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Sole proprietorship vs. LLC
A sole proprietorship is a type of business structure where one person owns it and bears responsibility for all debts and liabilities associated with the enterprise. In contrast, a limited liability company (LLC), commonly referred to as a “corporation,” is owned by multiple people and provides limited liability protection for those involved in the operation of the business.
An LLC offers many benefits over a sole proprietorship including tax advantages, asset protection, and increased flexibility. However, some drawbacks exist, such as additional administrative costs and potential confusion among customers.
Benefits of Switching From Sole Proprietorship To Limited Liability Company (LLC)
Limited liability means that your personal liabilities are limited to what you personally owe. This protects you from lawsuits filed against your business. In addition, your personal assets are protected because they’re not included in the business’ assets.
Pass through taxation means that taxes on profits are paid based on the profit of the company rather than on individual income. For example, if you make $100,000 and the company makes $50,000, you pay tax on half of the total amount ($25,000). If you file your taxes as a sole proprietor, you’d have to pay both halves of the total amount ($12,500 + $12,500 $25,000).
Ease of formation means that it’s easier for you to form an LLC. You don’t have to go through the hassle of getting a federal identification card, filing paperwork, etc.
Steps to change sole proprietorship to LLC in North Dakota
A sole proprietorship is one of the most common forms of business ownership. You operate under your name alone, without having to worry about paying taxes, filing corporate paperwork or hiring employees. However, there are some drawbacks to operating solely as a business owner. A sole proprietorship is considered an unincorporated entity, meaning you don’t pay income tax. If you’re self-employed, you’ll likely owe payroll taxes too. And it’s difficult to pass along equity to family members.
If you want to take advantage of the benefits of being incorporated while avoiding those burdens, consider converting your sole proprietorship into an Limited Liability Company (LLC). An LLC offers many of the same advantages as incorporation, including limited liability protection, asset protection and the ability to raise capital. But unlike a corporation, an LLC doesn’t require shareholders, directors or officers. Instead, each member owns a percentage interest in the company based on his or her contribution to the venture. In addition, each member receives equal voting power.
To convert your sole proprietorship into a limited liability company, follow these steps:
1. Choose the type of business structure you’d like to form. There are three types of companies: general partnerships, corporations and LLCs. Each type has different rules regarding how much money you must invest, what kinds of activities you can engage in and what legal protections you receive. For example, a general partnership requires no initial investment; however, it’s harder to dissolve than either a corporation or LLC. Also, a corporation allows you to incorporate outside states where you cannot do so as a sole proprietor.
2. Determine whether you want to maintain separate personal assets and liabilities. Most small businesses start out as sole proprietorships because they offer the easiest way to set up a business. If you decide to continue operating as a sole proprietor, keep in mind that you won’t benefit from limited liability protection. So, make sure you’ve got enough cash saved up to cover any potential losses.
3. File Articles of Organization. After choosing the type of company you’d like to establish, file articles of organization with your state’s secretary of state office. These documents include information such as the date of formation, the names of the owners, the purpose of the company and the address of the registered agent.
4. Obtain Business Licenses. Depending on the type of business you plan to conduct, you may need licenses from local authorities. Check with your city hall or county clerk’s office to see if you need permits or licenses.
1. Check your business name
Many people choose to form an LLC because it offers some tax advantages over sole proprietorships. But there are many reasons why you might want to consider forming an LLC, too. Here are three things to keep in mind about the pros and cons of doing so
2. File articles of organization
Fill out an article of organization (AO) form if you want to start an LLC. You must complete an AO form even if you already have an EIN. If you do not have an EIN, you can still use Form SS-4 to obtain one.
Most states charge between $50-$350 to file articles of organization, depending on how complicated your state requires it to be. Some states require no filing fee, while others charge up to $100. For example, New York charges $75 per person, $25 per additional member, and $5 for each additional member over 5. In addition, some states charge a flat fee, such as California ($60), Florida ($150), Texas ($55), and Washington ($200).
3. Write an LLC operating agreement
An Operating Agreement is a legal document used to govern how your limited liability company (LLC) operates. This includes things like who owns what percentage of the company, how profits are distributed, and how disputes are resolved. If you don’t write one up properly, it could lead to costly problems down the road. Here’s why you need to do it now.
4. Announce your LLC
In most states, filing an LLC requires some type of paperwork. In California, it takes about 2 weeks to complete the process. You must pay a $200 filing fee and publish an article announcing your formation of an LLC in the newspaper where you live. Once you do that, you can start operating as an LLC.
5. Apply for a new bank account
Separating your money into different accounts can make it much easier to keep track of your finances. You don’t want to lose everything because you didn’t pay attention to one small detail. If you’re looking to open up a new checking account, here are some things to consider.
1. Choose a bank that offers free checking
You’ll probably find yourself paying fees for each transaction you make. But if you choose a bank that doesn’t charge monthly maintenance fees, you won’t have to worry about those fees every month. And since you’ll likely use your new checking account for everyday transactions like shopping online and making purchases at stores, having no fees shouldn’t affect how often you use your account.
2. Open a savings account
If you plan to put money away for big expenses like buying a house someday, opening a high-interest savings account could be worth it. Savings accounts usually offer lower rates than regular checking accounts, but they have a few drawbacks. For example, most banks require you to set aside a certain amount of money each month. So even though you might earn more interest, you might spend less overall.
3. Consider a debit card
A debit card allows you to spend money directly from your checking account without waiting for cash to clear. This feature makes it easy to pay bills, buy groceries, and transfer funds between your checking and savings accounts. However, there are a few downsides to choosing a debit card over a credit card. First, you’ll have to carry around a lot of cash. Second, you’ll have to pay a fee just to withdraw money from ATMs.
6 Apply for an EIN
If you want to start filing corporate tax returns, you’ll need to register for an Employer Identification Number (EIN). You can do it online here.
If you’re starting a new Limited Liability Company (LLC), you’ll need to apply separately for an EIN. This applies whether you’re doing so because you want to operate as a corporation or because you want to form a new LLC.
You can use the same Social Security number for both purposes, though.
7. Apply for business licenses and permits
The state requires businesses to register with local authorities. This includes registering with the county clerk’s office where your business is located. You must pay taxes and fees for each type of business activity you conduct. For example, if you sell products, you must file sales tax returns. You must file income tax returns if you provide professional services, such as accounting, legal, engineering, etc.. In addition, many states require you to obtain a specific type of business license or permit. A business license allows you to operate your business legally within the jurisdiction. Some types of licenses are required for every business; others are optional.
For example, if you plan to open a restaurant, you must apply for a food handler’s license. If you intend to use heavy equipment like cranes or bulldozers, you must obtain a construction/demolition permit.
You can find out what business licenses and permits are needed for your particular business activities by contacting the appropriate government agency.
Frequently Asked Questions
How To File A North Dakota LLC Amendment
To amend your domestic N.D. limited liability company, provide a completed form, Limited Liability Company Articles of Amendment, to the Secretary of State (Sos).
To amend your foreign LLCs certificate of authority, mail or fax the following form, Amended Certificate Of Authority Foreign Limited Liability Co. Application to North Dakota Sos.
This form must be filled out if you are changing the names of your foreign LLCs or correcting statements on the certificate of authority that are no longer true.
If you are changing your LLC’s name(s), you MUST fill out a current original certificate of fact from the government office where the LLC’s articles of organization are filed.
Can you change the North Dakota LLC members or managers on an amendment?
An amendment is unnecessary to change the name and address of the managers or governors in a limited liability company (LLC). However, such changes must be reflected in the next annual report filed by the LLC. This includes filing Form M-1, Schedule A. In some cases, the LLC may file an amended return, Form 1065X, which contains information about the amendments. If there are no changes to the LLC’s membership or governance structure, it does not require an amendment.
James Rourke is a business and legal writer. He has written extensively on subjects such as contract law, company law, and intellectual property. His work has been featured in publications such as The Times, The Guardian, and Forbes. When he’s not writing, James enjoys spending time with his family and playing golf.