How to Change From Sole Proprietor to LLC in Ohio?
The process for how to change from sole proprietorship to LLC in Ohio is fairly simple, you just need to meet some basic requirements and file your paperwork.3 min read
2. Changing from a Sole Proprietorship to an LLC
The process for how to change from sole proprietorship to LLC in Ohio is fairly simple. All you need to do is file the correct paperwork with the state and meet a few basic requirements, and you can form your new limited liability company.
Benefits of LLCs and Sole Proprietorships
Before you make the transition from a sole proprietorship to an LLC, it's a good idea to examine the benefits of each business structure. The main benefits of running a sole proprietorship include:
- Sole proprietorships have limited ongoing requirements once the business has been formed.
- Sole proprietorships do not need to separate personal and business assets, although doing so is advisable.
- No unemployment taxes are required for the business owner's income. These taxes do apply to any employee income.
The drawback of a sole proprietorship is that the owner of the business has unlimited legal liability for their company. This means that if the business fails to pay its creditors, the owner can be personally sued, and his or her assets can be seized. The primary benefit of an LLC is that company owners, known as members, cannot be held liable for the business's losses and debts. If the LLC becomes involved in a lawsuit, members' assets are not subject to seizure as part of the judgment.
The liability protections of an LLC are penetrable in the even that personal and business assets become mixed. If these assets are commingled, an LLC member could find themselves personally at risk in a lawsuit against the company.
Changing from a Sole Proprietorship to an LLC
If you're thinking about restructuring your sole proprietorship as a limited liability company, getting help from an attorney is a good idea. Forming an LLC requires several different steps, and if you're not familiar with the process, then completing these steps can be difficult. A knowledgeable attorney can help guide you through the formation process so that your company is set up correctly and members will enjoy liability protections.
Naming your new company is the first step of LLC formation. LLC naming requirements can differ from state to state, but in almost every state the name must include a designator, like “limited liability company” or the abbreviation “LLC," that lets the public know your company's status.
After picking a suitable LLC name, you need to find a registered agent for your company. Your agent will be the state's point of contact for your business, and they will also accept legal documents delivered to your company. If you have an attorney, they can serve as your registered agent, or you can appoint someone in your company to this role.
Now, you will need to file your formation documents with the state. These documents, called Articles of Organization, should include several pieces of business information:
- Your business's name and address.
- Your registered agent's address.
- LLC's members' names.
Filing your Articles of Organization officially establishes your company. Before business operations can begin, however, there are several other tasks that you need to accomplish. For instance, you'll need to register with the Internal Revenue Service (IRS) and decide how you will have your LLC taxed. Your company can be taxed as a partnership or a corporation but will be treated by default as a disregarded entity. If you want to elect a different tax classification, you can file Form 8832.
When transitioning your sole proprietorship to an LLC, you will need to re-apply for any licenses and permits you used with your old business structure. The documentation you will need depends on your industry and the rules in your county and state. To make sure you have everything you need to run your business, you can use the Licenses and Permits Tool maintained by the Small Business Administration (SBA).
Once your LLC has formed, you should get in touch with your insurance company to notify them of your new business structure. It's possible that restructuring your sole proprietorship as an LLC will require purchasing additional coverage.
As mentioned, separating business and personal assets is key when running an LLC. To make this task easier, opening a business bank account for your company is crucial. After your new account is open, transfer your business assets from your old account and then close it. Make sure to give your clients your new account information so that payments aren't interrupted.
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