Occasionally I get an inquiry from someone wanting to start a business and the question is something along the lines of, “Is an LLC required to start a business doing such and such?” Often times the person will want to start a business, but they don't necessarily have the finances in place to form an LLC or even hire a lawyer to assist them in starting a small business. Of course, the answer is always no, an LLC is not required to start a business. I know many small business owners who operate as a sole proprietorship or a DBA (“doing business as”), also known as a trade name. In fact, the Oklahoma Secretary of State allows you to register the trade name of your small business, if you're operating as a DBA instead of an actual business entity. However, I always counsel sole proprietors who operate as a DBA that they expose themselves to personal liabilities as a result of their business operation, i.e. they are personally responsible for any debts or liabilities in their businesses. Operating as an LLC will separate you as an individual business owner from the LLC so that your personal assets are protected from the debts and liabilities of the LLC.
This is the main reason why you might want to transition from a DBA to an LLC. So long as you maintain the formalities of an LLC, the LLC will protect you as an individual from the debts and the liabilities of your small business formed as an LLC. The next question then is how you transition from a DBA to an LLC. Here are five (5) steps to transition your DBA to an LLC.
1. Form the LLC and Withdraw the DBA
The first step to transitioning from a DBA to an LLC is to form the LLC with the Oklahoma Secretary of State and withdraw the DBA. For specific steps in forming an LLC in Oklahoma, check out my prior blog article “Five Steps to Forming an LLC in Oklahoma” here: http://www.libertylegalok.com/five-steps-to-forming-an-llc-in-oklahoma.html
If you registered the DBA with the Oklahoma Secretary of State, you will need to withdraw the DBA first and wait at least sixty (60) days before you file your Articles of Organization with the Oklahoma Secretary of State. The Oklahoma Secretary of State will not allow you to name your LLC the same as your DBA if the DBA is still active in the last sixty (60) days.
2. Prepare Your LLC's Operating Agreement
The second step to transitioning from a DBA to an LLC is to prepare the operating agreement for your LLC. Every LLC in Oklahoma needs an operating agreement, regardless of whether its a single-member LLC or a multi-member LLC. This is an internal document which is NOT filed with the Oklahoma Secretary of State, but it is essential for your small business to succeed. You can hire an attorney to draft your operating agreement, or you can use an online resource (not recommended) to draft one for you. For more information about why your LLC needs an operating argument, check out my prior blog article “Why Every LLC Needs an Operating Agreement” here: http://www.libertylegalok.com/why-every-llc-needs-an-operating-agreement.html
3. Apply for an EIN
An EIN is an “Employer Identification Number,” which is a tax ID number for your business assigned by the IRS. It is basically a social security number for your LLC. Even if you will be a single-member LLC, most banks will require an EIN in order to open a business bank account.
4. Open New Accounts or Change Existing Accounts
Any accounts you established while operating as a DBA were made with you personally. These included bank accounts, vendor accounts, and registrations with local or state government agencies. This is the time to transition each of these accounts to the LLC instead of you personally.
5. Assign or Change Contracts
If you've signed any contract while operating as a DBA, those contracts need to be either assigned to your LLC, or otherwise changed. Now is a good time to go back and read the contracts to see if you are allowed to assign them. If you are, then proceed with assigning the contract. If not, then when the contract comes up for renewal or extension, the contract should be changed to the LLC instead of you personally and your former DBA.
If you have any questions about transitioning from a DBA to LLC, it is always best to consult with an attorney. At Liberty Legal Solutions, LLC, we offer DBA to LLC transition packages for small business owners interested in converting a DBA to a single-member LLC, starting at $500 plus filing fees.
If you are interested in starting a small business anywhere in Oklahoma, or if you have a small business and you are looking to grow, please feel free to contact me at [email protected]. For more information about Liberty Legal Solutions, LLC, please visit our website http://www.libertylegalok.com.