Do you think it’s the perfect time to restructure your business from sole proprietorship to limited liability company (LLC) or S Corporation (S-Corp)? Nowadays, it is possible to shift to an LLC or S-Corp in most states. However, converting to LLC or S-Corp entails a great deal of research, financial investment, and planning. If you are considering going from sole proprietorship to LLC or S-Corp, here are some tips.

1. As a sole proprietor, carefully weigh the advantages of forming an LLC or S-Corp against the costs related to the business restructuring. Especially if your business is service-based, changing your business structure can be very advantageous. For instance, LLC can provide some form of liability protection to your personal assets that sole proprietorship cannot. If the advantages outweigh the costs of the conversion, then go ahead with the restructuring of your business.

2. When computing the costs of forming an LLC or S-Corp, take into account the taxes you are required to pay. Corporations are often associated with the so-called double taxation wherein income is taxed twice (at the individual and corporate levels). Some business owners forego their shareholder dividend payments to avoid double taxation.

3. To set up an LLC or S-Corp, you need to create your articles of incorporation, or you can ask your lawyer to do it for you. Then file the articles with the office of the Secretary of State and pay the required fees.

4. Although many states do not require an operating agreement, it is recommended that you draft one. This document clearly defines the ownership, responsibilities, profit sharing, and the changes in ownership and structure of the business.

5. Know the specific policies for setting up LLCs or S-Corps in your state. For example, a number of states require the publishing of a notice of company restructure in the local newspaper.