Step 1: Confirm Business Name
The first step to take when changing from a sole proprietorship to an LLC is to confirm that your business name is available in the state in which you plan to file articles of organization. Just because you have been using the name as a sole proprietor doesn’t mean the name is available for an LLC. To confirm name availability, do a business name search on the website of the agency responsible for business filings, which is usually the secretary of state.
Once you’ve confirmed that the name is available in your state, you should also search the United States Patent and Trademark Office (USPTO) database to confirm that the name isn’t trademarked or won’t violate any trademark laws. If you find a potential trademark conflict or your name isn’t available in your state, you may want to consult a lawyer or consider a new name for your business.
Step 2: File Articles of Organization
Once you’ve decided on a name for your LLC, file the articles of organization with the relevant state agency and pay the applicable filing fee. Articles of organization are straightforward and require basic information about the LLC, such as name and address, the purpose of the LLC, name and address of registered agent―the person who will receive legal papers for the LLC―and management structure―member-managed or manager-managed.
Step 3: Draft and Execute an LLC Operating Agreement
You will also draft and execute an LLC operating agreement. This is an agreement between LLC members that governs the rights and obligations of the members. For instance, it may specify voting rights, distribution of profits and losses, retirement and exit process and noncompete provisions for the LLC members.
Step 4: File a Form SS-4 To Obtain an EIN
Even if you have an employer identification number (EIN) for your sole proprietorship, you’ll need to file a Form SS-4 for a new EIN for the LLC. The EIN is a nine-digit number the IRS assigns to businesses for tax filing and reporting purposes. Learn more about how to file the SS-4.
Step 5: Apply for a New Bank Account
Because personal and LLC assets are separate, you’ll want to open a new bank account for the LLC business.
Step 6: Apply for Business Licenses and Permits
Depending on your industry or state laws, you may need to obtain additional business licenses and permits. An attorney or LLC service can assist with this process.