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Sole Proprietor vs. Limited Liability Company (LLC)
A sole proprietorship is the most common type of business structure used today. In fact, it is the default choice for many people starting out in business. However, there are some drawbacks to running a sole proprietorship. For example, you are personally responsible for paying taxes, filing paperwork, and keeping records. You must file annual tax returns and pay quarterly income taxes. You could face fines and jail time if you do not keep proper books and records. There are ways around these problems, however. For instance, you can hire an accountant to help you prepare your taxes and keep track of financial transactions.
An LLC is a different type of business structure. Instead of being owned by one person, an LLC is owned by multiple individuals. This way, each member of the LLC has limited liability. As long as the members act responsibly, they cannot be held liable for the debts of the LLC. They can still be sued individually, though.
Benefits of switching from Sole Proprietorship to Limited Liability Company (LLC)
If you’re thinking about incorporating your small business, it might make sense to consider doing so as an LLC rather than a sole proprietorship. Here are some reasons why.
1. You’ll pay less tax. You’ll likely be subject to state and federal income taxes if you operate as a sole proprietor. However, incorporating you will only be liable for corporate income taxes.
2. You won’t have to deal with payroll taxes. Payroll taxes are imposed on wages paid to employees. These include Social Security and Medicare taxes. Because corporations don’t have employees, they aren’t required to pay these taxes.
3. You’ll save money on legal fees. Incorporating usually requires hiring a lawyer to draft documents and file paperwork. As a sole proprietor, you’ll probably do most of those things yourself. This saves you money.
4. Your personal assets won’t be at risk. A sole proprietor owns everything personally. If you lose your job, the IRS could seize your personal bank accounts, home equity loans, retirement funds, etc. In contrast, an incorporated business isn’t considered a person, so you won’t be personally responsible for anything.
5. You’ll have better insurance coverage. Corporations are generally insured against lawsuits and employee injuries. They can even provide workers’ compensation benefits.
6. You’ll have greater flexibility. An LLC gives you more freedom because you can buy and sell shares without going through a board of directors. For example, you can transfer ownership to another individual or group of individuals.
Steps to change sole proprietorship to LLC
A sole proprietorship is the most commonly used business structure for small businesses. However, it may not be ideal for every situation. Here are some steps to take to learn how to convert your existing sole proprietorship into an LLC.
1. Determine whether you want to keep your current name or use your legal name.
2. Decide what percentage of equity you want to retain. This could range anywhere from 50% to 100%.
3. Choose a state filing option. Some states offer online registration, while others require physical paperwork.
4. File your articles of organization.
5. Pay fees and file your annual reports.
6. Open up bank accounts.
1. Check your business name
You know it well. You’ve been thinking about it since you registered your domain name. But did you ever stop to think about what your business name actually says about your business? What do you want people to say about your business? If you’re like most entrepreneurs, you probably just picked something off the wall at random and went ahead with it. And now you wonder why no one wants to talk to you.
Business names are important. They represent your brand. They tell potential customers how you want to be perceived. So make sure yours reflects the image you want to project. Here are some tips to help you choose a good business name.
1. Check your businessname.com.au Business Name Report
2. Check your state’s business registration requirements.
3. Check your local laws.
4. Don’t use anything obscene or offensive.
5. Avoid infringing trademarks.
2. File articles of organization
Fill out the articles of organization. You’ll need to complete Articles of Organization Form #1, which you can download here. If you’re starting an LLC in California, fill out Articles of Organization Form #2.
Most states require you to pay a fee to register an LLC. In some cases, you can avoid paying this fee if you hire a lawyer or accountant to draft the articles of incorporation. Check with your state’s filing officer to find out whether you qualify for this option.
In most states, you must file the articles of organization with the secretary of state. However, some states don’t require you to do this; check with your state’s filing officers to see what’s required.
3. Write an LLC operating agreement
An LLC operating agreement is a legal document that spells out how the members of an LLC are supposed to operate the company. These documents are often called Articles of Organization because they define how the organization operates. You can use the same operating agreement template for multiple companies.
The operating agreement includes information about who owns what percentages of the company. This is important because it helps prevent disputes over ownership. For example, if you want to sell your shares to someone else, you’ll need to ensure that person agrees to take on your obligations under the operating agreement. If you don’t do this, he might try to sue you later.
You’ll also need a separate operating agreement for each member of the LLC. This way, everyone knows exactly what his responsibilities are within the company.
4. Announce your LLC
If you are considering starting a limited liability company (LLC), here are four things you should know about filing an annual statement with the state.
The first step is to decide whether you want to file an annual statement with your secretary of state. If you do, there are three ways to go about doing it:
1. File Form A with the Secretary of State. This form requires $100 plus fees. You must use this method if you plan to operate your business out of your home or another place where no office space exists.
2. File Form B with the Secretary of State and pay the fee of $50 plus fees. This option allows you to operate your business anywhere in the world.
3. File Form EZ with the Secretary of State for free. This option is perfect if you already have a physical address for your business.
You must file an annual statement within 30 days of the end of each calendar year. For example, if you start operating your business on January 1st, you must file your annual statement by April 30th.
In addition to filing an annual statement, you must notify the Secretary of State‘s Office of changes to your name, address, principal place of business, or registered agent. Changes include adding employees, changing addresses, moving locations, merging companies, dissolving a company, or selling assets.
This information is important because it helps ensure your business continues to comply with state laws.
5. Apply for a new bank account
Separating your finances from your business funds will make it easier to keep track of both. If you use a business credit card, apply for a business checking account. This way, you won’t have to worry about keeping up with multiple statements or reconciling transactions. You’ll also be able to file taxes separately for each type of income. And if you’re self-employed, having a business bank account could save you money on payroll taxes.
6. Apply for an EIN
Apply for an Employer Identification Number (EIN). If you start a business, you’ll need one. This number allows you to open bank accounts and pay federal income tax.
You must apply for an EIN even if you’re just starting. Once you’ve applied, the IRS takes about 10 days to approve or deny your application. You’ll need to reapply if you don’t receive an approval within 30 days.
You’ll need to register each person with the IRS if you plan to hire employees. You’ll need to do this whether or not you use payroll software.
The good news is that there’s no cost associated with registering employees. However, you’ll have to pay $25 per employee for filing W-2 forms.
7. Apply for business licenses and permits
Business licenses and permits are required by law for every business. To start a business, it is important to understand how licensing works and where to apply. You must obtain a business license before you open up a shop. In most states, there are different types of licenses and permits. Some require a fee, while others do not.
Your LLC must file an Application for each type of license and permit needed. For example, you will need a Federal Tax ID number if you plan to sell products online. This is because you are selling goods across state lines. You will also need a seller’s permit if you plan to ship items out of state.
Check with your local government office to determine the required licenses and permits. Also, check with your city hall to see if you need a building permit.
Frequently Asked Questions
How long does it take the State to process an Oklahoma Limited Liability Company amendment?
Oklahoma LLC filings are processed within 24 hours, and expedited filings are processed within one business day. Online filers must submit documents online via our secure site.
Can you change the Oklahoma LLC members or managers using an amendment?
Oklahoma does not ask for the names of the managers of an LLC in the articles of organization. However, it is possible to amend the operating agreement to add or replace the manager(s). This can be done by filing an amendment with the Secretary of State. There are several reasons you might want to do this, including changing the name of the LLC, adding additional members, replacing one member with another, transferring membership interests, or even making changes to the management structure.
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.