One common occurrence for small businesses in their growth phase is the need to change the the type of legal entity it’s registered as. So why would a business owner choose to do that? Let’s break it down:
What’s a Sole Proprietorship?
A sole proprietorship is the simplest form of ownership and the most common among merchants. Under this system, you are the only owner of your business – and you’re not sharing ownership with any partners. Entrepreneurs who start their own businesses without outside help usually don’t have people to help them, and while it lets you follow your own vision it also makes you personally liable for the success of the business.
What’s an LLC
An LLC, or Limited Liability Company, helps personally shield you from the company’s liabilities. LLC’s can also choose a number of different ways to be taxed (as an S or C corporation, partnership, etc) which gives you greater flexibility. However, many states levy additional taxes on these types of businesses, so be sure to check with your state government to see which one is right for you.
What Happens if I Want to Change From a Sole Proprietorship to an LLC?
If you have a merchant cash advance from Principis Capital, you can still change your business entity without any sort of penalty. You just have to take these steps:
- Register a new LLC in your home state.
- Work with an accountant – preferably one who is familiar with small businesses – to ensure that ownership of the LLC is clearly documented, along with corporate procedures (if you have one or more partners). Also ensure that initial contributions, including assets and liabilities of your sole proprietorship, are transferred from you to the LLC and documented appropriately.
- Transfer your merchant processing account and bank account(s) into the name of the LLC. If you’re worried that this is going to take too long, you may want to open a new merchant processing account and new bank account for the LLC, and close down the old accounts.
- Notify us in advance of any the changeover so we can ensure your account stays in good standing.
For more information on setting up an LLC, read these great tips.