Changing Sole Proprietor to LLC or Corporation

Are you a sole proprietor who wants to incorporate because your buzzkill lawyer friends have scared the bejeezus out of you with horror stories of getting your personal finances wiped out after a lawsuit that really involves your business?  Good. That’s one of those skills we learn in law school and hone while practicing and seeing what happens when things go horribly, terribly wrong.

Anyway, so you’re ready to incorporate, but you have been operating properly as a sole proprietor.   You have licenses, a tax permit, etc.  How do you change into an LLC or corporation?

In Nevada, there is no way to simply change from operating as a sole proprietor to an LLC or corporation.  To operate as an entity, you are required to file Articles of Organization or Incorporation with the Secretary of State as if you’re starting from scratch.  Keep in mind, though, that if you have an account with the Nevada Department of Transportation or local business licenses, you’ll need to change those over to the entity once it’s formed.

9 comments to Changing Sole Proprietor to LLC or Corporation

  • What about going the other way – LLC to sole proprietor? My little business consulting company is doing less and less (not working very hard at it) and the LLC costs are high. I probably know your buzzkill answer but I wanted to ask anyway.

    • To transition from an LLC to sole proprietor, register the sole proprietor at the state level and dissolve the LLC. The sequence is important. Register the sole prop at the state level and get your state business license, your NV Department of Taxation registration, and your local license, then begin the process of moving bank, merchant, and other accounts into the sole prop. THEN dissolve the LLC. Doing it in this order ensures you don’t run into trouble trying to change things around with a dissolved LLC.

  • Nancy

    I’m a sole proprietor, have an EIN, and filed a fictitious name. I’ve decided to change to a SMLLC with a different company name. I realize I must “start over,” but can I still use the fictitious name and EIN under the new LLC or should I cancel everything and really start over?

    • It depends where your business is located. If you’re in Clark County, Nevada, you can file a new fictitious firm name form with the LLC listed as the applicant. They don’t typically cross-check to see if any other applications are using the same name. The fictitious firm name form just enables you to operate your business using a different name than that which is registered with the state.

      • Nancy

        Thank you, Gina. I have another question about LLC’s…because the wait is so long to talk with the Gov.

        I’ve read that I need an LLC EIN and will use my current sole-proprietorship EIN to apply online. Afterward, must I maintain my current business license (because of the EIN) after getting the LLC EIN? Or, am I good to go and can cancel my current business license?

  • The EIN is like the social security number for the business. If you’re a sole proprietor, you’ll often use your personal social security number, but many people prefer to obtain an EIN to be more protective of their SS#. When you form the LLC, you can obtain a new EIN for that entity. You may call the IRS and ask that the EIN number you used as a sole proprietor be transferred to the new LLC, but you have to form the LLC first. Regarding the business license, it depends on your jurisdiction. Many jurisdictions will consider the transition from a sole proprietorship to an LLC a “Change in Ownership”, requiring you to complete a new business license application but checking the box for “Change in Ownership.” Then you’ll indicate the old information, the new information, and they’ll make the transition. In that process, they will cancel the license under your sole proprietorship and issue the license under the LLC at the same time.

  • Ivan

    Hi Gina,
    What if I am a sole proprietor who has a business account under XYZ (the company) but want to change structure into an LLC and want to continue conducting business under XYZ (not XYZ LLC), I know that I have to file the DBA form with the state when I file for the LLC, but what happens to my old assets – business account, website, credit card reader, quickbooks – do I just purchase all the assets from myself and write a an agreement that the XYZ LLC is purcahsing assets from myself? And what happens to the sole proprietor XYZ, do I have to terminate it?

    • Ideally, yes, your LLC would acquire the assets of your sole proprietorship and your sole proprietorship would cease to exist. Most local business license agencies will require you to file a form to change the ownership of the business from your sole proprietorship to your LLC, and your bank will want to see your LLC formation documents and EIN. You’ll want to make sure that you change all the licenses in the sole prop’s name and re-execute any contracts in the name of the LLC instead. Basically, everything you walked into as a sole prop, you’ll want to back out of as well.

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