Starting a LLC for an Existing Business

A common area of LLC questions arises from business owners who are currently operating a business as a sole proprietorship but now want to move the business into an LLC.

This is the best thing you can do for yourself and your business because as a sole proprietor, you are totally and completely at risk personally for any business obligation, business problem or lawsuit.

Starting a LLC for an existing business is not always an easy process and the longer you have in business and the more assets, contracts and operations you have the more onerous it is.

Having said that, the longer you wait, the more complex it will be so the earlier you can get the process started the better.

FORM AN LLC IN YOUR STATE

First you need to form an LLC in your state of primary operations. This consists of preparing a legal filing with your state agency that complies with the LLC formation requirements in your state.

After your LLC is formed, it is a new entity that only exists from the formation date given to it by the state agency.

OBTAIN ALL REGISTRATIONS AND PERMITS FOR YOUR NEW LLC

After formation, you will need to get an EIN# for your new LLC and register it with the state tax department and obtain any other licenses you need to operate your business. These would be the same ones you have under your current business only now you need to obtain them in the name of your new LLC.

In some instances, you may be able to transfer your existing licenses to the LLC. Check with each agency responsible for issuing the license/permit to see if this is possible.

OPEN A NEW BANK ACCOUNT IN THE NAME OF YOUR NEW LLC

Once you obtain an EIN# for your new LLC, you will want to open a bank account for your new LLC. You should consider using the same bank where you have your existing sole proprietor accounts but do not close those accounts just yet.

There will be a transition period where you will need to conduct banking transactions still with your old business while things are moving into the new LLC business.

TRANSFER ASSETS FROM OLD BUSINESS TO NEW LLC BUSINESS

At this point of starting a LLC, you have a new legal entity and all the requirements to operate. Now, you will need to transfer the existing business assets to the new LLC. You may still want to keep some money in the old bank account to cover transitionary issues.

If your business has a lot of assets, you may want to consult an attorney to help you with this. Generally, all personal property (including money) is transferred using a document called a Bill of Sale. Real Estate requires a deed recorded in the county where the real estate is located. Intellectual property (like domain names, trademarks, etc.) is transferred using an Assignment document.

TRANSFER CONTRACTS AND TRANSITION BUSINESS RELATIONSHIPS

This step is where it can be a hassle but not always. If your old business is a party to contracts that are still active and required for business, you will want to assign those contracts from you(your old business) to your new LLC.

You will need to see if that can be done without the approval of the other party. If not, you will need to call and get written approval before assigning the contracts.

Also, you may have established business relatioships and accounts with other parties such as vendors, suppliers, partners, etc. The best thing you can do here is to call them up, tell them you are transitioning your business to an LLC and discuss with them how to properly have the LLC take the place of your existing business and relationships.

Document everything that was agreed upon.

KEEP EXISTING BUSINESS STRUCTURE IN PLACE FOR AWHILE UNTIL BUSINESS IS RUNNING 100% THROUGH NEW LLC

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It is not easy to do the transition, but the sooner you do it, the faster you will get the protection and other benefits of operating a business through a limited liability company.

It is important to know that you do not get this protection for existing business liability and for anything that may come up later related to the business activity conducted prior to the LLC being formed.

IS STARTS WITH LLC FORMATION –

The best and fastest method to get a proper LLC in place is to retain the services of a reputable LLC formation services provider. You can click here for more information about The LLC Expert’s LLC formation services or click on this button for a $15 discount from one of the top providers of LLC formation services.

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