer the online method.

The post Do You Need EIN Number for Your LLC? appeared first on .

source https://businessentity.org/learning-center/do-you-need-ein-number-for-your-llc/

Does Sole Proprietorship Need an EIN Number?

A sole proprietorship is the simplest and most common forms of business.

But while this business structure is easier to form, you still need to comply with the licensing, zoning, and local requirements and regulations of your state.

While searching for the prerequisites of forming a sole proprietorship, you might often come across something known as EIN.

This EIN or Employee Identification Number is a nine-digit unique number assigned by the IRS to businesses for tax purposes. Just as individuals have SSN (Social Security Number), enterprises have EIN.

But will your sole proprietorship need an EIN too? Maybe or maybe not!

Let us have a look at when a sole proprietorship does and does not require an EIN.

Does a Sole Proprietorship Need an EIN?

In a sole proprietorship, a single proprietor owns and manages the businesses and all of its transactions. The single business owner pays business income tax along with his/her personal income tax payments.

So, the sole proprietor or owner of the business can just use his/her SSN for all the business tax purposes. This means that it is not legally compulsory for a sole proprietorship to have an EIN.

However, there are a few cases in which a sole proprietorship might need an EIN. Even if you do not relate to such cases defined by the IRS, a sole proprietorship can still get an EIN for the benefits it offers.

Cases in Which a Sole Proprietorship Needs an EIN

As per IRS, a sole proprietorship needs an EIN if-

• You want to hire employees
• You are buying an existing business
• You have 401(k) or Keogh
• You are inheriting a business
• You want to form a partnership, LLC or incorporate
• You want to file for bankruptcy
• You want to obtain a credit line

Moreover, many banks require almost every type of business to have an EIN for opening a business bank account. Also, as a business entity, you can obtain certain local business licenses if you have an EIN.

Even if you do not belong to any of the categories listed above, you can still apply for an EIN for the benefits it offers.

Benefits of EIN For Sole Proprietor

Following are two of the most important benefits of having an EIN as a sole proprietor-

• Protection Against Identity Theft- Without an EIN, you will have to use your SSN at many places. Identity thieves might access your SSN and then use the same for filing fraudulent tax returns.
• Business Credibility- Having an EIN is an easy way to improve the impression that people have of your sole proprietorship. An EIN  establishes the fact explicitly that you are an independent owner and contractor and not an employee.

Applying for EIN

Applying for an EIN is easy and free. You can visit the IRS website and file Form SS-4 to apply for an EIN. Once the IRS validates your submission, you will receive your EIN within 1-2 working days. Apart from the online application, you can also apply for EIN through email, fax, and phone.

There are no restrictions by the IRS on the number of businesses you can own. But you will need a different EIN for each of your companies. Within 24 hours, you can only get up to 5 EINs.

This is irrespective of whether you are applying them for a sole proprietorship, LLC, corporation or partnership.

Conclusion

So, the decision about having or not having an EIN for your sole proprietorship is in your hands. While there are many benefits with EIN, you might also skip it entirely if you are starting a business. Just get the state or local permits or licenses that you need for your business, and you are good to go.

But ultimately, as your business will grow, you might need an EIN. Also, do consider the benefits of having an EIN even if you are not legally required to have it. EIN can make your business safer and more credible.

And with the availability of the online application, the whole process of applying and receiving an EIN is easy and quick. Moreover, it is completely free too. So, if you ever need the EIN in the future, just visit the IRS website to find all the help you need.

The post Does Sole Proprietorship Need an EIN Number? appeared first on .

source https://businessentity.org/learning-center/does-sole-proprietorship-need-an-ein-number/

What is an EIN Number? How to Apply For One

Starting a new business can be an overwhelming experience.

But now that your business is finally registered as an LLC, corporation or partnership, the next important step is to get an EIN.

Employee Identification Number or EIN is a nine-digit number which the Internal Revenue Service (IRS) assigns to your business.

In this post, I’ll be covering everything you need to know about EIN and answering questions like:

• But why do you need EIN?
• Does every business need to apply for an EIN?
• How to apply?
• Do they expire?

Continue reading to know everything about EIN.

What is an EIN?

As mentioned above, EIN or Employee Identification Number is a unique nine-digit number assigned to a business by the IRS for tax purposes.

The number is in XX-XXXXXXX format.

Think of this EIN as the Social Security Number which individuals have. Most of the businesses need an EIN but some might not.

Once your business registration receives approval, you can then apply for an EIN. Apart from the tax purposes, you also require EIN to

• Apply for business licenses
• Get a credit line
• Open a business bank account

Does Every Business Need an EIN?

As per IRS, a business needs EIN if:

• The business has employees
• The business taxation is as an LLC, partnership, or C corporation
• The business files excise taxes, employment taxes, tobacco, firearm, or alcohol tax returns
• The business has a Keogh plan
• The company withholds taxes on the income which it pays to non-resident aliens
• The business works with trusts, non-profit organizations, employee plans, real estate mortgage investment conduits, estates, or farmers’ cooperatives

Companies that do not belong to any of the categories listed above might still need an EIN to open a business account, apply for business licenses, or get a credit line.

What About Sole Proprietor? Do They Need EIN As Well?

If you do not have any employees in your sole proprietorship, you might not need an EIN. As you will file the income taxes of your business along with your personal taxes, you can use the Social Security Number as business taxpayer ID for tax purposes.  

But if you want to form a partnership or LLC or incorporate, you will need an EIN. The same is true if you’re going to file for bankruptcy as well. While a lot of Sole Proprietors are not legally required to have an EIN, they still have one for many reasons.

For instance, many of the independent contractors that function as sole proprietors do have an EIN to protect themselves against identity theft.

When Do You NOT Need a New EIN?

As per IRS, you should not apply for a new EIN if-

• Your corporation or partnership declares bankruptcy
• The business name is changed
• The corporation wants S corporation tax structure
• Business location is changed, or new location/s is added (Use Form 8822 for Address Change)
• Business wants to make changes to its taxation structure

Do EINs Expire?

No, EINs do not expire. The IRS will never assign the same nine numbers to any other business even if the original business shuts down. But while the number does not expire, you will have to apply for a new EIN if you want to change your business structure.

For instance, if you have an EIN as a sole proprietor and want to form an LLC, you need to apply for a new EIN.

How to Apply for EIN?

Applying for EIN is easy and completely free. You can apply online, or by email, fax, or phone. Most businesses prefer applying online. Visit the IRS website where you can find an EIN Assistant which you can use to apply for an EIN.

To apply for EIN, you will have to file an SS-4 form. You will also need your Individual Taxpayer Identification Number (ITIN) or Social Security Number (SSN) to file this form. Moreover, you will also have to provide details about the type of business you are operating or are about to register.

Once your documents are validated, you will receive your EIN within 1-2 working days.

Responsible Party for EIN

When you apply for an EIN, you need to name a ‘Responsible Party’. Irrespective of how many owners or members a business has, there can only be a single Responsible Party. The Responsible Party will be the point of contact between the IRS and your business.

You will need to provide the personal information of the Responsible Party while applying for the EIN online.

What If the EIN is Lost or I Forget the EIN?

Do not panic if you lose or forget your EIN. It is very easy to get it back. Firstly, try to find the IRS notice which businesses receive when they first get their EIN. If you are not able to find it, go through the employee payroll records and bank account information.

Businesses also use EIN in their state account application. You can go through those records as well. You can also check the small business tax returns for your EIN.

The last option is to get in touch with the IRS through their Business and Specialty Tax Line at 1-800-829-4933. TTY/TDD: 1-800-829-4059.

To get your EIN, you will have to provide identifying information when you call the IRS.

For security reasons, the IRS will only provide the EIN to authorized persons.  This includes a corporate officer, sole proprietor, member of LLC, a partner in a partnership, or similar roles.

Conclusion

Almost all the registered businesses are legally required to have an EIN. Even a lot of companies that do not need EIN generally apply for one to either open a business bank account or to get local business licenses.

Now that you know what EIN is and whether you need it, you are one step closer to running a business of your own. If you do require the EIN, apply for it as soon as possible to check off another important step from your to-do list as a new business owner. If not, it is still advisable to remember the information or bookmark this post as you might need EIN in the future as your business grows.

The post What is an EIN Number? How to Apply For One appeared first on .

source https://businessentity.org/learning-center/what-is-an-ein-number-how-to-apply/

Should You Create An LLC For Your Rental Property – Pros & Cons

Are you planning to create an LLC for your rental property?

Are you sure about the decision or are you just following the herd?

In the past, the only option for real estate investors looking for limited liability protection was to form a corporation for acquiring title. But for real estate property owners, the business structure of a corporation has a few potential drawbacks.

Since the introduction of LLC (Limited Liability Company) structure, most rental property owners now prefer creating an LLC for their properties. Popularly known as a hybrid business structure, LLC combines the tax benefits of a partnership and limited liability advantage of a corporation.

So, should you go ahead with your decision? The only way to know is by understanding the pros and cons of creating an LLC for your rental property. As no single answer is applicable to all the landlords, understanding the benefits and drawbacks will make you more confident.

So, let us start with the pros first, followed by the drawbacks.

Pros of Creating an LLC for Your Rental Property

1. Limited Liability Protection

Needless to say, the most significant advantage of creating an LLC is the limited liability protection it offers. The business structure protects your financial assets in case a lawsuit is filed against you. For instance, let us assume that your tenant throws a party at your property and one of the guests falls over the balcony and hurts himself.

It is very much possible that the guest might file an “unsafe condition” claim against your property and as the owner, your name will appear in the lawsuit. If the rental property belongs to an LLC, only the assets that the LLC owns would be at risk. All of your personal assets would remain protected.

Sepate LLC for Each Rental Property?

In this regard, if you have multiple rental properties, it is recommended that you create a separate LLC for each of the properties. If a single LLC owns all of your rental properties, in case of a lawsuit on any one of the properties, all of your properties would be at risk. With separate LLCs, just the assets of the LLC which owns the property on which the lawsuit is filed would be at risk.

2. Pass-Through Tax Benefits

An LLC is a pass-through business entity. This means that the profits and losses of your LLC are passed through the LLC members (owners), and they then report the same on their personal tax return. However, this is not the case with corporations like C corporations which are subject to double taxation.

Moreover, by creating an LLC, the owner can also avoid the double taxation on the rental income as well as the appreciation in the cost of the property when it is sold. Also, if you are a single-member LLC, the interest of your mortgage can also be deducted just like a sole proprietorship.

In case if it is a multi-member LLC, each of the members will only be required to report a portion (corresponding to their investment they put in the LLC) of the profits and losses on the personal tax returns they file.

3. Other Important Benefits

There are a few other essential benefits of creating an LLC for your rental properties. For instance, it is easier to keep your personal expenses separate from the business expenses by forming an LLC. Moreover, as compared to partnerships and corporations, LLCs offer greater flexibility in terms of profit distribution and transfer of interest rights.

Also, as compared to corporations, LLCs are generally required to pay lower state registration fees in most of the states. As far as delegating management responsibilities is concerned, LLCs have more flexibility as compared to a corporation or a partnership.

With a corporation, it is mandatory to have directors and officers in your company. But with an LLC, the owner(s) or 3rd party managers can handle the business operations.

Cons of Creating an LLC for Your Rental Property

1. Cost of Forming and Maintaining an LLC

Talking about the cons, the most important one is related to the cost of forming and maintaining an LLC. You will be required to pay fees for setting up your LLC. If you have multiple properties in multiple states and you want to create a separate LLC for each of them, you will be required to pay fees for setting up each of them.

Apart from setting up the LLC, you will also need a lawyer for tax preparation and filing taxes every year. The fees for setting up an LLC and their ongoing and annual fees vary between states. So, ensure that you check the same on your Secretary of State’s website.

2. Personal Asset Protection is Not Guaranteed

While personal asset protection is the most significant benefit of forming an LLC, the protection has its limitations. There are several situations or circumstances in which a plaintiff can bypass this corporate veil to hold LLC member(s) liable for obligations and debts.

For instance, if you fail to do a job that was your personal liability such as pool maintenance or snow removal and it resulted in an injury to the tenant, you can be individually liable for the same. Deceptive business practices or frauds can also hold your personally responsible.

Is Buying an Insurance a Good Option?

A lot of property owners rather than forming an LLC prefer purchasing a liability and umbrella insurance. While the coverage will not prevent your tenants from filing a personal lawsuit against you, the insurance cover might be able to pay for the damages.

However, if at all the insurance coverage is not adequate to pay for the lawsuit, you will have to pay the remaining amount from your pockets. Also, insurance policies generally have a lot of exclusions too which can get you in trouble in case of a lawsuit. So, check the exclusions if you are going with this option.

Conclusion

Now that you have the most important pros and cons of forming an LLC as a rental property owner mentioned above, you might probably have a fair idea about what you should do. With LLC, you will get personal asset protection, tax benefits and a host of other benefits. However, personal asset protection is limited, and there are costs for forming and maintaining an LLC.

As the decision is a complicated one, it is better to consult with a financial advisor, attorney or CPA as their expertise would help you know if creating an LLC is beneficial to you.

The post Should You Create An LLC For Your Rental Property – Pros & Cons appeared first on .

source https://businessentity.org/learning-center/should-you-create-an-llc-for-your-rental-property-pros-cons/

Can I Be My Own Registered Agent?

If your small business is ready for the next step, you might find yourself browsing through articles and blogs on how to form an LLC or corporation. Out of all the other prerequisites to form an LLC or to incorporate, one of the most important ones is having a registered agent.

A registered agent can be an individual or an entity who works as the point of contact between your business and the state or general public. It is the registered agent who receives SOPs and other important legal documents on behalf of your business.

If you have been trying to know more about registered agents, you might have undoubtedly come across the fact that you too can be your businesses’ registered agent.

While there are professional registered agent service providers that you can designate as your registered agent, a lot of corporations and multi-members LLCs prefer making one of their members the registered agent of their business. The same is true for single-member LLCs as well where the single member of the LLC can serve as the registered agent.

So, in simple words, “Yes,” you can be your own registered agent. And this is valid for all the states in America. So whether you are forming your business in Florida or California, it does not matter. You can act as your own Registered Agent.

But are you sure you’d be able to handle the responsibilities of being a registered agent along with all the other business responsibilities? Let us check the basic duties and requirements of a registered agent to help you make the right decision.

Responsibilities/Requirements of a Registered Agent

As mentioned above, the registered agent is responsible for receiving all the legal documents on behalf of your business. This includes SOPs (Service of Process), state correspondence, and notices about federal and state taxes.

Apart from this, a registered agent generally also provides business filing assistance and business knowledge as and when needed by the LLC or corporation. This means that a registered agent should have a fair knowledge and experience of how a business runs.

And not just this, there are also a few eligibility criteria to be met to be a registered agent. Most importantly, the registered agent needs to have a physical address in the state in which the business is qualified or incorporated.

The address of the registered agent is a public record which can be accessed by anyone by visiting the state’s filing website. This means that even marketers and spammers could be able to access your address. Apart from this, the registered agent is also required to always remain available at the registered address throughout the regular business working hours.

Moreover, some of the states also have additional requirements for being a registered agent. For instance, in Virginia, you need to be part of the corporation’s management or be an attorney to be a registered agent. You can check with your state to know more about such additional requirements.

Be Your Own Registered Agent or Using a Registered Agent Service?

As you can see, being a registered agent is not only a serious job but also has a few requirements. While being your own registered agent can help you save money as you will not be required to pay for professional services, there are a few disadvantages too.

For instance, there is no option for you but to stay available during the general business hours. So, no offsite business meeting or business trips throughout the working hours 5 days a week. On top of it, you will also be receiving a lot of legal documents, and this would require you to be highly organized and have a decent knowledge of the legalities of running a business.

Not to forget the fact that if you are your own registered agent, you will be receiving legal notices like lawsuit paperwork and court summons in public. So, your visitors and employees would know when you receive them. A lot of entrepreneurs are not very comfortable with this and thus prefer hiring professional services.

Conclusion

In the end, the decision depends on you. If you are just starting an LLC or corporation and having a tight budget, being your own registered agent can be an option. The same is true for a lot of small businesses which only operate in their own state, have regular working hours and are not entirely concerned about privacy.

But when both the choices are compared, hiring professional services proves to be more advantageous in most cases. Understand the fact that registered agents have some serious responsibilities and if at all they are not able to handle them, it could result in severe consequences for your business.

So, try to understand the pros and cons of being your own registered agent to make the decision or look for legal help for the same.

The post Can I Be My Own Registered Agent? appeared first on .

source https://businessentity.org/learning-center/can-i-be-my-own-registered-agent/

Are you planning to form a corporation or a limited liability company?

Want to know about these businesses structures in as much detail as possible?

While researching about how to form a corporation or an LLC on the internet, you will often come across the term ‘registered agent’.

Who is this registered agent? What is their job? Should every business have a registered agent? Can you be the registered agent of your business?

Continue reading to find answers to all of these questions and more.

What is a Registered Agent?

When you form a legal entity such as a corporation or an LLC, you are required to nominate a registered agent. It can be an individual, or you can also designate a professional registered agent service company for the same.

It is this registered agent who receives all the essential legal documents such as service of process, annual statements or reports, tax documents, etc. on behalf of the business. In simple words, the registered agent is the official point of contact for your business with the state and general public for receiving legal documents.

While most states use the term registered agents, some states call them the agent of process, resident agent or statutory agent.

What Does Service of Process Mean?

Service of process or SOP is the initial notice sent to a corporation or LLC when a lawsuit is filed against them. Generally, the SOP serves as a summon to the defendant.

If you are running a business, the SOP is sent to your registered agent. By sending the SOP to your registered agent, courts obtain jurisdiction over your business.

Read more about Service of Process here.

What Does a Registered Agent Do?

Apart from receiving SOP and other legal documents, a registered agent generally has the following responsibilities-

• Provide guidance during business filings
• Give you a notification when the annual reports of your business are due
• Offer business knowledge when needed

Does Every Corporation or LLC Needs a Registered Agent?

Yes, every corporation irrespective of whether it is taxed as a C corp or S corp, an LLC is required to have a registered agent in the state where your business is formed. If you have expanded your operations to other states and are registered to do businesses in those states, you need to have a registered agent in those states as well.

The address of the registered agent and that of your registered office needs to be the same, and their address should be used only for receiving official documents from the state or general public. If you are not incorporated and want to conduct business overseas, you might still need a registered agent.

What If You Do Not Have a Registered Agent?

You cannot file your Articles of Organization or Articles of Incorporation if you do not provide the name and address of your registered agent. Moreover, even after your business is formed, you are required to maintain the registered agent and also notify your state in case if you change the registered agent or their registered address.

There can be a number of severe consequences if you fail to maintain your registered agent or do not update the state in case of any changes.

For instance, there is a possibility that your corporation or LLC might lose its good standing or unabated powers of conducting business without a registered agent. Moreover, without a registered agent, your business will not be able to receive critical legal documents like annual reports, tax documents, subpoenas, or SOP.

Are There Any Requirements for Being a Registered Agent?

Yes, there are a few legal requirements for being a registered agent with regards to the physical address and availability.

Your registered agent needs to be available throughout the normal business hours. They should also have a registered address within the state where the corporation or LLC has been incorporated, formed, or qualified. The name and address of your registered agent is a public record. Anyone who wants to know the same could do so through the records of your state.

Can You Be Your Own Registered Agent?

YES, it is possible for you to be registered agent of your business. As long as your physical address is in the state where the corporation or LLC is formed, you can name yourself the registered agent. But be very careful while doing so as you will be required to remain available at your desk at the registered address throughout the business hours.

As a result, most corporations and LLCs generally prefer designating a professional 3rd party as their registered agent. By doing this, you will have a professional service provider who will be responsible for receiving all your important legal and state documents and pass the same to you.

Apart from the standard duties of a registered agent, the company can also assist with all of your other compliance obligations.

Conclusion

If you are planning to form a corporation or LLC, you will surely need a registered agent, and there are no two ways about it. Any member of your corporation or LLC can be the registered agent, or you can register as the agent yourself.

As a registered agent, you will be required to handle a lot of responsibilities. So, if you are planning to be the registered agent, do so only if you are confident. If you are not sure whether or not you will be able to handle the responsibilities, just look for a reputed registered agent service provider.

The post What is a Registered Agent? appeared first on .

source https://businessentity.org/learning-center/what-is-a-registered-agent/

How to Change Your Sole Proprietorship to LLC?

So, you’ve finally realized that it’s time to turn your side hobby into a legal business entity?

Or perhaps, you’ve realized that your personal assets are at high risk with Sole Proprietorship?

Maybe a new client only wants to deal with a business entity like an LLC?

Well, there can be several reasons for you to formalize your business by converting into an LLC. After all, a Sole Proprietorship is not a business entity. It is just you operating your business yourself.

But guess what, technically there is no way of converting a Sole Proprietorship into an LLC.

Does that mean someone operating as a Sole Proprietorship cannot change it to an LLC?

Well, the only solution is first to stop using your Sole Proprietorship and then form an entirely new LLC. In other words, changing your Sole Proprietorship into an LLC is almost similar to starting an entirely new business.

Fortunately, the whole process is not as complex or expensive as you’d imagine. On top of it, the way you operate your business won’t quite change much. As an LLC, you’ll also have a layer of protection for your personal assets.

Unlike Sole Proprietorship where the business owner and the business are a single entity, LLC puts the much-needed separation between the two. Even when it comes to taxation, you’ll have increased flexibility as an LLC. The conversion can also help change your business perception, encouraging you to grow it further.

So, let us now have a detailed look at what you need to do to change your Sole Proprietorship to an LLC. 

Start with the Business Name

Irrespective of whether you’ve been running your Sole Proprietorship under your name or DBA/Fictitious Name, you’ll need a new name for your LLC. This is because it is very much possible that the name under which you’re running your Sole Proprietorship might already be registered as an LLC in your state.

The best way to check for business name availability is to refer our 50-State Business Entity search guide.

Alternatively, get in touch with the state secretary’s office to know whether or not the name you have for your LLC is already registered. Most of the states now have online databases of registered names. After finalizing a name that is not used by any other business in your state, make sure that the name does not infringe anyone’s trademark.

Check the patent and trademark office’s database online to search for trademarks with the same name. Your new business should have “Limited Liability Company” in the name. There are also abbreviations like “Liability Co”, “Ltd”, and “LLC” that you can use. You can also consult a legal professional to finalize the name. 

In most states, you’re not required to reserve your LLC name beforehand. The registration is done automatically when the paperwork for forming LLC is filed. However, the rules differ in a few states.

Filing Articles of Organization

The articles of organization are the documents that outline the initial statements needed to form an LLC. You have to fill out the forms and submit the same to the filing office of your state. The requirements for filing vary between states.

It is just a simple document which outlines the basic details of your business, like the name of the LLC, name of the owner/s, address, etc. There is a fee for submitting this document.

Moreover, in most of the states, you’ll also need a “registered agent” for receiving legal documents. In case of a single-member LLC, you’ll be that registered agent. For multi-member LLCs, the owners need to select one owner as the registered agent.

Writing the Operating Agreement of Your LLC

It is through the operating agreement that the operations and ownership rules are defined. In other words, it maps out your entire business process. It has details like the responsibilities and rights of the owner/s, sharing of profits and losses, and voting power.

LLCs are not required to submit their operating agreement to any legal organization or the government. However, it is highly recommended that multi-member LLCs create the operating agreement as it reduces the chances of conflicts between LLC owners. 

Applying for a Bank Account for Your LLC and Announcing the LLC

With LLC, you have a business entity separate from the owner. This separate business entity has the right to open bank accounts and purchase properties. While it was not compulsory to have a separate business account when you were running a Sole Proprietorship, you’ll need one for an LLC.

The bank account for your LLC makes it easier for you to keep your personal funds separated from the business funds. It also enables you to keep your personal assets protected, report taxes, and keep records.

Some of the states also require you to announce your LLC. This is done by publishing the announcement in any local newspaper. In some states, you also need to send written proof of the same to the filing office. 

Applying for Business Permits and Licenses

Once all of this is done, it’s time for you to register for business permits and licenses. Depending on the type of business you want to run, there can be many different permits and licenses that you might require in different states. Check with the LLC filing office to know more about the permits and licenses that apply to your business.

Apart from this, you’ll also need to either transfer your EIN (Employer Identification Number) from Sole Proprietorship to LLC or apply for a new EIN. The transfer of EIN from Sole Proprietorship to LLC is only possible if you are a single-member LLC and meet the following requirements-

• You want the LLC to be taxed as a Sole Proprietorship/Disregarded Entity
• You don’t want the LLC to be taxed as a C-Corp or S-Corp
• There are no employees in your LLC
• Your LLC is not liable for excise tax or employee tax

If you do meet these requirements, you can send a request letter to the IRS for transferring your EIN from Sole Proprietorship to LLC. In all the other cases, you’ll need a new EIN.

Conclusion

Moving from Sole Proprietorship to LLC can help you get a host of benefits with the biggest being the separation it puts between you and your business. The whole process is simple and inexpensive, making it an excellent choice for any Sole Proprietorship owner serious about his/her business and personal asset protection.

If all of this seems complicated, you can also hire legal help to get you through the process. If everything moves in order, it should not take more than 15-20 business days to change your Sole Proprietorship into an LLC.

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source https://businessentity.org/learning-center/sole-proprietorship-to-llc/