How to Convert a Sole Proprietorship to an LLC

Before you start

What to know first

There is no direct legal 'conversion' from sole proprietorship to LLC — a sole proprietorship is not a legal entity and therefore cannot be converted or transferred. You form a new LLC and then migrate business activities, contracts, and assets into it.
You must obtain a new EIN for the LLC — your sole proprietorship EIN does not transfer to the LLC and cannot be reused. The IRS treats the new LLC as a new taxpayer entity.
You must open a new business bank account in the LLC's name with its new EIN. Existing accounts opened under your personal name or your sole-prop DBA cannot be transferred — they must be closed and replaced.
All existing client contracts, vendor agreements, and leases are technically still with the sole proprietor (you personally) until they are assigned or re-signed under the LLC name. This is an important step most new LLC owners skip.
Your existing DBA (Doing Business As) filed under your sole proprietorship does not transfer to the LLC. If you want the LLC to operate under the same trade name, you must file a new DBA in the LLC's name.
Existing business licenses and permits may need to be reissued in the LLC's name — contact each licensing authority to confirm. In many states and municipalities, licenses are issued to the legal entity, not the trade name.
There is no federal income tax penalty for converting from a sole proprietorship to an LLC. The LLC's first tax year begins on the date of formation.
S-Corp election (IRS Form 2553) can be filed any time after forming the LLC — within 75 days of formation for the election to apply to the current tax year, or before March 15 for the following tax year. S-Corp election is not required at formation but should be evaluated at $80,000+ annual net income.

Documents

What you'll need

Articles of Organization (filed with your state Secretary of State) — the primary formation document; available for online filing at most state SOS websites
Registered agent's name and street address in the state of formation
LLC legal name including required designator (LLC, L.L.C., Limited Liability Company)
Management structure selection: member-managed (default for single-member LLCs) or manager-managed
New EIN — obtained from irs.gov/ein after the LLC is formed (you need your LLC formation date and Articles to apply)
LLC Operating Agreement — even for single-member LLCs; required in CA, NY, ME, MO, DE
Articles of Organization (approved copy) — required to open business bank account and for most business license transfers

Process

Step by step

Choose your LLC formation state For most U.S. residents: form your LLC in the state where you primarily do business. Forming in Wyoming or Delaware when you operate in Texas saves nothing — you would pay Wyoming fees plus Texas foreign-qualification fees ($0–$750), which is more expensive than simply forming in Texas. If you operate from home in a single state, form in your home state. Exception: Non-US residents or owners specifically seeking ownership privacy should consider Wyoming ($100 filing, no public member directory) or New Mexico ($50 filing, no public member directory, no annual report fee).
File Articles of Organization with your state Secretary of State Go to your state's Secretary of State website. File Articles of Organization (also called Certificate of Formation or Certificate of Organization in some states). The form asks for: (1) LLC legal name — must include a required designator like 'LLC' or 'Limited Liability Company'; run a name availability search first on your state SOS website. (2) Registered agent — name and physical street address in your state; can be yourself or a commercial service. (3) Principal office address. (4) Management structure. Pay the filing fee by credit card. Processing time: 1–10 business days for online filings; expedited same-day or 24-hour available in most states for $50–$100. Save your approved Articles — you will need them repeatedly.
Apply for a new EIN for the LLC Go to irs.gov/ein and apply online. Select 'Limited Liability Company' as entity type. Specify the number of members (1 for single-member). Enter your LLC's legal name exactly as it appears on the approved Articles of Organization, the state of formation, and the formation date. The responsible party must be a person (not an entity) with their SSN or ITIN — this is typically the sole member. Your EIN is issued instantly. Save the confirmation page. The IRS will mail a CP575 letter within 4–5 weeks; some banks require this. Important: Your old sole-prop EIN cannot be reused for the LLC. The IRS treats them as separate taxpayers.
Open a new business bank account in the LLC's name Open a new business checking account using the LLC's legal name and new EIN. Documents needed: approved Articles of Organization, EIN (or CP575 letter), government-issued photo ID, and LLC operating agreement. Online banks (Mercury, Novo, Relay, Found, Bluevine) offer fee-free accounts with same-day or next-business-day opening. Traditional banks (Chase, BoA, Wells Fargo) offer in-person service useful for cash-handling businesses. Critical: Do not continue using your old personal account or your sole-prop bank account for LLC business — this constitutes commingling of funds and can destroy your LLC's liability shield by making you vulnerable to veil-piercing claims.
Reassign or re-sign existing contracts and vendor agreements Your existing client contracts, service agreements, and vendor relationships were entered into by you personally (the sole proprietor), not by the LLC. You have several options to migrate them: (1) Assignment clause — if your contracts include an assignment provision, execute an assignment of the contract from yourself to the LLC. (2) Novation — the cleanest approach for significant contracts: all three parties (you, the LLC, and the counterparty) sign a novation agreement replacing you as a party with the LLC. (3) Re-execution — for new engagements and contract renewals, simply use the LLC name and EIN going forward. For most informal service businesses, notifying clients and updating your invoicing to show the LLC name is sufficient.
Re-file your DBA in the LLC's name (if applicable) If your sole proprietorship operated under a DBA (fictitious business name / trade name), that filing was made in your personal name. It does not transfer to the LLC. To continue operating under the same trade name: file a new DBA application with your county clerk (or state filing office) in the LLC's name. Typical cost: $10–$100. The LLC's name on the new DBA filing should be its full legal name including the LLC designator. You can then allow the old sole-prop DBA to lapse at its next renewal date.
Transfer business licenses, permits, and professional registrations Business licenses, local operating permits, contractor licenses, sales tax permits, and professional registrations issued to 'you as a sole proprietor' may need to be reissued in the LLC's name. Steps: (1) Contact each licensing authority — city/county business license office, state contractor board, state sales tax agency, etc. — and ask whether transfer is possible or whether you need to apply for a new license in the LLC's name. (2) Sales tax permit: apply for a new sales tax permit or seller's permit using the LLC's EIN. (3) Professional licenses (medical, legal, engineering): typically must be held personally, not by the LLC; confirm with your state licensing board. Some states allow PLLC formation for licensed professionals.
Update payroll, vendors, and payment processors Notify: (1) Payroll service — if you have W-2 employees, update your payroll account with the LLC's legal name and new EIN. (2) 1099 contractors — provide them with a new W-9 form showing the LLC's name and EIN. (3) Payment processors (Stripe, Square, PayPal) — update your business account to the LLC's name and EIN; most processors allow updating via account settings without creating a new account. (4) Recurring vendor relationships — update billing name and notify key suppliers. (5) IRS estimated taxes — if you pay quarterly estimated taxes (Form 1040-ES), continue under your personal SSN for the current tax year; the LLC's Schedule C income still flows to your personal return.

Costs

What it costs

Item	Amount	Notes
Articles of Organization — state filing fee	$35–$500	Lowest: Montana ($35), Kentucky ($40), Mississippi ($50), Colorado ($50), Iowa ($50), New Mexico ($50), Wyoming ($100). Mid-range: Florida ($125), Delaware ($90), Georgia ($100), Ohio ($99), New York ($200). High: Massachusetts ($500), Texas ($300), Tennessee ($300), Nevada ($425 effective with business license).
EIN application	$0	Free at irs.gov/ein. Online, instant issuance. Do not pay a third-party service for this. You will need a new EIN for the LLC — your sole-prop EIN cannot be transferred or reused for the LLC.
Registered agent service (annual)	$39–$125/yr	All LLCs must maintain a registered agent. Northwest Registered Agent ($39/yr) and ZenBusiness ($49/yr) are the lowest-cost commercial options. You can serve as your own registered agent in most states to eliminate this cost, but commercial services provide privacy (your home address won't appear in public records) and reliability.
New business bank account opening deposit	$0–$100	Online banks (Mercury, Novo, Relay, Found): $0 minimum opening deposit. Traditional banks (Chase Business Complete): $0 opening deposit but $2,000/month average balance to waive $15/mo fee. Bank of America Business Advantage: $100 minimum. You must open a new account in the LLC's name — existing sole-prop accounts cannot be transferred.
DBA re-filing (if using a trade name)	$10–$100	If your sole proprietorship operated under a DBA, that DBA was filed under your personal name or sole proprietorship — it does not transfer to the LLC. File a new DBA in the LLC's name with your county clerk or state filing office.
Operating agreement (optional service)	$0–$200	A simple single-member LLC operating agreement can be drafted from free templates (NOLO, LegalZoom, or state-provided templates). Required in CA, NY, ME, MO, and DE. For multi-member LLCs or complex ownership structures, an attorney-drafted agreement ($200–$1,500) is advisable.

FAQ

Common questions

Is there a way to directly convert a sole proprietorship to an LLC?

No. A sole proprietorship is not a legal entity — it is the default legal status of an individual conducting business. It has no existence separate from you and therefore cannot be 'converted' or 'transferred' in a legal sense. The process is: (1) Form a new LLC with your state Secretary of State. (2) Apply for a new EIN for the LLC. (3) Open new bank accounts in the LLC's name. (4) Assign or re-execute existing contracts under the LLC name. There is no tax penalty for this process, and the IRS treats it as the creation of a new taxpayer — not a conversion.

Do I need a new EIN when I convert my sole proprietorship to an LLC?

Yes, always. The IRS treats a sole proprietorship and an LLC as separate taxpayers even if both are owned by the same person. Your sole-prop EIN was issued to you personally operating as a sole proprietor. The LLC needs its own EIN because: (1) The LLC is a separate legal entity. (2) Banks require the LLC's EIN to open a business account in the LLC's name. (3) Filing taxes under the wrong EIN creates IRS records conflicts. Applying for a new EIN is free and instant at irs.gov/ein. The process takes 10–15 minutes.

What happens to my sole-prop bank account when I form an LLC?

Your existing sole-prop bank account — whether opened under your personal name or under a DBA — does not transfer to the LLC. You must open a new business bank account in the LLC's legal name with its new EIN. This is not optional: maintaining the LLC's liability shield requires demonstrating financial separation between you and the LLC. A plaintiff's attorney's first move in a veil-piercing lawsuit is to request your bank statements. If they show business and personal funds in the same account, or if LLC business flows through a personal account, courts are far more likely to pierce the veil.

Do existing contracts transfer automatically to my new LLC?

No. Existing contracts were entered into by you personally as a sole proprietor. They remain with the sole proprietor (you personally) until actively reassigned to the LLC. For significant contracts — client service agreements, vendor contracts, leases — execute a contract assignment or novation. For small informal relationships, notifying the other party and updating future invoices to show the LLC name is generally sufficient. Going forward, all new contracts and renewals should be signed in the LLC's name. For context: if a client sues you over a contract that was never assigned to the LLC, they may still be able to sue you personally because the contract was with you personally.

What happens to my sole-prop EIN after I form an LLC?

Your sole-prop EIN becomes inactive for business use once you shut down the sole proprietorship. You do not cancel an EIN — EINs are permanent IRS tax identifiers and cannot be deleted. However, you should stop filing business taxes under the old EIN and begin filing under the LLC's new EIN. If you had employees under the sole-prop EIN, file final payroll tax returns under that EIN. If you had a sales tax permit under that EIN, cancel it with your state and apply for a new one under the LLC's EIN.

How long does it take to convert a sole proprietorship to an LLC?

The LLC formation itself takes 1–10 business days for online filings (expedited same-day or 24-hour available for $50–$100 in most states). Getting your EIN: instant online at irs.gov/ein. Opening a new business bank account: same-day to 2 business days for online banks. The complete conversion — including contract reassignment, DBA re-filing, license transfers, vendor notifications, and payroll updates — typically takes 4–8 weeks to fully complete. The LLC is legally operational the day your Articles are approved; the migration of business activities is a parallel process that can be done in stages.

Can I elect S-Corp status for my new LLC immediately?

Yes. File IRS Form 2553 (Election by a Small Business Corporation) within 75 days of your LLC formation date for the S-Corp election to apply to the current tax year. If you miss that window, file by March 15 of the following year for the election to take effect in the next tax year. S-Corp election benefits (reduced self-employment taxes via salary/distribution split) become financially meaningful at approximately $80,000–$100,000+ annual net income. Below that level, the payroll administration costs ($500–$1,500/yr via Gusto or ADP) typically offset the SE tax savings. Consult a CPA before making the S-Corp election.

Do I need to convert in every state I operate in?

Your LLC is formed in one state (your home state or a formation-friendly state). If you operate in multiple states, you may need to foreign-qualify the LLC in each additional state where you have a physical presence (office, employees, inventory) or conduct significant business activities. Foreign qualification fees range from $50–$750 per state plus additional registered agent costs. Operating as a sole proprietor in multiple states has the same compliance questions, with the additional risk that none of those operations have liability protection.

Provenance

Legal basis & official sources

Last verified 2026-05-07.

State LLC acts (all 50 states) govern formation and limited liability protection. No state LLC act provides a statutory mechanism to 'convert' a sole proprietorship to an LLC — the process is formation of a new entity and assignment of assets/contracts. Federal tax: 26 U.S.C. § 301.7701-3 (check-the-box regulations). IRS Publication 1635 (EIN for new entity). 26 U.S.C. § 6109 (new EIN required for new taxpayer entity). UCC Article 9 governs assignment of contractual rights and security interests.

Direct filing portal: https://sa.www4.irs.gov/modiein/individual/index.jsp

If you skip this

Continuing to operate as a sole proprietor exposes all personal assets to business lawsuits, contract disputes, and creditor claims with no legal separation
Failing to get a new EIN for the LLC means using the sole-prop EIN for LLC accounts — creating tax record conflicts and IRS correspondence issues
Failing to open a new LLC bank account and continuing to use personal accounts constitutes commingling of funds — the single most common trigger for piercing the corporate veil and destroying the LLC's liability shield
Not reassigning contracts to the LLC means those contracts technically bind you personally, not the LLC — you remain personally liable for their performance and disputes
Not updating sales tax permits and business licenses in the LLC's name can create compliance gaps with state revenue agencies and licensing boards

Official sources

§ A Related guides

§ B Building permits

§ C Companion tools

Disclaimer: Informational only, not legal or tax advice. Rules change, so confirm with a business attorney or CPA before you act.