And presently they need the tax benefits, liability assurance, funding options, or any of different advantages a LLC provides.

In the event that that is you and you're contemplating whether you can and should change to a limited liability company (LLC), the answer is (presumably) yes.

What is a Sole Owner?
A sole proprietorship is the most basic business structure, and on the off chance that you start a business and don't register it with your state, you automatically become one.

You and your sole proprietorship are one substance; this means you pay tax on profits as your own, and you're at risk for your company's debts.

There are not many continuous requirements to running one, and that is the reason 23 million U.S. entrepreneurs use it as their business structure.

But there are downsides to running your business as a sole proprietorship, ones that could keep your business away from arriving at its full potential.

Is Sole Owner a Legal Substance?
A sole proprietorship isn't a legal substance, so it doesn't provide the limited liability insurance of a LLC or corporation. This means the proprietor is responsible for all business debts in bankruptcy or prosecution cases, which puts their personal assets at risk.

Funding
As a sole proprietorship isn't a legal element, banks and different lenders are often reluctant to provide funding. And as there are no shares in the business, it can't raise capital by selling stocks.

For the most part, the main way a sole proprietorship can raise funding is by the proprietor taking out a personal credit.

Annual Tax
The IRS treats a sole proprietorship as a disregarded element for tax. A disregarded element is a pass-through tax system where all profits, losses, and taxes go to the proprietor, who reports them on their personal tax return.

Self-Business Tax
C corp owners also make good on self-business taxes (Federal health insurance tax/Social Security) at 15.3%.

The main time a sole proprietorship does not pay self-work tax is the point at which the business makes a loss. The downside here is that the proprietor loses their Government health care tax/Social Security for that period.

Estimated Quarterly Tax Payments
A sole proprietorship proprietor isn't an employee, so the business does not keep taxes from their check.

Instead, the proprietor must make estimated quarterly payments throughout the year and change any differences in their annual tax return.

Business License and Permits
Most U.S. states require a sole proprietorship to have a business license and impose powerful fines for those who exchange without one. And a sole proprietorship may also require federal, state, city, or town permits.

When Should I Change a Business Structure?
Most individuals change to a LLC when their business outgrows the basic structure of a sole proprietorship. And the upside of registering a LLC outweighs the cost and continuous legal requirements.

Fundamental Advantages of Shifting to a LLC

There are many advantages to starting a LLC contrasted with running a business as a sole owner, such as limited liability, better tax options, increased validity, and access to funding.

Limited Liability Security
The essential advantage of a LLC is the limited liability security it can provide.

A LLC is a separate legal element, so the owners (called members with an EIN number) may not be at risk for its losses or debts, safeguarding their personal assets. The security can be set up as lengthy as the legal requirements of dealing with a LLC are met.

Avoiding Double-Taxation
A LLC is a disregarded element; there's no tax separation between the proprietor and the business.

The IRS views a single-member LLC as a sole proprietorship and a multi-member LLC as a partnership, and both are almost identical for tax.

The advantage here is that neither LLC type pays corporation tax. Instead, tax passes through to the owners who pay it on their tax return, avoiding double taxation while profiting from limited liability security.

Increased Believability
Shifting your business to a LLC shows prospective clients that your company is registered with your state, which provides a more significant level of validity than a sole proprietorship.

Allows Business Expansion
The LLC structure enables its owners to qualify for business loans that otherwise may have been unavailable as a sole proprietorship, providing more opportunities to expand and develop their business.

But as with any advance, the LLC must meet the moneylender's requirements, and endorsement often depends on factors such as security, how long you've been in business, your revenue, and FICO rating.

Fundamental Disadvantages of a LLC
2.5 million U.S. businesses choose to run their company as a LLC because the advantages outweigh the disadvantages.

But it helps to understand what those disadvantages are to go with an informed choice.

Desk work
Before you start your LLC, you must first register it with your secretary of state by documenting an articles-of-association.

Some states use various names for this document, such as a "Endorsement of Association" or a "Declaration of Formation."

But regardless of the name, an articles-of-association includes:

1. Your LLCs name.

2. The names of any members or managers.

3. Your LLC's chief business environment.

You can figure out desk work your state's expectation's by visiting your state's secretary of state website.

Cost to Set up
Your first cost while forming a LLC is recording an article of association with your state.

State documenting fees fluctuate and go from $40 to $500. You can figure out your recording expense by visiting its website.

Additional Tax Costs
Most U.S. states also charge limited liability companies an annual franchise tax. And similar to documenting fees, state franchise taxes change by area.

As franchise tax is an expansion to federal or state tax, changing to a LLC does not guarantee a lower tax bill.

Support Duties
A LLC requires legal support to ensure it stays on favorable terms with state and federal laws.

Such as making an operating agreement, recording your annual report, having a designated registered agent, and keeping the business assets separate from your personal ones.

Extra Legal Liabilities
In the event that owners of a LLC blend personal and business assets, and someone sues them, a judge can eliminate their limited liability security because of what's classified "penetrating the corporate cloak".

To have a superior opportunity avoiding puncturing the corporate shroud, LLC members must transfer all business assets to the LLC, compose an operating agreement, use the LLC business name on all contracts, and open a separate business bank account.

Penetrating the corporate cloak is a muddled legal teaching. To ensure your LLC is keeping every one of the rules and regulations, it's always best to consult a lawyer once your LLC is set up.