Converting Your Oklahoma Sole Proprietorship to an LLC in 2024

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Convert Oklahoma Sole Proprietorship to LLC

As a small business owner in Oklahoma, 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 Oklahoma, which is more suitable for your needs. Converting your Oklahoma 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 Oklahoma Sole Proprietorship to an LLC, enabling you to make an informed decision for your business.

How to Convert your Oklahoma 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 Oklahoma 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 Oklahoma Sole Proprietorship to an LLC

To convert Oklahoma 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 Oklahoma, 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 Oklahoma.

In Oklahoma, 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 60 days. You must file a name reservation application in the Oklahoma 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 Oklahoma 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 $25.

You can check the availability of your desired business name by searching the Oklahoma Secretary of State Business Entity Search ‘s website.

Step 2: Appoint a Registered Agent

In Oklahoma, 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 Oklahoma LLC, such as service of process, Oklahoma Annual Report, and state tax notifications. Your Registered Agent must have a physical address in Oklahoma and be available during regular business hours. In Oklahoma, 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 Oklahoma Articles of Organization

To officially form your Oklahoma LLC, you must prepare and file Oklahoma Articles of Organization with the Oklahoma Secretary of State. The Articles of Organization is a legal document that outlines essential information about your  Oklahoma 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 Oklahoma, the filing fee for the Articles of Organization is $100. You can submit the document online through the Oklahoma 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, Oklahoma Operating Agreement is a crucial document that outlines the structure, management, and financial arrangements of your Oklahoma 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 Oklahoma operating agreement can help prevent disputes and ensure a smooth operation of your LLC. It is advisable to work with Oklahoma Business Attorney to draft an operating agreement that meets the specific needs of your business and complies with Oklahoma laws.

Step 5: Obtain an Employer Identification Number (EIN)

An Employer Identification Number (EIN) in Oklahoma, 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 Oklahoma 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 Oklahoma 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 Oklahoma 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. Oklahoma 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 Oklahoma, 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 Oklahoma, which offers the best fees, services, and convenience for your business needs.

Step 7: Register for Oklahoma Taxes and Licenses

As an LLC in Oklahoma, 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 Oklahoma sales tax permit and collect sales tax from your customers.
  • Employer Taxes: If your LLC has employees, you may be required to register for Oklahoma unemployment insurance and workers’ compensation coverage.
  • Business License: Oklahoma 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 Oklahoma ranges from $50 – $300.

To ensure you comply with all applicable Oklahoma tax and licensing requirements, you can check out the Oklahoma Tax Commission for more information.

Step 8: Inform Clients and Vendors of the Conversion

After converting your Oklahoma 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 Oklahoma LLCs

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

  • Filing Annual Report with the Oklahoma Secretary of State and pay the associated fee and which you can pay every 1 year.
  • Maintaining accurate and up-to-date records of your Oklahoma LLC’s finances, meetings, and decisions. You can manage your finances using spreadsheets, accounting software, or becoming a CPA in Oklahoma.
  • Adhering to any industry-specific licensing and regulatory requirements.

Benefits of Converting Oklahoma Sole Proprietorship to an LLC

In converting Oklahoma 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

Oklahoma 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 Oklahoma 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

Oklahoma 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

Oklahoma 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 Oklahoma, 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 Oklahoma 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, Oklahoma 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 Oklahoma Requirements

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

Access to Additional Benefits

Oklahoma 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 Oklahoma 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 go about converting my Oklahoma sole proprietorship to an LLC?
You must file Articles of Organization with the Oklahoma Secretary of State to convert to an LLC.
What documents do I need to file to convert my sole proprietorship to an LLC in Oklahoma?
You need to file Articles of Organization, along with a name reservation application and Annual Certificate with the Oklahoma Secretary of State.
Do I need to obtain a new EIN for my Oklahoma LLC after conversion from a sole proprietorship?
Yes, since the LLC is considered a new entity, you will need to apply for a new EIN.
Is there a filing fee involved in converting a sole proprietorship to an LLC in Oklahoma?
Yes, the fee for filing Articles of Organization to convert to an LLC in Oklahoma is $100.
How long does it take for the Oklahoma Secretary of State to approve conversion of a sole proprietorship to an LLC?
Typically, it takes about five to seven business days for the Oklahoma Secretary of State to process Articles of Organization for a new LLC.
Can I still operate my Oklahoma sole proprietorship while the LLC conversion paperwork is being processed?
Yes, you can operate your sole proprietorship until the LLC paperwork has been approved by the Oklahoma Secretary of State.
What name restrictions are there with converting a sole proprietorship to an LLC in Oklahoma?
Your LLC name cannot be the same as another business registered in Oklahoma and it must be unique from other LLC names registered in the state.
Can I change my business name when converting my Oklahoma sole proprietorship to an LLC?
Yes, you can choose a new business name when you file Articles of Organization for your Oklahoma LLC.
Are there any notification or publication requirements when converting a sole proprietorship to an LLC in Oklahoma?
No, there are no notification or publication requirements when converting from a sole proprietorship to an LLC in Oklahoma.
Can I use an online filing service to convert my Oklahoma sole proprietorship to an LLC?
Yes, there are a number of online filing services available to help you file the paperwork required to convert to an LLC.
When does my Oklahoma LLC start doing business?
Your LLC begins doing business and becomes operational on the date set forth in the Articles of Organization.
Am I protected from personal liability as an LLC owner in Oklahoma?
Yes, as an LLC owner you will have limited personal liability for the debts and obligations of your business.
Can I be the sole owner of my Oklahoma LLC?
Yes, you can be the only owner or member of your Oklahoma LLC.
How is an Oklahoma LLC taxed?
An Oklahoma LLC can choose to be taxed as a partnership or corporation.
Do I need to file a separate tax return for my Oklahoma LLC?
Yes, an LLC is considered a separate legal entity and must file its own tax return.
How are annual reports filed for an Oklahoma LLC?
An Oklahoma LLC must file an Annual Certificate with the Oklahoma Secretary of State every year.
What is the Annual Certificate fee for Oklahoma LLCs?
The Annual Certificate fee for Oklahoma LLCs is $25.
Do I need to include my business address when filing Articles of Organization for my Oklahoma LLC?
Yes, you will need to provide a registered office address for your Oklahoma LLC.
What happens to my sole proprietorship’s assets when converting to an LLC in Oklahoma?
Your sole proprietorship’s assets will become the property of your new LLC.
Can I keep the same business bank account after filing for conversion to an Oklahoma LLC?
No, you will need to open a new bank account for your Oklahoma LLC and transfer your funds.
Can a non-US citizen own an Oklahoma LLC?
Yes, non-US citizens can legally own an Oklahoma LLC as long as they have an ITIN from the IRS.
What happens to my Oklahoma state and local licenses and permits after converting from a sole proprietorship to an LLC?
You will need to determine which of these licenses and permits can be transferred to your new LLC in order to remain in good business standing.
Must my LLC have an operating agreement under Oklahoma law?
There is no statutory requirement for an operating agreement in Oklahoma, however, it is highly recommended that you create one.
Can I use an online template for my Oklahoma LLC operating agreement?
Yes, there are many online templates available for Oklahoma LLC operating agreements.
How do I end my Oklahoma LLC?
You must file Articles of Dissolution with the Oklahoma Secretary of State to properly end your LLC.
Can I change my Oklahoma LLC’s business structure from LLC to corporation?
Yes, you can change your Oklahoma LLC’s business structure from LLC to corporation by following the necessary filing procedures with the Secretary of State.
Will I need to notify the Oklahoma Tax Commission of my business conversion to an LLC for tax purposes?
Yes, you will need to notify the Oklahoma Tax Commission of your business conversion to an LLC so they can update their records.
Can employees of my sole proprietorship continue employment with my Oklahoma LLC following the conversion?
Yes, employees of your sole proprietorship can transfer employment to your newly established Oklahoma LLC following the conversion.
What are the benefits of converting a sole proprietorship to an LLC in Oklahoma?
Converting to an LLC in Oklahoma offers liability protection to the owner’s personal assets, in addition to separating personal and business finances.
Can I convert my Oklahoma sole proprietorship to an LLC without dissolving my current business?
Yes, converting a sole proprietorship to an LLC in Oklahoma only requires filing the necessary paperwork with the state and obtaining an EIN and any necessary licenses.
How much does it cost to convert a sole proprietorship to an LLC in Oklahoma?
The filing fee to convert to an LLC in Oklahoma is $100, with the option to expedite for an additional fee.
Do I need to have a registered agent in Oklahoma when I convert to an LLC?
Yes, all LLCs registered in Oklahoma must have a registered agent with a physical address in the state.
How long does it take to convert a sole proprietorship to an LLC in Oklahoma?
Processing times can vary, but generally it takes 3-5 business days to process a LLC conversion with the Oklahoma Secretary of State.
Can I apply for an LLC in Oklahoma online?
Yes, you can apply for an LLC online through the Oklahoma Secretary of State’s website.
Is there a deadline for converting to an LLC in Oklahoma?
No, there is no deadline for converting from a sole proprietorship to an LLC in Oklahoma, but it is recommended to do it as soon as possible to gain liability protection.
Can I change the name of my business when I convert to an LLC in Oklahoma?
Yes, you can choose a new name for your LLC when you convert your sole proprietorship in Oklahoma.
What is an operating agreement for an LLC in Oklahoma?
An operating agreement outlines the management, structure, and ownership of an LLC in Oklahoma and is not required but recommended for all LLCs.
Do I need a separate tax ID for my LLC in Oklahoma?
Yes, as a separate legal entity, your LLC will need its own Federal and Oklahoma Tax ID number for identification purposes.
Can I operate my LLC in Oklahoma under my personal social security number?
No, an LLC must have its own EIN and cannot be operated under the owner’s social security number.
Can I convert my sole proprietorship to an S-Corp in Oklahoma instead of an LLC?
Yes, you may convert your Oklahoma sole proprietorship to an S-Corp, but the process and requirements differ from converting to an LLC.
Is it possible to convert my LLC in Oklahoma back to a sole proprietorship?
Yes, simply dissolve your LLC and register a new Oklahoma sole proprietorship.
How long is the LLC filing valid in Oklahoma?
The LLC filing is valid as long as all necessary reports and fees are paid on time.
Is it mandatory to conduct an Oklahoma LLC compliance check every two years?
Yes, LLCs in Oklahoma are required to complete a compliance filing every two years.
Does Oklahoma require a dissolution form to cancel an LLC?
Yes, you need to complete the Articles of Dissolution for the Oklahoma Secretary of State in order to properly cancel your LLC.
Where can I obtain the necessary online forms to start an Oklahoma LLC?
All the necessary forms to register your Oklahoma LLC are available for free on the Oklahoma Secretary of State’s website.
Are there any additional steps required after registering as an LLC in Oklahoma?
Yes, you may need to obtain any additional licenses or permits mandated by your business activities in addition to federal and Oklahoma taxes.
Can I convert a non-profit in Oklahoma to an LLC?
Yes, you may convert a non-profit to an LLC in Oklahoma if allowed by its organizational documents.
Do I have to file annual taxes after converting to an LLC in Oklahoma?
Yes, your LLC in Oklahoma will need to file an annual Report with the Secretary of State and usual Federal and Oklahoma annual taxes as applicable.
What is the personal liability exposure for an Oklahoma LLC?
With few exceptions, the owners (members) would generally have extra protection for their personal assets in the event of a lawsuit against the business of the Oklahoma LLC.
What is the Tax Cheat Penalty for an Oklahoma LLC?
An LLC converting with a previously discounted entity income tax rate, letting go any employee in Oklahoma along with significantly under-reporting its gross receipt of Oklahoma in terms of income could attract a tax cheat penalty.
What records does my LLC in Oklahoma need to maintain?
Your Oklahoma LLC is required to keep records of the company’s income, expenses, and financial transactions.
Do I need insurance for my Oklahoma LLC?
Yes, your LLC in Oklahoma should have the appropriate insurance coverage for its business activities.
Can I have just one owner for my Oklahoma LLC?
Yes, an LLC in Oklahoma can have just one owner, known as a single-member LLC.
Will I pay fewer taxes if I convert to an LLC in Oklahoma?
There may be appropriate tax reductions when converting from a sole proprietorship to an LLC in Oklahoma, but consulting your accountant and financial advisor is recommended.
What changes after I convert my Oklahoma Sole-proprietorship to an LLC?
You are expected to maintain separate business finances for your Oklahoma LLC and offer a different EIN for all tax and legal purposes of your company entity.
How many members are allowed on a registered LLC in Oklahoma?
There are no pre-defined limits on the number of members in a registered LLC in Oklahoma.
Can I lose tax benefits by converting to an LLC in Oklahoma?
It is possible your business will lose tax benefits provided by a sole proprietorship, but a proper tax consult would illustrate your future tax obligations and structure.

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Conclusion

Converting your Oklahoma 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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