What Sole Proprietorship means to a business
A step-by-step guide to changing sole proprietorship LLC
Most people start their small businesses as sole proprietorships. When managing a sole proprietorship, you do not need to file any official paperwork with your state. However, you will need to formalize your business as you scale it along with time. In other words, you should legitimize your business, so that you will be able to save your assets and personal savings from risk. This is where you should change your sole proprietorship to an LLC. In this step-by-step guide, we will be sharing what you need to do to make this change.
- Check if your business name is available within the state
The very first thing you should do is check and see whether your LLC business name is available within the state. For example, let us assume that you have a pillow business named Jacks Pillows. You need to check and see whether someone else has registered a business under this name. It can be done by contacting the secretary of state office in your state. Or else, you may get in touch with an online legal filing service as well.
- File the articles of incorporation
Next, you will need to proceed with filing the articles of incorporation. This needs to be done with the state government office. To do that, you should provide the name of your LLC with the address, the purpose of your LLC, the name and address of the registered agent, and an overview of your management as if it is manager-managed or member-managed.
- Create the operating agreement of the LLC
You must create an operating agreement for your LLC as well. This is required by some states. The operating agreement would clearly define the ownership and management of the LLC. For example, it will define how to distribute profiles and losses among members, the voting rights of everyone, and what would happen if one of the members leaves the business.
- Registering with the IRS
After you establish the LLC, you will need to go ahead and register with the IRS. This is where you should be applying for an Employer Identification Number (EIN). You can do it online. Once you have the EIN, you can simply use it for all your business financial purposes, such as opening bank accounts, handling payroll, filing taxes, and request for business credit.
- Create a new bank account
In case you have a bank account under the sole proprietorship, you should close it and then create a new bank account for the LLC. For that, you need to be using the EIN of your business. This must be done in order to maintain a clear separation between your personal finances and business finances. By doing that, you can provide extra protection to your personal assets from business liabilities. On top of that, you will get the opportunity to save time during tax filing.
- Apply for permits and business licenses
Last but not least, you will need to go ahead and apply for permits and business licenses, which you need to run your business legally. Depending on the nature of your business, you will have to request a resellers permit, a professional license, or a health department permit. In some states, you will need to re-apply for a new license when the structure of your business changes. You will be able to get in touch with the local office and learn more about the nature of the license that you should have.
Adhere to these steps and you will be able to change your sole proprietorship to a LLC without going through any struggles.
What Sole Proprietor and How to start LLC in American Samoa
Setting up a limited liability company (LLC) in American Samoa can help you establish an independent legal entity for conducting business operations and holding cryptocurrencies such as NFTs. LLCs are available in states, territories, and insular areas such as Puerto Rico and American Samoa. Also known as Limited Liability Companies, LLCs are special entities created under state laws that provide liability protection to owners involved in business activities.