How to Convert Your Sole Proprietorship to an LLC: Step-by-Step Guide (2026)

Your LLC name must be distinguishable from other registered entities in your state and must include 'LLC,' 'L.L.C.,' or 'Limited Liability Company.' Most states allow you to check name availability for free on the Secretary of State website. Reserve the name (typically $10-$50) if you need a few days before filing.

• ✓Include 'LLC' or 'Limited Liability Company' in the name
• ✓Check availability: your state's Secretary of State website
• ✓Cannot include restricted words like 'bank,' 'insurance,' or 'trust' without approval
• ✓Consider reserving the name if you need time to prepare documents

This is the official formation document you file with your state. It typically requires: LLC name, principal office address, registered agent name and address, member/manager information, and your signature. Online filing is faster (1-5 days) than mail filing (2-6 weeks).

• ✓File online at your state's Secretary of State website
• ✓Filing fee: $35 (Montana) to $500 (Massachusetts)
• ✓Processing: 1-5 days online, 2-6 weeks by mail
• ✓You will receive a stamped copy or Certificate of Formation

Your new LLC needs its own EIN. This is free, takes 5 minutes at IRS.gov, and is available online Monday-Friday 7am-10pm ET. You cannot apply before your Articles of Organization are approved. The EIN is required to open a business bank account and file tax returns.

• ✓Apply free at IRS.gov/EIN - do not pay any third-party service
• ✓Available online Mon-Fri 7am-10pm Eastern
• ✓Receive EIN immediately upon completion
• ✓You need this before opening a bank account

Even as a single-member LLC, draft an operating agreement. This document establishes how the LLC is managed and is the main evidence courts look for when evaluating veil-piercing claims. Some states require it; all states recommend it. A simple single-member operating agreement takes 30-60 minutes to draft using a template.

• ✓Establishes that the LLC is separate from you personally
• ✓Covers: management structure, membership interest, profit distribution, dissolution
• ✓Keep a signed copy in a safe place (you rarely need to file it with the state)
• ✓Templates available for free; attorneys charge $300-$500 for custom versions

Open a business bank account in the LLC's name using your new EIN. Do not use your old sole proprietor account - the LLC is a new entity and must have completely separate finances from day one. Most banks offer free or low-cost business checking. Mercury, Relay, and Novo are popular no-fee options for small businesses.

• ✓Documents needed: EIN letter, Articles of Organization, operating agreement, personal ID
• ✓Recommended: Mercury, Relay, or Novo (free, no minimums)
• ✓Never use personal account for LLC transactions after this point
• ✓Immediately redirect all client payments to the new account

Notify active clients that you have formed an LLC. Going forward, all new contracts should be signed as '[Your LLC Name], managed by [Your Name]' rather than in your personal name. For existing ongoing contracts, send a brief notice that your business has been restructured. Update your service agreement template with the LLC name.

• ✓Send brief email to active clients: 'Effective [date], I have formed XYZ LLC...'
• ✓Update all invoice templates with LLC name and EIN (replace SSN)
• ✓Update any ongoing contracts where you are a party
• ✓Update professional liability insurance to name the LLC as insured

If you have local business licenses, sales tax permits, or professional licenses, these typically need to be updated to reflect the LLC. Some permits can be transferred; others require new applications. Contact your local licensing authority and your state's professional licensing board if applicable.

• ✓Local business license: usually a new application in LLC name
• ✓State sales tax permit: update or apply for new in LLC name
• ✓Professional licenses: requirements vary by state and profession
• ✓DBA registration: cancel old sole prop DBA; optionally re-register same name for LLC

Notify the IRS of your new LLC structure and EIN. If you have state tax accounts (sales tax, payroll), update those to reflect the LLC. File your final Schedule C as a sole proprietor for the period before the LLC was formed, then use your LLC's new EIN for all subsequent filings.

• ✓IRS: complete new W-9 with LLC name and EIN
• ✓State income tax: notify state of new entity
• ✓Sales tax accounts: transfer or re-register under LLC EIN
• ✓Payroll (if applicable): new employer tax accounts under LLC EIN

Fix: Formally cancel any DBA registration with your county. Operating under an old DBA name could create confusion about which entity is contracting.

Fix: Open a new account in the LLC name on day one. Transfer outstanding receivables. Never deposit client payments into a personal or sole-prop account again.

Fix: After forming the LLC, sign all business documents as 'Your Name, Manager of XYZ LLC, LLC' - not just your personal signature. One missed signature can create personal liability.

Fix: Your existing business insurance policy is likely in your name as a sole proprietor. Call your insurance broker to transfer the policy to the LLC or get a new policy with the LLC as the named insured.

Fix: Even for single-member LLCs, the operating agreement is your primary evidence of treating the LLC as a separate entity. Takes 30 minutes with a template.

Fix: The IRS issues EINs for free at IRS.gov. Any website charging $50-$150 for an EIN is a middleman. There is no legitimate reason to pay for this service.