An individual operating his or her own business often wants to form an LLC to protect themselves from personal liability, gain greater flexibility with regard to owning property, and better control over certain aspects of running their business. If you are considering converting from a sole proprietorship to an LLC, there are several things you should consider.
To change from a sole proprietorship (also known as a “C corporation”) into an LLC, you’ll need to file articles of organization with your state. This process usually takes about 30 days to complete. You’ll also need to pay annual franchise tax and corporate income tax. Depending on where you live, it could cost anywhere from $100-$500 per year.
Once you’ve filed your articles of organization, you’ll need to obtain an EIN number from the IRS. After obtaining an EIN, you’ll need to register your LLC with the state. In most states, this process typically takes one week to complete. Once registered, you’ll need to update your federal tax filings accordingly.
If you’re interested in learning more about forming an LLC, please contact us today. We’d love to help you out!
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Potential Advantage of Changing to an LLC
An LLC is an entity that provides limited liability protection for owners and managers. This protects you from being sued personally for actions taken while operating the business. In addition, it allows you to deduct expenses associated with running the business. If you’re considering changing to an LLC, here are some potential benefits:
1. Limited Liability Protection – An LLC offers limited liability protection for owners. This means you won’t be held liable for debts incurred by the business. You’ll still be responsible for personal debt such as credit card bills and car loans.
2. Tax Deductions – A corporation is taxed differently than a partnership or an individual. Corporations pay corporate income tax, whereas partnerships and individuals do not. By forming an LLC, you can take advantage of certain deductions. For example, you can deduct advertising costs, legal fees, etc. These are important because they reduce taxable income.
3. More Flexibility – As an owner of an LLC, you have greater flexibility than a sole proprietorship. With a sole proprietorship, you’re responsible for paying yourself wages, paying employees’ salaries, and filing payroll taxes. An LLC gives you more control over how much money flows into and out of the business.
4. Better Business Names – Many people choose to incorporate simply because they like the name “corporation.” However, there are many reasons why incorporating isn’t always necessary. One reason is that you might want to use a different business name. Another reason is that you could operate a business without incorporation. Incorporating doesn’t prevent you from doing either of those things.
5. Easier Formation – There are several ways to form an LLC. The easiest way is to start one online. Once you’ve set up your LLC, you can register your domain names and open a bank account.
6. Simplified Taxes – When you incorporate, you become subject to federal, state, and local taxation. Depending on where you live, this can mean multiple forms filled out every quarter. In addition, you must file quarterly reports with the IRS. All of this paperwork makes it difficult to manage your finances. Forming an LLC simplifies taxes because you only have to fill out one 1040EZ form each year.
How to Convert to an LLC
Most states allow sole proprietorships to convert into limited liability corporations (LLCs). This allows owners to protect themselves against personal liabilities and lawsuits while still enjoying the benefits of being a single owner. In some cases, however, it might make sense to start out as a corporation. For example, you could want to limit your personal exposure to potential legal action. Or perhaps you are looking to raise capital.
1. Check if your business name is available.
- Make Sure Someone Else Does Not Own Your Business Name Before Registering It Yourself
If your business name is available, don’t rush to register it immediately. First, make sure no one else owns it. To do this, just enter the full legal description of the business into our search bar. If there are multiple businesses with the same name, we’ll show you how to narrow down the list.
- Don’t Register a DBA Unless You Really Want to Protect Your Brand
A DBA is a business entity that protects your personal assets in case something happens to you. However, many people use a DBA without ever filing tax returns, making it difficult for creditors to collect debts owed to them. A DBA doesn’t prevent others from accessing information about your business, such as your contact info, bank account number, etc.
- Avoid Getting Bounced From Paypal With These Tips
PayPal is a popular online payment system used by millions of consumers every day. Unfortunately, some people try to scam PayPal customers by sending fraudulent payments. There are several things you can do to avoid getting bounced from PayPal, including verifying your email address, checking your transaction history, and avoiding suspicious transactions.
3. Register your business with the state
States require businesses to register their entity through the Secretary of State, according to the National Association of Secretaries of State (NASS). This includes filing articles of organization, annual reports, and tax information. Businesses must complete this paperwork within 30 days of formation. Some states provide online portals to help business owner file their articles of organization, while others charge a fee.
Errors in the form could cause delay in forming the company, according to NASS. For example, some states require certain types of capitalization, such as initial caps or lowercase letters, whereas others allow mixed case. Also, some states require you to list yourself as president, vice president, secretary, treasurer, etc., while others have no requirement. In addition, some states require you include a physical address, while others do not.
3. Create an LLC Operating Agreement in Oregon
An operating agreement is a contract between members of an LLC. This document helps you avoid potential problems down the road. You might want to consider creating one if you have plans to add additional members to your LLC. If you plan to sell the business, it is important to know who gets paid out of the proceeds.
A good operating agreement will help you keep track of who owns what and how decision making happens within the LLC. For example, if you decide to change the name of the entity, you will need to make sure everyone agrees to the changes. Without a clear agreement, things could get messy very quickly.
4. Obtain an EIN from the IRS
Obtaining an Employer Identification Number (EIN) is easy. You just go online to www.irs.gov/businesses/small/article/0,,id97628,00.html. There are no fees associated with obtaining an EIN. However, you must provide proof of incorporation. This could include a copy of your Articles of Incorporation, a Certificate of Existence, or a certificate of good standing. If you don’t have one, you’ll need to file it with the state where you incorporated. Once you’ve got your EIN, make sure you keep it up to date.
The Internal Revenue Service requires businesses to keep track of all financial activities. They do this by maintaining a general ledger. A general ledger tracks every transaction that occurs within a business. These transactions include cash receipts, disbursements, inventory purchases, payroll payments, etc.
A general ledger is necessary because tax returns require detailed information about each transaction. For example, a sales return might ask how much money was spent on advertising. In addition, some types of businesses, such as sole proprietorships, partnerships, and corporations, may file separate income taxes. All three of those entities must maintain a general ledger.
Keep Track Of Every Transaction
5. Set Up a Business Bank Account
When you set up a business bank account there are some things to consider. First, make sure you know where the money will come from. If you don’t have a steady source of income, you’ll need to open a business bank account. You’ll also need to provide documentation like a copy of your state’s corporate filing form and proof of incorporation. Once you’ve done those steps, you’re ready to apply for a business bank account. Here’s what to do next.
1. Find a bank
First, find a bank that offers business accounts. This could mean applying online or calling the bank directly. Some banks offer free consultations over the phone. You might even be able to meet with a banker in person.
2. Fill out paperwork
Once you’ve found a bank, you’ll need to fill out forms. These include information such as your name, address, contact number, email address, date of birth, social security number, and tax identification number. They also require documents like copies of your driver’s license and passport, a utility bill showing your current residence, and proof of incorporation.
After filling out the paperwork, wait for approval. Depending on the bank, receiving approval could take anywhere from one week to several months. If you haven’t received approval within three weeks, call the bank again.
6. Reapply for Business Licenses and Permits
The process of starting a small business can seem daunting, especially since it involves multiple steps. But there are ways to streamline the process, saving you time and money while ensuring everything goes smoothly. Here are some tips to help you form an LLC and start your business without missing anything important along the way.
1. Get Your New Business License
To form an LLC, you must first obtain a federal tax ID number from the IRS. You’ll use this number to file taxes each year. To do this, contact your state or local government and ask about the requirements for obtaining a business license. If you’re planning on operating out of your home, check with your city or county clerk’s office to find out what types of businesses are allowed to operate within your area.
2. Obtain All Required Business Licenses and Permit
Once you’ve obtained your business license, make sure you meet all applicable regulations. For example, if you plan to sell products online, you’ll need to register with the Federal Trade Commission (FTC). Also, make sure you get permission to run your business from the proper authorities. For instance, if you want to open a bar, you’ll need to get a liquor license from your municipality. And if you plan to offer catering services, you’ll need to work with the health department in your town.
3. Renew Your Business Licenses and Permits Every Year
Your business license won’t expire unless you fail to pay your annual renewal fee. In addition, many states require you to renew your food permit once per year. So, even though you might think you don’t need to reregister, it’s better to be safe than sorry.
7. Have a Plan for Maintaining Your LLC’s Compliance (Oregon)
LLCs are legal entities that allow owners to limit their personal liability. If you’re considering forming one, it’s important to know what happens if you don’t maintain the entity properly. You’ll want to make sure you follow the rules and avoid penalties.
The IRS requires LLCs to file certain documents with their states every year, including annual returns, tax returns, financial statements, and more. Failure to comply with filing dates could lead to losing personal responsibility protection and/or forcing your LLC into involuntary dissolution. Additionally, the IRS imposes stiff fines for late filings.
Keeping track of all upcoming compliance dates is essential. CorpNet provides a free compliance portal where members can access information about their due dates. Members can also sign up for email alerts and reminders to help them stay on top of things.
Frequently Asked Questions
Can you re-state the initial articles instead of filing an amendment?
Oregon residents are encouraged to amend their ballot petitions rather than file a brand new one. If you do choose to submit a new petition, it must include the following information: “The name of the person submitting the petition; his/her address; the county in which he/she resides; the date of signing; the number of signatures; the names of each signer and his/her residence.”
If you’re thinking about changing something on your current petition, you’ll want to make sure that you’ve included everything that needs to be there. This includes the correct wording for the change, the signature count, and the location where the signatures were collected.
How much does an Oregon Limited Liability Company amendment cost?
To amend your Oregon LLC, you must pay a $100 filing fee, unless your amendment solely adds or deletes members/managers. In either case, you don’t have to pay anything.
If you make changes to your company’s name, such as changing the spelling of the name or moving it to another state, you’ll still have to file a $100 amendment form. If you’re just changing your address or phone number, however, you won’t have to do anything.
The filing fee is due within 30 days of submitting your application.
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.