Convert Your Sole Proprietorship to a Tennessee LLC

Converting a sole proprietorship to an LLC provides liability protection while keeping your existing business operations intact. Tennessee does not have a direct "conversion" filing — instead, you form a new LLC and transfer your business activities into it.

Why Convert to an LLC

• Liability protection — separate personal assets from business debts under the Tennessee Revised LLC Act
• Professional credibility — LLC designation signals established business
• Tax flexibility — elect S-corp taxation when advantageous
• Banking and credit — easier access to business financing

Step-by-Step Conversion Process

Step 1: Form Your Tennessee LLC

File Articles of Organization (Form SS-4270) with the Tennessee Secretary of State through tnbear.tn.gov. Filing fee: $300. You can use the same business name if it includes an LLC designator ("LLC" or "L.L.C.").

See our formation guide for detailed instructions.

Step 2: Obtain a New EIN

The IRS treats your LLC as a new entity. Apply for a new EIN at irs.gov (free, immediate for online applications). You cannot reuse your sole proprietorship's SSN or existing EIN for the LLC.

Step 3: Open an LLC Bank Account

Open a business bank account in the LLC's name using your new EIN and filed formation documents. Do not commingle personal and business funds — this is critical for maintaining liability protection.

Step 4: Transfer Assets and Contracts

• Transfer business property, equipment, and inventory to the LLC
• Notify clients and vendors of the new entity
• Assign or renegotiate contracts in the LLC's name
• Transfer domain names, intellectual property, and licenses

Step 5: Update Licenses and Permits

• Update your Assumed Name if applicable ($$20 (county level))
• Transfer or reapply for any state or local business licenses
• Update insurance policies to name the LLC as the insured

Step 6: Close the Sole Proprietorship

• File final Schedule C with your personal tax return for the period operated as sole proprietorship
• Cancel any sole proprietorship registrations or permits
• Notify relevant agencies of the transition

Tax Implications

The conversion itself is generally not a taxable event if you are the sole member. The IRS treats a single-member LLC as a disregarded entity (same as sole proprietorship for tax purposes) unless you elect otherwise.

F&E tax: excise tax 6.5% of net earnings + franchise tax $0.25 per $100 of net worth (combined F&E minimum $300). Annual report $300. No state personal income tax.

Timeline

The full conversion typically takes 2-4 weeks:

• LLC formation: immediate to 5 business days (depending on processing)
• EIN: immediate (online) or 4-6 weeks (mail)
• Bank account: 1-5 business days
• Asset transfers: varies

Common Mistakes

1. Forgetting the new EIN — the LLC needs its own EIN even as a single-member disregarded entity
2. Commingling funds — using personal accounts for LLC business undermines liability protection
3. Not updating contracts — old contracts in your personal name don't automatically transfer
4. Skipping the operating agreement — even single-member LLCs should have one documenting ownership and procedures

FAQ

Can I keep the same business name?

Yes, as long as it includes an LLC designator and is available in the Tennessee Secretary of State's database. If your sole proprietorship name is "Smith Consulting," your LLC would be "Smith Consulting LLC."

Is there a deadline for converting?

No. You can convert at any time. Many business owners convert when they reach a revenue threshold, take on clients with significant contract values, or want to separate personal and business liability.

Do I need to notify the IRS about the conversion?

You will file your final sole proprietorship Schedule C for the partial year, then begin reporting under the LLC's EIN. No special conversion form is required for single-member disregarded entities.

For the complete LLC formation process, see our formation guide.