Can I Convert A DBA To An LLC?

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Dec. 19, 2022, midnight

Can I Convert A DBA To An LLC?

Convert dba to LLC

Converting a Doing Business As (DBA), aka sole proprietorship to a Limited liability company ( LLC) is fairly a very easy process. Changing your status from sole proprietor to one of the members in a limited liability company has many advantages. The greatest of which is that you get personal liability protection in an LLC, whereas, your assets are at risk being a sole proprietor. If you are thinking, can I convert a dba to an LLC? then you have landed on the right page. Here is how you can easily convert your sole proprietorship to a limited liability company, but first let's see what is a sole proprietorship, or LLC and why people opt for either of them.

Understanding Sole Proprietorship

A sole proprietorship, also known as sole leadership is a type of business structure that is run by one person only. This person is the sole owner of the business, although he may employ others for help. Other people will be working for the owner and will not have any share in the business profits. Through LegalRegistration.com, you can form an LLC in no time. Another distinct feature of a sole proprietorship is that there is no distinction between the owner and the business itself. It may be advantageous because there are no strict regulations on sole proprietorship by the business. The owner pays personal taxes over the profits he earns from the business. This may protect him from various business taxes.

Benefits Of Sole Proprietorship

There is a reason why people usually prefer sole proprietorship as a business structure. The reason lies in the multiple benefits this business structure has to offer. Some of the top benefits of a sole proprietorship are discussed here.

1. Lower Regulations

There are fewer government regulations on sole proprietorship than on other forms of business. Since these businesses are not registered with the government, the owner can easily avoid business taxes and pay only personal taxes. Please give LegalRegistration.com a phone call if you need more information.

2. Easy To Set

As there are no government regulations on sole proprietorship, this is the most favorable business type for small businesses. If anyone wants to start a business, they can easily start a sole proprietorship. There is no requirement for business permits or licenses.

3. Easy To Dissolve

Similar to setting up a business, it is very easy to dissolve a sole proprietorship. You do not have to follow any complex procedure. You literally have to shut your shop and be done with it. Get more information Sole Proprietor

4. Single Entity

In a sole proprietorship, the owner and the business itself are a single entity. There is no need to set a company name, most people use their own names. This saves them from registering or getting a trademark license.

Disadvantages Of Sole Proprietorship

Apart from the list of advantages this business structure has for entrepreneurs, especially small-scale setups, it has a few drawbacks as well. Some of them are described below.

1. No Governmental Protection

Since sole proprietorship is not registered or regulated by any governmental body, these setups usually get no protection from the government when it comes to legal issues. If someone is suing you, you can not have support from the government. For additional information What services do we provide?

2. Owner Is At Risk

The assets of the owner of a sole proprietorship are the same as his business assets since there is no distinction between the owner and the business. Therefore, this poses a high risk to the owner's assets. In case the business fails or becomes entrapped in debts or bankruptcy, the owner will have to pay from his pockets. Even the taxes are to be paid by your personal account.

3.No Opportunity For Growth

A sole proprietorship offers little to no opportunity for business growth. This business structure is suitable for small-scale businesses only. If someone wants to expand their business, they may have to convert into an LLC or a corporation, which are bigger entities than a sole proprietorship. As long as you want to enjoy the benefits of sole tradership, you can not expand your business.

What Is A Limited Liability Company (LLC)?

A limited liability company (LLC) is another business structure that is bigger than a sole proprietorship. In this business structure, multiple business partners come together and sign an operating agreement to run a company together. An LLC is also one of the most liked business structures among entrepreneurs. This business structure solves the problems that are faced by a sole proprietorship. Therefore, making it a more feasible option. The biggest benefit is that personal assets are protected by limited liability insurance, which means no matter what happens with business assets, the personal assets of individual members will remain protected.

Benefits Of An LLC

The reasons why businesses want to convert themselves from a sole proprietorship to LLC are discussed below.

  1. Personal Asset Protection

Partners and investors in an LLC have personal liability protection which means that the creditors can not come after the assets of the members in case the business faces bankruptcy. No member has to pay business taxes from his pocket. Instead, business assets are completely separated from personal assets.

2. A Registered Company

An LLC has to be registered with local and state-level authorities. This means that LLCs have to follow a set of rules and regulations to operate successfully in the market. This might put the company into tax brackets, but the greatest advantage is that the business is protected under the umbrella of the government's rules and laws. Additional information Business Licensing.

3. Easy To Form

An LLC is also quite easy to set up. It might not be as easy as a sole proprietorship, but it definitely requires less paperwork than a corporation. Different members and investors have to come together and sign an agreement to run the llc under said rules and regulations.

4. Allows Growth

Finally, an LLC allows more growth opportunities for businesses than a sole proprietorship. This means that a business can expand when it operates on the structure of an LLC. You can easily find more investors and creditors to invest in your business, providing you with endless growth opportunities.

Converting Sole Proprietorship To LLC

You can convert your sole proprietorship easily into a limited liability company (LLC) by following these simple steps.

1. Withdraw From Your DBA

First things first, you will need to withdraw from or cancel your Doing Business As name when you convert dba to LLC. This is because you no longer want your sole proprietorship to exist. The fictional or assumed trade name you had taken for your self-employed business needs to be canceled before you form an LLC. To withdraw or cancel your dba, you will need to file an application form with your county or state. Once it is approved, you can simply stop using it for any business activity in the future. Get more information on Legal Registration Archives

2. Get An Employer Identification Number

Employee Identification Number (EIN) is a compulsion when you are forming an LLC. This number will be used for all the legal formalities of your business, for example when filing taxes. Sole proprietorships usually do not require EIN and they can easily operate with the Social Security Number of the owner. However, if your dba had an EIN, you can no longer use it for LLC. You will need to apply for a new EIN to be able to operate in LLC. EIN is necessary for opening bank accounts under LLC, filing taxes, and other such legalities.

3. Transfer Assets From DBA To LLC

When you think can I convert a dba to an LLC, you should also think do I have enough shares to become a strong partner in an LLC? When you start an LLC, you will have to transfer the assets of your sole proprietorship to the LLC. This can be done in two ways.

Whichever method you want to choose, talk with your accountant and your LLC partners. You should also consider the tax relaxation benefits of each method. Please contact the LegalRegistration.com team if you have any questions.

4. Update Your Contracts, Agreements, And Business Information

Once you have received the EIN and formal letter from the IRS to open your LLC, you should consider updating all your business information. This includes changing website information, advertisements, business cards, etc. Secondly, you should also consider the contracts and agreements that you had signed in a sole proprietorship. Read those contracts and agreements to familiarize yourself with the terms and conditions. You can either continue with the contracts and agreements in your capacity and later let your LLC renew those contracts. Or you can simply let the LLC take over all your contracts and agreements and update them with different names and signs.

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