sole proprietor to LLC in California

August 20, 2008 3:17 PM

Experiencing turning a sole proprietorship into an LLC in California?

I am definitely planning to make this switch, for liability protection reasons. I am looking at Nolo Press Online California LLC and this website as possible ways to accomplish this. Have you used these or some other method to transfer a sole proprietorship into an LLC in California? Do you recommend one package or outfit over another? Did you feel that the switch was worthwhile tax-wise etc., oops that is too many questions! thanks!!

posted by supermedusa to work & money (2 comments total)

I don't have any answers, but am looking at the exact same situation, so any answers will be doubly appreciated.
posted by dolface at 4:32 PM on August 20, 2008

DIY with Nolo isn't a bad way to start a business, but rolling an existing sole proprietorship business into an LLC is a quite a bit more complicated if it is to be effective in eliminating your personal liability to vendors, customers, employees, etc. (Lenders presumably will require you to make personal guarantees, so no issue there.) Lawyer and accountant are strongly recommended, and absolutely worthwhile.

By the way, unless you elect to have the LLC taxed as a corporation, your all-in tax cost will increase as a single-member LLC, because you will have the same ultimate tax liability but will have to do a whole layer of company tax returns and K-1s instead of the current schedules to your 1040 as you do in a sole proprietorship, with the associated record-keeping and preparation expense. Some people also think that putting your business into an LLC increases the likelihood that your accountant (or your friendly tax auditor) will eventually demand that you recharacterize some of your profit as wages from the company in order to levy the massively higher tax that they levy on wages vs. capital gains. I don't know if that's actually true, though...
posted by MattD at 4:55 PM on August 20, 2008