What is a Sole Proprietorship?
To change a sole proprietorship to an LLC, the business owner needs to file the necessary formation documents with their state, obtain an EIN (Employer Identification Number), and transfer assets and liabilities to the new LLC entity.
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Last Updated: March 17, 2026
If a sole proprietor finds themselves thinking about converting their business into an LLC, they’re in good company. The LLC is one of the most popular formation types for small business owners. This structure offers a range of potential benefits, from its flexible management options to the ability to separate personal assets and liabilities from those of the business.
While the prospect of officially forming an LLC may seem daunting, ZenBusiness is here to help. Keep reading to discover step-by-step directions for converting a sole proprietorship to an LLC and resources and tools to make the process easier.
Before diving into the steps for converting a sole proprietorship into an LLC, it’s helpful to discuss why some entrepreneurs make this choice to begin with.
A sole proprietorship is an unincorporated business with only one owner. This type of business is also sometimes referred to as a “sole trader” or a “proprietorship.”
Forming a sole proprietorship doesn’t require filing any official documents with the state. Generally speaking, if an entrepreneur is selling something or providing a professional service, they’re probably already considered a sole proprietor. Learn more about the definition of a sole proprietorship.
A limited liability company (LLC) is a business structure in which the business is a separate legal entity from its owners (which are called “members”). This formation type involves filing formation documents with the Secretary of State.
As their businesses grow, many sole proprietors opt to officially form their business as an LLC. The benefits of changing from a sole proprietorship to an LLC include:
Learn more about all the differences between sole props and limited liability companies.
Changing a sole prop to an LLC involves officially registering the business as a limited liability company with the state. This means giving the business a name, filing formation documents with the Secretary of State, appointing a registered agent, drafting an operating agreement, and obtaining an EIN. This section covers each step in detail.
The first step to forming an LLC is to name the LLC. As a sole prop, the business name was probably the same as the owner’s personal name. But with an LLC, the business needs an official company name that conveys legitimacy and captures its desired branding tone. Prudent entrepreneurs will choose a name that they’ll want to stick with long-term. It’s also a good idea to choose a name that clearly indicates the types of products or services the company will offer.
Most importantly, a business owner needs to adhere to the guidelines of the state in which they’re registering their business. While each state has slight variances in its rules, they all require limited liability companies to include some sort of LLC designator at the end of the company name. A few common LLC designators are:
Again, different states have different rules surrounding which LLC designators are required or allowed. Be sure to check with the Secretary of State (or similar office) for specific guidelines.
Most states also prohibit the use of words that suggest the LLC is a legal, banking, or government entity. Profanity and vulgar language are also typically disallowed.
An LLC’s name must be distinguishable from any other business names in the state. Entrepreneurs can use the ZenBusiness state-specific business entity search page to determine if their desired name is available. For example, this page lets business owners search for business entity names in California.
If a sole proprietorship has a “doing business as” name (also known as a trade name, assumed name, or fictitious name, depending on the state), the business owner may not be able to continue using it when they form their LLC. DBA laws vary widely by state. If one state allows DBAs and LLCs to share the same name and the DBA is the same as an existing LLC’s name, the business owner will need to find a new name for the LLC before filing paperwork with the state. No state allows two LLCs to share the same name. Read more on the doing business as (DBA) name definition here.
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All LLCs are required to appoint a registered agent. A registered agent is an individual or business entity that receives legal notices on behalf of the business. In some states, this is also called an “agent for service of process,” “statutory agent,” or “resident agent.”
Again, rules vary by state, but the general requirements for serving as an agent for service of process include:
While a business owner can often legally serve as their business’s registered agent themselves in most states, this is not advisable. Just a few of the potential pitfalls of doing so include:
These reasons are why many LLC owners choose to go with a professional registered agent service like ZenBusiness. With their professional services, business owners can:
To officially register a company as an LLC, a business owner needs to file Articles of Organization with the Secretary of State. This document sets the company up as an LLC in the state where they’re registering the business.
Depending on the state, a few other names for Articles of Organization include “Certificate of Organization” and “Certificate of Formation.”
While this form can differ from state-to-state, some of the information the business owner will typically provide on their formation documents includes:
In most states, a business owner can file their Articles of Organization online, in person, by mail, or via fax. When filing formation documents, a business owner will also include the state filing fee and any additional fees (such as expedited filing fees). Learn more about LLC filing fees by state.
View ZenBusiness’s step-by-step guide on How to File the Articles of Organization
To lay out how the LLC will be managed and run, the ownership team needs to create an operating agreement. (For more information, please see the operating agreement definition page.) While most states do not require this document by law, it is an important step in organizing an LLC. This is especially true when converting from a sole proprietorship to an LLC, as one of the main reasons the owner is making this change is probably to add more structure to their business.
An LLC operating agreement includes all of the pertinent details about how the LLC will be run, such as:
Even if the business is a single-member LLC, an operating agreement is an important legal document for the business to have. For example, many banks won’t let an LLC get a business bank account without one. And, if someone sued the LLC, an operating agreement helps further demonstrate to the court that the LLC is a separate entity from the owners.
Need some help? Use the interactive operating agreement template to make sure no details are missed.
Register the LLC with the federal government by getting an Employer Identification Number (EIN). Much like a Social Security Number (SSN) does for individuals and sole proprietors, a new Employer Identification Number identifies an LLC to the Internal Revenue Service (IRS).
An EIN is also sometimes referred to as a Federal Employer Identification Number (FEIN). This is the number the business will use to file certain tax returns, open a business bank account, and conduct other business activities. ZenBusiness offers an EIN service that helps make this step easy.
Note: Once the business has an EIN, it can open a business bank account. A new bank account is crucial to separate the owner’s personal assets and expenses from their business expenses. The LLC might also want to get a business credit card to start building credit.
There are several steps a business owner needs to follow when changing a sole proprietorship to an LLC. Want to make life easier? ZenBusiness’s LLC formation service can handle the heavy lifting. From filing formation documents, drafting an operating agreement, and keeping a business compliant, ZenBusiness can assist with the entire process.
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LLCs are treated as pass-through entities by the Internal Revenue Service (IRS). That means the LLC itself does not pay taxes. Instead, the owners (members) pay taxes on their portion of the business income on their own personal tax return.
As mentioned before, the IRS treats single-member LLCs as sole proprietorships, by default, and multi-member LLCs as general partnerships. However, LLC owners can also opt to be taxed as a C corporation or S corporation, depending on what circumstances are most favorable for the business structure.
While specific rules and requirements vary by state, some of the taxes LLC members typically pay include:
Other requirements business owners should research include their state’s excise tax filing requirements and whether there’s a franchise tax in their state. Learn more about small businesses and taxes.
If someone wants to conduct business under a different moniker than the official company name, the owner will want to apply for a “doing business as” or DBA name. This is also sometimes referred to as a “fictitious name” or “assumed name.”
Examples of when a DBA name would be used include:
The process for applying for a DBA name involves conducting a search to make sure the name is available (just like the original name check). If the desired DBA name is available, the owner can then register it. Luckily, ZenBusiness can help with this, too!
Just because a business name appears to be available when someone does a business entity search, that doesn’t mean they’re fully clear to use it. Names can also be trademarked at both the state and federal levels.
In order to conduct a state-wide trademark search, an entrepreneur can check with their state’s Secretary of State database. To search at the federal level, consult the United States Patent and Trademark Office (USPTO).
There are a variety of business licenses and permits that an LLC may need. Requirements can vary by both state and industry. Entrepreneurs can use the ZenBusiness business license report to get a summarized report of the licenses their business needs to operate at the local, county, state, or federal levels.
Incorporation is the legal process of forming a company. When someone changes their sole proprietorship to an officially registered business structure, such as an LLC or a corporation, they are incorporating their business. Not sure which business type is right for the company? Learn more about LLCs vs. corporations.
See also: How to start an LLC
If an entrepreneur wants a centralized place for handling everything from invoices to tracking tax-deductible expenses, try ZenBusiness Money Pro. This innovative platform enables a business owner to:
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. For specific questions about any of these topics, seek the counsel of a licensed professional.
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