I’ve been encouraging a couple of contractors we’ve been working with to go ahead and create a sole proprietorship or LLC business for themselves.
Sole proprietorships are very simple to set up, but LLCs are pretty easy too. At least in Colorado, you can do everything online including paying the small processing fee. It’s worth checking out what your state offers on their web site.
When I changed my business name from King Design to Crowd Favorite I converted my business from a sole proprietorship to an LLC. Here are a few things I learned about this process.
Disclaimer: the following is true to the best of my knowledge – corrections are welcome in the comments if any of the below is incorrect.
- You actually can’t convert a sole proprietorship to an LLC, you have to create a new LLC and change everything over.
- If you’re creating an LLC in Colorado, file your “papers” online and pay only $25 instead of $125.
- An LLC can use a variety of terms to indicate it is an LLC. I chose to use “Ltd.” instead of LLC because Ltd. can be used for corporations as well.
- You need new bank accounts – you can’t change the business name on the account.
- Make sure you endorse checks written to the old business name with the old business name/account number and deposit them in the old account. If you try to deposit a check with the old business name in the new business account, it may come back to you. This can be very inconvenient. You’ll need to keep both accounts open until you receive all of your outstanding checks on the prior business name.
- You need a new EIN number – the IRS seems happy to give you another one.
As for tax implications, etc. – I defer to my accountant on all that stuff. 🙂