Select a Name for Your LLC in Step 1 Choosing a name for your new company entity is the first step in changing your single proprietorship to an LLC. The name of your LLC must be original and unregistered with the Texas Secretary of State. On the Secretary of State’s website, you can look up names that are available. To assist you with selecting and registering the name of your LLC, you might also want to think about engaging an attorney.
Step 2: Submit Articles of Incorporation Articles of Organization must then be submitted to the Texas Secretary of State. This document, which formally creates your LLC as a legal company, must include the names of your LLC’s members or management as well as its name, address, registered agent, and registered office. A filing fee is furthermore due; it is now $300 in Texas.
Step 3: Open a Business Bank Account and Obtain an EIN After the state has approved the registration of your LLC, you must request an Employer Identification Number (EIN) from the IRS. This number is necessary for tax calculations and will also be required in order to open a business bank account in the name of your LLC. Maintaining the separation between your personal and company finances requires having a separate bank account.
Transfer Your Assets and Liabilities in Step 4 As a sole owner, it’s likely that you individually own all of your company’s assets and are liable for all of its obligations and liabilities. Your assets and liabilities must be transferred to the new LLC when you convert to it. Contracts, leases, accounts receivable, and any other assets or obligations connected to your company could fall under this category.
What Distinguishes an LLC from a DBA? DBAs, or “doing business as,” are merely made-up names that a lone proprietor or partnership employs to do business. It offers no liability protection and doesn’t establish a distinct legal entity like an LLC. An LLC, on the other hand, is a distinct legal entity that offers its members limited liability protection. What Drawbacks Come with Being a Sole Proprietorship? Being a sole proprietor has its major drawbacks since you are solely responsible for all of your company’s obligations and responsibilities. This implies that your personal assets may be at danger if your firm is sued or unable to pay its debts. You might find it more difficult to recruit investors or secure finance if you’re a sole proprietor.
Do Sole Proprietor LLCs Receive 1099s? Yes, even if you changed from being a single proprietor to an LLC, you’ll still get a 1099 form if you get paid by clients or consumers. For taxation reasons, the LLC is regarded as a pass-through entity, meaning that its members receive a portion of the LLC’s income and expenses.
Should both Husband and Wife Be on LLC? The specifics of your business and personal life will determine whether or not both of your spouses should be on an LLC. In some circumstances, adding both spouses to the LLC might provide liability protection and offer tax advantages. To choose the best course of action for your particular circumstance, it’s crucial to speak with an attorney and accountant.
To sum up, changing a sole proprietorship in Texas into an LLC is a reasonably easy process that can have big advantages, like restricted liability protection and tax advantages. You may safeguard yourself and your company for years to come by taking these actions and consulting with reliable counsel.
There is no standard amount that you must pay yourself as a solo proprietor. However, it is advised that you pay yourself a fair wage based on industry norms and your company’s revenues. It is crucial to keep in mind that self-employment taxes will apply to any income you get from the firm. A tax expert should always be consulted for advice on how to calculate a fair wage for yourself as a sole proprietor.