1. What is the difference between a sole proprietorship and an LLC?There is a huge difference. Operating your business as a sole proprietorship under state law means that you are running your business in your individual capacity. Your business is a part of "you" when it comes to a sole proprietorship. As a result, everything you own (home, car, savings, anything) is 100% at risk for the business debts and liabilities of your business. In today's litigious society, 1 out of 5 people are sued each year and your chances of being sued are very high no matter who you are. The costs to form and maintain an LLC are so low now that there is no reason to plan against this risk by using a properly formed and maintained LLC. |
2. What are the benefits of an LLC over a sole proprietorship?The biggest benefit is limited liability protection. If you run your business through a properly formed and maintained LLC, you, as the owner will gain significant limited liability protection from the debts, lawsuits and judgments of your business. Other benefits include a more professional business image, a lower risk of tax audit more tax choices, and an easier vehicle for succession planning for your business. In addition, it is much easier to raise capital for an LLC because you can issue ownership interests to investors. Also, if you ever plan on selling your business, a business is more attractive to buyers when the business is in an LLC because it is easier to plan to the acquisition and transfer. |
3. How do I transfer my sole proprietorship business to an LLC?Because the sole proprietorship business is not housed in a legal business vehicle, the only way to transfer the business is to form an LLC and then transfer all of the assets, contracts and liabilities of the business from yourself to your LLC. The longer you wait to do this, the more difficult it can be. Once your LLC is formed, it is a brand new person under the law, so you will need to open new bank accounts for your new LLC and after formation, you will want to start conducting business only in your LLC's name. |
4. Can my new LLC use the dba I used for my sole proprietorship Yes. A dba is an asset just like any other. If you had registered a dba in your own name and now want the LLC to use it, you need to transfer the dba to the LLC and then register the dba in the LLC's name. Check with your locality to determine the specific requirements for transferring a dba. |
5. Can I use the same bank account for my new LLC that I used for my sole proprietoship?Generally, the answer is no. The LLC is a newly formed entity and is separate from your old business. Accordingly, you should set up bank accounts specifically for your LLC. If you are transferring your sole proprietorship business to an LLC, just open a new bank account for your LLC and then transfer the bank assets from the old account to the new LLC account. Once your sole proprietorship business has been totally transferred and the LLC is conducting business, you can wind down the old account. Do not make the mistake of closing it too soon though. During the transition, it is likely you will still get payment to the old business and so be conservative and leave open until you are sure all business has transitioned to the new LLC entity. |
6. How do I transfer personal assets into an LLC?To transfer personal assets to an LLC, the LLC could either purchase the assets from you or you could treat them as contributed capital. In either case you would have to assign a value to the assets and you would want to document the transfer with a bill of sale or a bill of transfer. This is for personal property only. If the assets include real estate or vehicles or similar assets then you would need to meet the state impose requirements for those types of assets. You should consult with your accountant to determine whether there will be any tax consequences. |
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