Can I Switch from a Sole Proprietorship to an LLC?  

You can switch from a sole proprietorship to a limited liability company (LLC). The process typically includes registering the LLC with your state, obtaining a new Employer Identification Number (EIN), updating your business bank accounts, and notifying the IRS.  

You’ll need to formally transfer your business assets, licenses, and registrations to the new entity (more on that later).   

Think of it as upgrading from a bicycle to a car. You’re heading in the same direction now with more protection, structure, and flexibility.   

Sole Proprietorship vs. LLC  

Before diving into how to switch, let’s quickly look at how sole proprietorships and LLCs differ:  

Why Switch from a Sole Proprietorship to an LLC?  

One of the biggest advantages of forming an LLC is the limited liability protection it offers. Unlike a sole proprietorship, an LLC creates a legal separation between your personal assets and your business. That means if your business runs into debt or legal trouble, your personal bank account, car, or home isn’t on the line.  

If you’re concerned about the personal risks involved with running your business, such as being held personally responsible in a lawsuit, converting to an LLC can provide peace of mind. It’s a way to protect your personal property while continuing to grow your business.  

That said, some sole proprietors may not be eligible to form an LLC. For example, in some states, certain licensed professionals, like lawyers or doctors, must use different legal structures (like a PLLC or professional corporation).  

Ok, now let’s move on to the juicy part of the guide: how to switch to an LLC from a sole proprietorship.   

Make Sure Your Business Name Is Available  

Start by checking if your desired business name is available. If someone else has registered that name in your state, you’ll need to create a different one. You can search your state’s Secretary of State website to confirm availability. It’s also good to check the U.S. Patent and Trademark Office to ensure the name doesn’t infringe on any existing trademarks.  

Short on time? Watch a quick explainer video instead 👇

How Do You Switch from a Sole Proprietorship to an LLC?  

File Articles of Organization with Your State  

Next, you’ll need to create and submit your Articles of Organization (sometimes called a Certificate of Formation) to your state’s business filing agency. This document includes key information about your business, such as its name, purpose, and the name of your registered agent. A registered agent is the individual or company authorized to receive legal documents for your LLC.  

Draft an Operating Agreement  

Even though most states don’t legally require LLCs to have an operating agreement, creating one is smart. This document outlines how the LLC will be run, how decisions are made, how profits are distributed, and what happens if a member leaves the business. It’s particularly helpful in reinforcing that the LLC is its legal entity, separate from its owner(s).  

If you ever face legal action or liability claims, a written operating agreement can help strengthen your case that your business and personal assets are separate. This is a key benefit of forming an LLC in the first place.   

Apply for a New Employer Identification Number (EIN)  

Once you’ve formed your LLC, you’ll need to get a new EIN from the IRS, even if you had one as a sole proprietor. An EIN is a nine-digit number used to identify your business for tax purposes.  

You can apply for an EIN using IRS Form SS-4, either online or by mail. Suppose you’re a single-member LLC and not electing corporate tax treatment. In that case, the IRS will treat you as a disregarded entity, which means you can continue to use your Social Security number for tax purposes. However, many still use an EIN for added separation and professionalism.   

Open a Business Bank Account  

Even if you’re the sole member of your LLC and it’s treated as a disregarded entity, opening a separate business bank account is essential. Keeping personal and business finances separate helps you stay organized, simplifies bookkeeping, and reinforces the legal separation between you and your business.   

If you haven’t set up a business account, Ramp offers corporate cards with built-in expense management, bill pay, and invoice tracking features. It’s a great way to keep your bookkeeping system organized and cloud-based. Plus, there’s a bonus waiting for you if you sign up using our link.          

Obtain Required Business Licenses and Permits  

Your new LLC may need to apply for specific licenses or permits to operate legally. Requirements vary depending on your location and industry. Check with your state, county, and city agencies to determine what’s needed—a general business license, zoning permit, or industry-specific certification. Staying compliant from the start avoids fines or disruptions down the line.  

Hire an Accountant  

Hiring an accountant can make transitioning from a sole proprietorship to an LLC much smoother. A qualified accountant will help you navigate the tax implications of your new business structure, ensure you’re taking advantage of deductions, and assist with setting up proper bookkeeping systems.   

They can also guide you in managing payroll, quarterly tax filings, and annual reporting requirements. In short, they’ll help you focus on growing your business while staying compliant and financially organized.   

FAQs  

Is it hard to switch from sole proprietorship to LLC?  

No, the process is straightforward but does require a few formal steps. You’ll need to register your LLC with your state, get a new EIN, update business licenses, and move your assets and accounts under the new entity. The transition can be smooth and hassle-free with proper guidance, especially from an accountant or legal advisor.  

Is a sole proprietorship an organization?  

Yes, a sole proprietorship is a type of business organization. It’s the simplest form of business structure, where the owner and the business are legally the same. While it’s not a separate legal entity like an LLC or corporation, it is recognized by tax authorities and can operate under a business name.  

What type of business is best for a sole proprietorship?  

A sole proprietorship is ideal for freelancers, consultants, small service providers, and other low-risk, low-complexity businesses.