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From Sole Proprietor to LLC: How it Works

How do your run your blogging business? If you are self-employed or work at home, transitioning from a sole proprietor to an LLC can be challenging and one of those things that you want to ignore. It has huge tax implications, though and can also protect your business and your finances. Read on for how to turn your sole proprietor business into an LLC. Become an LLC, it's not as hard as it sounds!

I was surprised that so many people expressed interest in hearing about my transition from a sole proprietorship to an LLC – I thought something like this would be super boring. But since you asked, here it is! Also, if interested in transitioning to an LLC etc., then check out online legal services listed below!


I honestly had no intention of changing my business to an LLC. It seemed so official, and I’m always mindful of the fact that I could end up returning to traditional employment at any time. Remaining a sole proprietor seemed safer; that way if I did have to get a job, I could just walk away. Plus I felt like my taxes would suddenly become even more complicated than they already are.

Business Registration FAIL

Last Wednesday, I went to the local county clerk’s office to file an assumed name certificate. In Kentucky, a sole proprietor who wants to use a business name simply files that certificate. Basically, it says, I am just one person, but I want to be identified by my business name in business situations. 

When I got to the county clerk’s office, I couldn’t figure out how to fill out the form. I had to check a box for my business type, but “sole proprietor” wasn’t an option. I felt like an idiot, but the lady at the counter didn’t know what to do either. So the county clerk himself had me come into his office, and he was also confused! He called the Secretary of State to find out why that option was missing, but after about 20 minutes on hold, he suggested that I just go home and file the paperwork for an LLC online instead.

I’ve researched the differences between various business types many times over the past year or so, but I still spent some time looking up the specific requirements for my state. The most important thing I learned is that the LLC offers two-way protection of my finances:

  • If someone sues my business and wins, a judge can’t order me to use money from my personal bank accounts.
  • If someone sues me personally and wins, a judge can’t order me to use money from my business accounts. (The only exception is if the judge suspects that the business was only created to hide my personal assets and isn’t really a business.)

I don’t plan on being involved in any lawsuits or anything, but I like the idea of separating my finances in that way. Plus it gives me some credibility – I’m no longer just a person doing business out of my house; I’m now a BUSINESS OWNER doing business out of my house. =P

The Process of Transitioning to an LLC

I’m sure the business registration process differs from state to state (I know the fee does!) but here’s how it works in Kentucky.

I had to create an account on the Kentucky One-Stop Business Registration Center website, which of course took some time because it’s run by the government. Then I had to answer some questions about my business and give basic info like the name, address, etc. I also had to run a search to make sure my business name wasn’t already taken (luckily I did this before I chose the name, so it wasn’t a problem).

Along the way, I had to register for a federal employer ID even though I don’t have any employees. It’s kind of like a Social Security number for the business. Then I submitted my articles of organization – that sounds scary, but it’s actually just a short summary of the information I entered during the first part of the process. I paid $40 and got a confirmation about 20 minutes later that my LLC had been approved!  I hope that turning my business into an LLC will help it become more profitable. In the future, when my business starts to grow and I get busier I’m sure it will bring in a significant amount of revenue for supplies and other things I may need for the company. Then, I will need to hire on someone to assist me I will need to find a company that provides secure payroll services.

One weird requirement in Kentucky is that you register with the Dept. of Revenue for a sales and use tax account. Since I provide services and not tangible products, I’m not required to charge sales tax (your mileage may vary depending on where you live), so I was confused. But apparently all businesses have to fill out the information and let the Dept. of Revenue decide whether or not you need a tax account.

Once a year, I’ll be required to submit an annual report and a $15 fee to the state. I always thought that sounded intimidating, but the annual report is almost identical to the articles of organization. Basically, I just have to list the owner (me), registered agent (me), and organizer (me) on a form and submit it online.

How Does Your Business Change When You Become an LLC?

Honestly, there aren’t many changes in the way I’ll do things as an LLC rather than a sole proprietor. There is a greater divide between business and personal money in my mind – for example, there were several business tax deductions I didn’t take for 2011 because I was worried about that blurry line between business and personal. Now I’ll have a separate bank account and there will never be any question – if I use my business debit card, you better believe that expense will be directly related to my work.

Another thing I’ve noticed is the difference in how I perceive myself and the work I do. All year, I’ve looked at my work and thought, Well, I guess this is a hobby that happens to be paying my bills. But now I see it as an actual company (probably because it is) and it makes me very motivated to see the company succeed and grow. I feel like I need to set goals and make plans, where before I was kind of flying by the seat of my pants.

For tax purposes, I’ll still fill out a Schedule C and Schedule SE because I opted to be taxed as an individual. And I still have to send in quarterly tax payments just like I did before. Other than my finances being more formally separated, Nuts and Bolts Media will keep going just like it did before. And now that I’ve lulled you into a dreamlike state, I hope you enjoy your nap!

Questions for You

If you’ve ever owned a business, what structure did you opt for? What’s the process like where you live? Have you ever regretted your choice? If you’re a sole proprietor, have you considered an LLC or other business structure?

About Andrea Whitmer

Andrea is a freelance web developer and mom trying to maintain a sense of humor in an otherwise chaotic world. She blogs in hopes of helping others avoid the same mistakes she made in the past. Join in the discussion here on So Over This, or connect on Twitter, Pinterest, Instagram, or Google Plus. You can also subscribe to new posts via RSS so you never miss out!


  1. Right now I am a sole proprietor but will likely eventually change to an LLC for liability protection and tax advantages. There are ways to not pay self employment tax if you have a good accountant, but this also means your earnings wouldn't count toward social security.

  2. My fiancée recently started his own business and after dithering for a few months he went with a partnership over incorporation. It made the taxes similar and the legal fees cheaper, but I still think incorporation is the easiest and simplest way to manage things, but that's probably because my business training is 98% in the corporate world.

  3. I have not owned a business but hope to someday. Thanks for the walk through your process. Back when I was in college and studying entrepreneurial management, one of my instructors once told us to start an LLC or an S-Corp now, even if you don't make money. It will just help you be ready and sound more legit when trying to get something started. To this day, I haven't but this post makes me rethink this. Maybe I will get something started, even though I'm not making money yet. It sets me up to feel like I can, just like you said it did for you.

    Oh and regarding the different legal structures, I'm still not sure which one I'd choose. I feel like the LLC and the S-Corp are very similar. I'd definitely go with one of those two though. I know the issues with the sole proprietorship (liability and no separation) and the partnership (usually gives the owners major issues).

  4. I Inc'd 17 months ago but only just started using it – I could not figure out what I had to do about organizing the bookkeeping and paying of ME, and my accountant ignored my emails asking "what the hell do I do with this Corp you told me to get??" So I stuck the binder on a shelf and let it collect dust.

    Until now. A month ago I got slapped with an IRS audit of 2 years worth of Schedule Cs. My frustrating accountant told me that I would now be audited pretty frequently unless I stopped filing Schedule C, and the only way to do that was to use my Inc and pay all expenses through that…which is how I found myself at TD Bank (lowest balance requirement for no-fee checking of all major banks) at 7pm last night with my dusty binder.

    As for the process…my CPA directed me to a website to buy one "off the shelf". I wish I'd priced Inc'ing in NJ v NY because I think my NYC address whacked on an extra $100ish, though my mom says the $340 I paid was good (she knows odd stuff like that).

  5. I've considered it but not sure it would benefit me, CA sucks for business. As far as I can tell there is a min $800 tax each year for LLCs and it looks like that is on top of income tax. Even if I choose to be taxed as a corp it looks like CA will still tax you at the individual rate. Even if the 800 is instead of individual tax it is more than I typically pay. I'm going to talk to an accountant to get this confirmed though.

  6. It was the same price to do LLC as it was to set up sole proprietor, so I went with LLC. My problem is that I haven't really been using it — and have had people I do projects for just write me checks. I hope this sorts itself out by tax time! Thank goodness one of the people I do projects for is a CPA.

  7. I had the need to create an LLC with a partner a while back. Since I live in CA I had to pay an $800 tax a year which sucks a lot. But when you're making decent money that doesn't really matter.

  8. I bet this would be a good idea if I plan to won rental property and someone were to get injured on the property. But then again, I guess insurance would cover that too.

  9. I an S-Corp for my optometry work as a private contractor. Similar to an LLC, but you have to have officers (you can be the only one) and have minutes from an annual meeting. Liability issues are probably the main concern. You never know when someone might sue you for ruining their life because their web color was more burnt sienna than salmon pink. Good move!

  10. Congrats Andrea! We are looking into doing this at some point. Right now, the income doesn't justify the fees, but hopefully it will at some point:)

  11. teinegurl says:

    Oh how exciting! good for you if you need an employee wink wink im available! LOL

  12. myfamilyfinances says:

    Thank you so much for walking through the process. All the registration and forms are mind boggling even if they are easy.

    I've been both a sole proprietor and a partnership. While I've thought of other structures, most of my businesses haven't moved off the hobby side just yet. I'll probably change structures one day, but it won't be soon. Now thanks to your post, I don't have to worry so much about potentially switching to an LLC 🙂

  13. I'm still a sole proprietor for now. From speaking with a lawyer, my understanding is that forming an LLC won't necessarily protect my personal assets if I'm just doing all the work myself. Crystal also seems to have the same interpretation here:… (although I'm not sure if she's changed since then). But I will definitely consider changing business forms once I move further along and have a more established business.

  14. I love that you became an LLC because the employees couldn't figure out why there wasn't a sole proprietor box. That's funny..

  15. Hi, if I formed an LLC , let's say the company name is John Doe media. I am the only person in the LLC. The owner. Can I still receive payment under my real name John Doellarimg as long as I give them my lLOC's ein # ?

  16. Ok, you seem to be fairly new to business structures, so I'll suggest this in case it helps you. One thing that is very commonly overlooked, and could save you a fortune in taxes, is an S Corp. A typical rule of thumb is if you make $50k or more per year, you should switch. You will need an accountant, because the papers are no longer easy to do. You should consult an accountant and see if it would benefit you or not. If it doesn't now, maybe it will benefit you in the future.

  17. That was a great article! I just submitted my paperwork to form my own LLC. The question I asked myself while doing this was why form an LLC if I was going to be taxed under the same sole proprietor tax rate? The answer became simple for me. I plan in the future to hire contractors. Even though I will be taxed the same having that separation will make my life so much easier. I went online and found a company to prepare my forms and to act as my registered agent. I did not want my personal address to be used online under my business. I will have a PO Box to receive my mail. I am prepared to set up my business account through my credit union and my website is being built…I am ready! Good luck to you in your business!

  18. I’m very confused. From what you described, it sounds like you didn’t convert from sole proprietorship to LLC but just started over as a new LLC. I’m not even sure starting over is the case here because you said “Business Registration FAIL”, that suggests you never registered as a sole proprietor.

  19. Do I have to have separate bank accounts when I’m a so proprietor with an LLC?

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