Converting Your Wisconsin Sole Proprietorship to an LLC in 2024

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Convert Wisconsin Sole Proprietorship to LLC

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

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

To convert Wisconsin 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 Wisconsin, 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 Wisconsin.

In Wisconsin, 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 Wisconsin 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 Wisconsin 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 ten years, which costs around $15.

You can check the availability of your desired business name by searching the Wisconsin Department of Financial Institutions‘s website.

Step 2: Appoint a Registered Agent

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

To officially form your Wisconsin LLC, you must prepare and file Wisconsin Articles of Organization with the Wisconsin Secretary of State. The Articles of Organization is a legal document that outlines essential information about your  Wisconsin 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 Wisconsin, the filing fee for the Articles of Organization is $130. You can submit the document online through the Wisconsin 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, Wisconsin Operating Agreement is a crucial document that outlines the structure, management, and financial arrangements of your Wisconsin 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 Wisconsin operating agreement can help prevent disputes and ensure a smooth operation of your LLC. It is advisable to work with Wisconsin Business Attorney to draft an operating agreement that meets the specific needs of your business and complies with Wisconsin laws.

Step 5: Obtain an Employer Identification Number (EIN)

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

Step 7: Register for Wisconsin Taxes and Licenses

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

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

Step 8: Inform Clients and Vendors of the Conversion

After converting your Wisconsin 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 Wisconsin LLCs

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

  • Filing Annual Report with the Wisconsin 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 Wisconsin LLC’s finances, meetings, and decisions. You can manage your finances using spreadsheets, accounting software, or becoming a CPA in Wisconsin.
  • Adhering to any industry-specific licensing and regulatory requirements.

Benefits of Converting Wisconsin Sole Proprietorship to an LLC

In converting Wisconsin 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

Wisconsin 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 Wisconsin 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

Wisconsin 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

Wisconsin 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 Wisconsin, 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 Wisconsin 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, Wisconsin 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 Wisconsin Requirements

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

Access to Additional Benefits

Wisconsin 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 Wisconsin 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

What are the benefits of converting my Wisconsin sole proprietorship to an LLC?
An LLC can provide more liability protection for you as the owner, allow for easier expansion, and have potential tax benefits as well.
How do I form an LLC in Wisconsin?
To form an LLC in Wisconsin, you will need to file Articles of Organization with the Wisconsin Department of Financial Institutions.
How much does it cost to convert a Wisconsin sole proprietorship to an LLC?
The cost to convert a sole proprietorship to an LLC in Wisconsin will generally include a filing fee with the state and may also include legal fees if you choose to work with an attorney.
Will converting to an LLC affect my taxes?
It may impact your taxes, particularly if you choose to file as an S-Corporation under your LLC.
Can I run an LLC alone or do I need a partner?
You can run an LLC on your own as a single-member LLC.
Will I need a new EIN if I convert to an LLC?
If you are the sole proprietor and you convert to a single-member LLC, you may still use the same EIN.
Do I need an attorney to convert my Wisconsin sole proprietorship to an LLC?
While it is not required, it may be wise to consult with an attorney.
What are the annual requirements for maintaining an LLC in Wisconsin?
In Wisconsin, LLCs must file an Annual Report with the Department of Financial Institutions each year.
Is there a limit to the number of members in an LLC in Wisconsin?
No, there is no limit to the number of members an LLC can have in Wisconsin.
Can I operate a Wisconsin LLC in other states?
Yes, however you may need to register as a foreign entity in other states.
How long does it take to convert to an LLC in Wisconsin?
Processing times can vary, but it typically takes a few weeks for the state to approve the filing and officially recognize the new LLC.
Can limited partners be a part of a Wisconsin LLC?
Yes, limited partners can be part of an LLC in Wisconsin.
Does Wisconsin require an LLC to have a registered agent?
Yes, Wisconsin requires LLCs to have a registered agent with a physical address in the state.
Will converting to an LLC affect my business name and branding?
You can generally retain your business name and branding when converting to an LLC in Wisconsin.
Can an LLC have employees in Wisconsin?
Yes, an LLC can have employees in Wisconsin.
Are there any restrictions on the types of businesses that can form an LLC in Wisconsin?
Generally, any type of business can form an LLC in Wisconsin.
Can I convert to an LLC if I have outstanding debts or legal issues as a sole proprietor?
Yes, you can still convert to an LLC as long as you are eligible and meet the state’s requirements.
Will I need new contracts or agreements if I convert to an LLC?
Depending on the contracts and agreements you have in place, you may need to update them to reflect the LLC structure.
What if my name is already taken as an LLC in Wisconsin?
If the name you want is already taken by an existing LLC, you will need to choose a different name.
Can I be my Wisconsin LLC’s registered agent?
Yes, you can serve as your LLC’s registered agent in Wisconsin.
How do I identify my business entity as an LLC?
You should identify your business entity as an LLC on all official documents, including invoices, contracts, and business cards.
What happens to my licenses and permits when I convert to an LLC in Wisconsin?
You may need to update or reapply for licenses and permits under the new LLC structure.
How do I pay myself from my LLC as a sole member?
You can pay yourself through an owner draw, which is treated as taxable income.
What if I already have a bank account under my sole proprietorship?
You will need to open a new bank account for your LLC.
Will converting to an LLC impact my ability to apply for loans or other financing?
Your ability to obtain financing will depend on your business’s financial history and creditworthiness.
Can I convert to an LLC if my business is an LLC formed in another state?
You can register your out-of-state LLC to do business in Wisconsin.
How often must I hold meetings with members in my Wisconsin LLC?
You must hold meetings as specified in your LLC operating agreement.
Can and LLC have officers in Wisconsin?
Yes, an LLC can have officers, but their specific roles and responsibilities must be defined in the operating agreement.
How do I convert my Wisconsin sole proprietorship to an LLC?
You will need to file Articles of Organization with the Wisconsin Department of Financial Institutions (DFI) and obtain LLC approval in Wisconsin.
What are Articles of Organization?
Articles of Organization are legal documents that establish the formation of an LLC in Wisconsin.
Is it necessary to file Articles of Organization in Wisconsin to create an LLC?
Yes, it is necessary to file Articles of Organization in Wisconsin to establish an LLC.
Is there a limit on the number of LLCs I can create?
Wisconsin does not limit the number of LLCs an individual or business can create.
Do I have to pay any fees to create an LLC in Wisconsin?
Yes, there is a filing fee associated with the creation of an LLC in Wisconsin.
How long does it take to approve an LLC in Wisconsin?
Generally, it takes about two weeks to approve an LLC in Wisconsin.
Do I need to have a registered agent in Wisconsin?
Yes, you need to have a registered agent with a Wisconsin street address to receive official notices and legal documents on behalf of your LLC.
How does a registered agent help my LLC?
A registered agent helps with the smooth running of your LLC by receiving important legal documents, official notices of lawsuits or tax documents.
Can a member of my LLC be the registered agent?
Yes, however, that person must be a full-time resident in the state and have a Wisconsin street address.
What’s the difference between a member and a manager of an LLC?
Members are LLC owners, and managers handle the day-to-day operations of an LLC.
What’s the limitation liability for LLCs in Wisconsin?
In Wisconsin, LLCs provide limited liability protection that protects members and their personal assets.
How many members do you need to create an LLC in Wisconsin?
You only need one member in Wisconsin to establish an LLC.
Can an LLC exist indefinitely?
Yes, an LLC has perpetual existence and can exist indefinitely until it’s dissolved.
Is annual reporting mandatory for an LLC?
Yes, every LLC must file an annual report with the Wisconsin DFI.
When is the deadline for filing the annual report of an LLC in Wisconsin?
The deadline for filing the annual report for Wisconsin LLC is always on March 31 every year.
What’s the consequences of missing the deadline for filing Wisconsin annual reports?
Your LLC may face status penalties, which can make to get back LLC status expensive and legal process.
Who is required to pay estimated taxes, an LLC member or an LLC’s dispatcher?
This depends on the individual business owner as the company may or may not withhold an individual’s taxes based on their status. Always consult a tax professional if you’re not sure.
Are LLCs liable for business debts?
Yes if the LLC acts fraudulently, neglecting duty of care or deliberately like a personal piggy.
Can creditors come personally after LLC members for outstanding debt claims?
In Wisconsin LLC law, personal assets of LLC members are considered protected from reimbursement for LLC debt claims
Can partnerships convert to LLC in Wisconsin?
Yes, a partnership can convert into an LLC in Wisconsin
How complicated is it to convert from a sole proprietorship to an LLC for tax purposes?
An experienced attorney can advise you on how to convert a sole proprietorship to an LLC in terms of tax.
Can an LLC waive its right to limited liability in Wisconsin?
Yes by watching the legal rights to protect either or choosing to break code of law.
Is the Operating Agreement External in Wisconsin?
An operating agreement doesn’t get recorded with the Wisconsin
Does an LLC need to have a specified number of members or officers in Wisconsin?
The LLC does not necessarily require a specified number of members and officers despite fulfilling in general operational requirements.
Can owner of an LLC shape tax arrangement the way they want?
are dictated by the country’s tax accorded program and, will be made in individual income tax returns.
Does the type of Wisconsin LLC change with incorporation C-vs -S- Corporation?
Although sort of Wisconsin LLC changes with integration as C VS or S Corporation is approved by the SEC and is deemed as a shareholder option, the sort of liability insurance applied to an LLC stays mostly the same once formed.
Do convert of a DBA mean you can ditch proprietorship and inter into Corporation of LLC?
No converting of DBA gains proprietorship to LLC. It’s crucial for filling documents thereof both LLC and proprietorship while keeping both dividing separate.

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Conclusion

Converting your Wisconsin 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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