Converting Your Indiana Sole Proprietorship to an LLC in 2024

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Convert Indiana Sole Proprietorship to LLC

As a small business owner in Indiana, you may have started your business as a sole proprietorship due to its simplicity and low initial costs. However, as your business grows, you may want to start an LLC in Indiana, which is more suitable for your needs. Converting your Indiana sole proprietorship to an LLC can protect your assets and optimize your business’s growth potential.

In this comprehensive guide, Webinarcare Editorial Team will walk you through the step-by-step process of Converting your Indiana Sole Proprietorship to an LLC, enabling you to make an informed decision for your business.

How to Convert your Indiana Sole Proprietorship to an LLC

What is a Sole Proprietorship and Limited Liability Company?

A sole proprietorship is the simplest and most common form of business ownership, where a single individual owns and operates the entire business. A sole proprietorship has no legal distinction between the owner and the business, meaning the owner is responsible for all the business’s debts, liabilities, and obligations. 

On the other hand, a Limited Liability Company (LLC) is a legal business structure that combines the limited liability protection of a corporation with the pass-through taxation of a sole proprietorship or partnership. This means the owners, known as members, are not personally responsible for the company’s debts and liabilities. The company’s profits and losses are reported on the members’ tax returns. We reviewed some of the Best LLC Services and provided features as an add-on with their packages for you to check out.

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Having a sole properietorship had given you freedom and comfortability, but, starting an LLC in Indiana has a lot to offer, which is why it is a highly recommended business structure. It is suggested that you speak with a legal professional first before you begin coverting your sole proprietorship to an LLC. They will understand what’s best for you and your company.

– WEBINARCARE EDITORIAL TEAM

Steps on Converting Indiana Sole Proprietorship to an LLC

To convert Indiana sole proprietorship to an LLC, you must follow the guidelines that include choosing a name for your LLC, appointing a Registered Agent, preparing for the Articles of Organization, creating an Operating Agreement, obtaining an EIN, opening a business bank account, registering for state tax and licenses, and lastly, informing clients and vendors of conversation.

Step 1: Choose A Name For Your LLC

The first step in converting your sole proprietorship to an LLC is selecting a unique and distinguishable name for your new entity. In Indiana, there are specific naming requirements and restrictions that you must adhere to when choosing your LLC’s name:

  • The name must include “Limited Liability Company,” “LLC,” or “LLC.“
  • The name cannot include words or phrases that imply the company is engaged in activities it is not authorized to conduct.
  • The name must be distinct from other registered businesses in Indiana.

In Indiana, if you do not wish to file your LLC right away but want to hold the name that you have decided on, then you can reserve your LLC name for 120 days. You must file a name reservation application in the Indiana Secretary of State to keep the name. 

You can register your business under a different legal name if your preferred name isn’t available. Once you have chosen a name, you can submit an application for a DBA (doing business as). In this manner, you can choose any name you desire for your business. A DBA allows a company to operate under the name of the person or entity who owns it. If you have decided to file for Indiana DBA, you can file it in two methods, by mail and in person. However, before filing a DBA, you should know that you need to renew your DBA from up to Indefinite, which costs around $35.

You can check the availability of your desired business name by searching the Indiana Secretary of State INBiz‘s website.

Step 2: Appoint a Registered Agent

In Indiana, all LLCs are required to appoint a Registered Agent. Registered Agent is a person or entity responsible for receiving and forwarding legal and tax documents on behalf of your Indiana LLC, such as service of process, Indiana Biennial Report, and state tax notifications. Your Registered Agent must have a physical address in Indiana and be available during regular business hours. In Indiana, the cost of Registered Agent usually ranges from $50 – $150.

When selecting a Registered Agent, consider their reliability, knowledge of state requirements, and ability to manage sensitive legal documents. You can serve as your own Registered Agent, appoint another individual, or hire the Best Registered Agent Service.

Step 3: Prepare and File the Indiana Articles of Organization

To officially form your Indiana LLC, you must prepare and file Indiana Articles of Organization with the Indiana Secretary of State. The Articles of Organization is a legal document that outlines essential information about your  Indiana LLC, including:

  • The LLC’s name
  • The Registered Agent’s name and address
  • The LLC’s purpose
  • The LLC’s duration (perpetual or for a specific term)
  • The names and addresses of the initial members or managers

In Indiana, the filing fee for the Articles of Organization is $95. You can submit the document online through the Indiana Secretary of State’s website or by mail. Processing times may vary, so check the website for current information.

Step 4: Create an Operating Agreement

Although not legally required, Indiana Operating Agreement is a crucial document that outlines the structure, management, and financial arrangements of your Indiana LLC. The operating agreement should include the following:

  • The roles and responsibilities of members and managers.
  • The process for admitting or removing members.
  • The allocation of profits and losses among members.
  • The procedure for making major decisions.
  • The process for dissolving the LLC.

Having a written Indiana operating agreement can help prevent disputes and ensure a smooth operation of your LLC. It is advisable to work with Indiana Business Attorney to draft an operating agreement that meets the specific needs of your business and complies with Indiana laws.

Step 5: Obtain an Employer Identification Number (EIN)

An Employer Identification Number (EIN) in Indiana, or Federal Tax Identification Number, is a unique nine-digit number issued by the Internal Revenue Service (IRS) to identify your business for tax purposes. With an EIN, you can open a business bank account, file tax returns, and hire employees.

To obtain an EIN for your Indiana LLC, you can apply online on the IRS website, by mail, or by fax. The online application process is the fastest and most convenient method, as you will receive your EIN immediately upon completing the application. There is no fee to obtain an EIN.

The application of an EIN in Indiana can be through the following:

  • Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
  • Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that the Form SS-4 contains all of the required information.
  • Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is four weeks.
  • Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

Recommended: Professional services have the EIN included in their LLC formation package. We recommend using –

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Step 6: Opening of Indiana Business Bank Account

When converting your sole proprietorship to an LLC, separating your personal and business finances is essential by opening a dedicated business bank account. Indiana business bank account helps maintain limited liability protection and makes managing your business’s finances and taxes easier.

To open a business bank account in Indiana, you will need the following documentation:

  • Your LLC’s Certificate of Formation
  • Your LLC’s EIN
  • Your LLC’s operating agreement (if applicable)
  • A resolution authorizing the opening of the account (if required by the bank)

You can check out the Best Banks in Indiana, which offers the best fees, services, and convenience for your business needs.

Step 7: Register for Indiana Taxes and Licenses

As an LLC in Indiana, your business may be subject to various state taxes and licenses, depending on the nature of your operations. Common taxes and licenses include:

  • Sales Tax: If your LLC sells taxable goods or services, you must register for Indiana sales tax permit and collect sales tax from your customers.
  • Employer Taxes: If your LLC has employees, you may be required to register for Indiana unemployment insurance and workers’ compensation coverage.
  • Business License: Indiana Business License is a legal document granted by a state government body that permits you to conduct business within the area under its jurisdiction. The price of business licenses and permits in Indiana ranges from $50 – $300.

To ensure you comply with all applicable Indiana tax and licensing requirements, you can check out the Indiana Department of Revenue for more information.

Step 8: Inform Clients and Vendors of the Conversion

After converting your Indiana sole proprietorship to an LLC, you must inform your clients, vendors, and other business contacts of the change. Update your contracts, invoices, and marketing materials with your new LLC name, and communicate the transition to ensure a smooth and professional process.

Ongoing Compliance For Indiana LLCs

As an LLC in Indiana, you are subject to ongoing compliance and reporting requirements, including:

  • Filing Biennial Report with the Indiana Secretary of State and pay the associated fee and which you can pay every 2 years.
  • Maintaining accurate and up-to-date records of your Indiana LLC’s finances, meetings, and decisions. You can manage your finances using spreadsheets, accounting software, or becoming a CPA in Indiana.
  • Adhering to any industry-specific licensing and regulatory requirements.

Benefits of Converting Indiana Sole Proprietorship to an LLC

In converting Indiana Sole Proprietorship, there are benefits that you should consider. Here are the benefits you must know before converting your sole proprietorship:

Limited Liability Protection

Converting a sole proprietorship to an LLC provides limited liability protection for the business owner. This means that the owner’s assets (such as their home or car) are separate from the business assets and are protected from being seized to pay off business debts or in case of a lawsuit.

Credibility and Professionalism

Indiana LLC can help improve the credibility and professionalism of the business. Many customers and suppliers prefer dealing with an LLC, which shows commitment and stability.

Tax Flexibility

With Indiana LLC, you can choose how your business will be taxed. It can be taxed as a sole proprietorship, a partnership, or a corporation. This allows you to choose the tax structure that best fits your business and may result in potential tax savings.

Easier Access to Funding

Indiana LLC may have an easier time obtaining funding from banks and investors than a sole proprietorship. Many lenders and investors prefer to work with an LLC, as it demonstrates a commitment to the business and provides legal protection.

Ownership and Management Flexibility

Indiana LLC allows you to have multiple owners (called members) and to divide ownership and management responsibilities among them. This can make growing your business easier or bring in new partners.

Enhanced Privacy

In some states, such as Indiana, an LLC can offer more privacy than a sole proprietorship. This is because the business owner’s personal information may not be as public as it would be with a sole proprietorship.

Easier Transfer of Ownership

With Indiana LLC, transferring business ownership to another person or entity is generally easier. This can be beneficial if you decide to sell your business, bring on new partners, or plan for succession.

Continuity of Existence

Unlike a sole proprietorship, which ceases to exist upon the death or incapacity of the owner, Indiana LLC can continue to operate even if the owner passes away or becomes incapacitated. This provides stability and continuity for the business and its employees.

Compliance with Indiana Requirements

Some states require certain types of businesses, such as those in the professional services industry, to operate as Indiana LLC or another corporate entity. Converting your sole proprietorship to an LLC in Indiana ensures that your business complies with these regulations and avoids potential legal issues.

Access to Additional Benefits

Indiana LLC may be eligible for additional benefits, such as state-specific tax incentives or credits, not available to sole proprietorships. These benefits can help reduce your tax burden and support the growth of your business.

In summary, converting a sole proprietorship to an LLC in Indiana can provide significant benefits, including limited liability protection, tax flexibility, increased credibility, and easier access to funding. It’s essential to carefully consider these advantages and consult with a legal or tax professional before deciding to convert your business structure.

FAQs

How do I convert my Indiana sole proprietorship to an LLC?
You will need to file articles of organization with the Indiana Secretary of State and obtain an Employer Identification Number (EIN) from the IRS.
What is the difference between an Indiana sole proprietorship and an LLC?
A sole proprietorship has no separate legal status from the owner, while an LLC provides liability protection and has its own legal identity.
Is it difficult to form an LLC in Indiana?
The process of forming an LLC in Indiana is relatively straightforward and can be done online.
What are the advantages of converting from a sole proprietorship to an LLC in Indiana?
There are several advantages, including limited liability protection, increased credibility, and potential tax benefits.
How much does it cost to convert a sole proprietorship to an LLC in Indiana?
The state filing fee for articles of organization is $90 as of 2021, plus any additional costs for legal or professional services.
Do I need an attorney to convert my Indiana sole proprietorship to an LLC?
While it is not required, it may be beneficial to consult with an attorney or other professional.
Can I be the only member of an Indiana LLC?
Yes, Indiana law allows for single-member LLCs.
Is there a limit to the number of members for an Indiana LLC?
No, there is no limit on the number of members an Indiana LLC can have.
What is a registered agent and do I need one for my Indiana LLC?
A registered agent is a person or company authorized to receive legal documents on behalf of an LLC, and yes, an Indiana LLC is required to have one.
Can I use an online service to set up my Indiana LLC?
Yes, there are numerous online services that can assist with forming an Indiana LLC.
Do I have to register an Indiana LLC with other state agencies besides the Secretary of State’s office?
It depends on the type of business, but most filing requirements would be with the Indiana Secretary of State.
How long does it take to form an Indiana LLC?
Processing times may vary, but generally, the timeline can be between 1 to 2 weeks.
Can I transfer assets from my sole proprietorship to my new Indiana LLC?
Yes, you can transfer assets, but it is advised you obtain legal and tax advice before doing so.
Are there annual filings required for a new Indiana LLC?
Yes, there is an annual report due yearly by April 30th and it currently costs $50 to file.
What happens to my professional licenses if I convert to an Indiana LLC?
This may vary based on the type of license, it is advisable to speak with the regulatory agency that governs your license in Indiana
Are Indiana LLCs subject to income tax in Indiana?
LLC profits in Indiana are subject to state and federal taxes.
Do I have to reserve my LLC name before forming my Indiana LLC?
Although it is a best practice customary of Indiana law to reserve a name prior to filing articles of organization, you may file your articles of incorporation without a pre-filed reserved name if you wish.
Can I use a PO box as my LLC’s address in Indiana?
No, a street address is required for both the LLC’s mailing address and the principal office physical address.
How can I check if an LLC name is available in Indiana?
The Indiana Secretary of State’s website has a business entity search division that can be utilized for this purpose
How long does an Indiana LLC last?
It has an unlimited life, meaning it continues until dissolved but you must maintain an up-to-date annual report or risk administrative dissolution.
Can you convert an Indiana corporation into an LLC?
Yes, a corporation can convert to an LLC, although it is advisable to seek legal advice when considering substantial changes.
What is an Operating Agreement and is it required for an Indiana LLC?
An Operating Agreement sets out the LLC management structure and operating procedures. This formal document is not required by law, but it is highly recommended.
Can a foreign LLC do business in Indiana?
A foreign LLC can be authorized to conduct business in Indiana by filing an application for registration with the Indiana Secretary of State.
What is the process and cost of reinstating an administratively dissolved Indiana LLC?
The LLC should seek legal or professional help but they will initially need to file an application along with the current annual report. Fees associated can exceed over $400 dollars but late fees can accumulate depending on the time frames for filings.
Can I change my Indiana LLC’s name or add/remove members after formation?
Name changes and member additions or removals can be made on your annual report or an amendment document can be filed if needed with the Indiana Secretary of State.
What are the annual filing requirements for an Indiana LLC?
The required annual filing for an Indiana LLC is the LLC report and some local counties may have additional permits and licenses.
Can I be personally liable for an Indiana LLC’s debts?
Generally not – Indiana Corporate veil laws offer liability protection.
How do I close an Indiana LLC when I no longer need it?
To dissolve an Indiana LLC, you must file articles of dissolution with the Indiana Secretary of State, and then obligations such as taxes, debts, or account balances will need to be addressed.
Are LLCs relatively easy to maintain as compared to other business types?
Indiana limited liability companies may have lower reporting requirements than, for example, NGOs or S corporations though annual gathering details should be updated year to year and operating agreements and financial record updating would always be advisable.
What is the process of converting Indiana sole proprietorship to LLC?
In Indiana, you need to file Articles of Organization with the Secretary of State to convert your sole proprietorship to an LLC.
Can the conversion be done online?
Yes, the conversion process can be done online through the Indiana Secretary of State’s website.
Do I need to obtain a new EIN for my LLC?
No, you can use the same EIN that you had for your sole proprietorship if you are the only owner of the LLC.
Can I name my Indiana LLC anything I want?
No, the name of your LLC must be unique and cannot be already registered with the Indiana Secretary of State.
How long does it take to convert a sole proprietorship to LLC in Indiana?
It typically takes about 3-5 business days for the Indiana Secretary of State to process your Articles of Organization.
Do I need to publish my LLC formation in Indiana?
No, Indiana does not require you to publish your LLC formation in a newspaper.
Do I need to file any other documents after I file my Articles of Organization?
No, once you file your Articles, you should receive a Certificate of Organization and that is all you need.
What is the liability protection for an Indiana LLC?
Just like in any LLC, the liability protection for an Indiana LLC separates the personal assets and liabilities of the owner from the company’s assets and liabilities.
Do I need to pay an Annual Report fee for my LLC in Indiana?
Yes, all LLCs in Indiana must file an Annual Report each year, which has a fee of $50.
Can non-US citizens form an LLC in Indiana?
Yes, non-US citizens can form an LLC in Indiana, as there are no residency requirements.
Can I have someone else file my LLC formation for me?
Yes, you can hire an attorney or a registered agent to file your LLC formation for you in Indiana.
Is it necessary to have an operating agreement for an Indiana LLC?
While it isn’t required in Indiana, it’s strongly recommended that your LLC have an operating agreement as it helps to clarify how your business will operate.
Will my Indiana LLC be taxed as a sole proprietorship?
No, your Indiana LLC will file its own tax return and be treated as a separate entity for tax purposes.
Can I have a DBA with my Indiana LLC?
Yes, you can operate under a DBA (doing business as) with an Indiana LLC if you want to use a different business name.
How can I check if the name I want for my Indiana LLC is available?
You can check the Secretary of State’s website in Indiana to search for existing entity name registration.
Is Indiana LLC formation complicated?
Not necessarily, the process is rather straightforward and quick that could take hardly 30 minutes of your time.
Can I change the structure of the LLC formation files with the Indiana Secretary of State?
If by structure you mean any document such as an Article Of Organization or Operating Contract, You can amend for changes by filing specified forms with the State.
What are the potential downside risks to starting an LLC Filed business in Indiana?
The biggest disadvantages to forming an Indiana LLC are personal liability protection and cost of formation.
Can I have two businesses under one LLC in Indiana?
You can as there is no limit as the number of businesses an LLC can operate, but it would be more possible than sensible sitting you little from liability protection.
Can I add another partner after forming my LLC?
You definitely can add additional LLC owners or members after creating your Indiana LLC via gaining interest agreement respecting formation rules.
Does my own state permanently retcon public LLC details about members’ names and private address in Indiana?
There is nothing preventing the same, meaning that a non-confidential LLC formation list of any LLC registered in the state is published online for anyone to view.
Am I limited to running my business in Indiana if I start an LLC there?
While your Indiana LLC is permitted to transact business out of your LLC’s home country, Forming an LLC in one country essentially means that this business is checked through that country, subject to its regulations.
Can my personal information be kept confidential while forming an LLC in Indiana?
Your information on any state-filed business records assumes that it’s a public record including the details of the individual members both on the formation articles and Annual reports.
Will my Indiana LLC be taxed locally instead of on a federal level?
Your Indiana LLC will file its own tax return vs you linking your business income and schedule for payments on your yearly individual tax return.
What happens to my assets if my LLC goes out of business in Indiana?
In the absence of any protection, the personal liability exposure drops and your assets won’t dissolve the responsibility known by the State when LLC debts are settled.
Do I need an attorney to start an LLC in Indiana?
No, hiring a lawyer isn’t required to register an LLC in the majority of instances, but an experienced attorney could definitely go a remarkable method in eliminating any technological, authorized gaps, or legislative problems.
If I convert my sole proprietorship in Indiana into an LLC, will I personally be liable for any debts incurred as a sole proprietor?
No, after forms approval, you won’t be personally faring the business with debts since the exclusive added legitimacy makes you settled separately from the LLC with the rules applies to partnership businesses.

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Conclusion

Converting your Indiana sole proprietorship to an LLC is a significant decision that can provide valuable benefits, such as limited liability protection, tax advantages, and enhanced credibility. Following the steps outlined in this guide and consulting with legal and financial professionals, you can successfully navigate the conversion process and position your business for future growth and success.

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