To change a sole proprietorship to an LLC in Texas, you form a brand-new limited liability company with the Texas Secretary of State and then move your existing business into it. There’s no direct “conversion” filing, because a sole proprietorship isn’t a registered entity to convert from. The state filing fee is $300, and if you file online the LLC can exist within a few days. The bigger job is what comes after: transferring bank accounts, contracts, licenses, and tax registrations into the new company’s name so the liability protection actually holds.
Pick a Name and Check It’s Available
Your LLC name has to be distinguishable from every other entity already on file with the Secretary of State, and it must include a designator: “Limited Liability Company,” “LLC,” or “L.L.C.”1Office of the Texas Secretary of State. Name Filings FAQs Many owners just tack “LLC” onto the name they already use, but you still need to confirm no one has locked it up.
Check availability by calling the Secretary of State at (512) 463-5555 or searching the SOSDirect portal.1Office of the Texas Secretary of State. Name Filings FAQs If you want to hold a name before you’re ready to file, you can reserve it for 120 days.
Appoint a Registered Agent
Every Texas LLC must have a registered agent — a person or authorized business entity that accepts lawsuits and official mail for the company.2Office of the Texas Secretary of State. Registered Agents FAQs You can be your own agent, but the LLC can’t be its own.
The agent needs a physical Texas street address, called the registered office. A P.O. box at a mail center doesn’t work unless that mail center business is itself acting as your agent.3Office of the Texas Secretary of State. Registered Agents Letting the registered agent lapse can trigger involuntary termination of the LLC, so this is a role you have to keep current.2Office of the Texas Secretary of State. Registered Agents FAQs
File the Certificate of Formation (Form 205)
Form 205 is what actually creates the LLC. It asks for three things: the LLC’s name with designator, the registered agent and office address, and whether the company will be member-managed or manager-managed.4Office of the Texas Secretary of State. Form 205 Instructions for Certificate of Formation Limited Liability Company Member-managed means the owners run the business directly. Manager-managed puts named managers in charge of daily operations, which mostly matters with multiple owners.
Filing through the SOSDirect portal gives you the fastest turnaround. The fee is $300.5Texas Secretary of State. Business Filings and Trademarks Fee Schedule Standard expedited processing runs an additional $50 and typically takes two to three business days.6Office of the Texas Secretary of State. Introducing Texas Express Expedited Business Filings
Once the filing is approved, the Secretary of State sends back a file-stamped Certificate of Formation. Keep that document accessible. You’ll need it to open bank accounts, register with the Comptroller, and assign contracts.
Decide Whether You Need a New EIN
A single-member LLC with no employees, no excise tax obligations, and no corporate tax election can keep using your Social Security number or your existing sole proprietorship EIN for federal tax purposes.7Internal Revenue Service. Single Member Limited Liability Companies You need a new EIN if the LLC has (or will have) employees, if you add a second member, or if you elect to be taxed as a corporation.8Internal Revenue Service. When to Get a New EIN
Applying is free on the IRS website and takes a few minutes; ignore third-party sites that charge for it.9Internal Revenue Service. Get an Employer Identification Number Even when it isn’t strictly required, most banks will ask for a fresh EIN before opening an account in the LLC’s name, so getting one up front usually saves a step.
Update Your Texas Tax Accounts
Sales Tax Permit
If your sole proprietorship collected sales tax, the Comptroller treats the move to an LLC as a change in ownership. That means the LLC applies for its own sales tax permit and the old sole proprietor permit gets closed.10Texas Comptroller of Public Accounts. Texas Sales and Use Tax Frequently Asked Questions Leave the old permit open and you can end up with duplicate filing obligations.
Franchise Tax and Public Information Report
Texas has no personal income tax, but LLCs owe an annual franchise tax report to the Comptroller by May 15 each year. For reports due in 2026, the no-tax-due threshold is $2,650,000 in annualized total revenue.11Texas Comptroller of Public Accounts. 2026 Franchise Tax Instructions Most small businesses moving over from a sole proprietorship land well under that and owe nothing.
Owing nothing doesn’t mean filing nothing. Every Texas LLC also has to file a Public Information Report each year listing its officers, managers, or members, regardless of revenue. Miss it and the Comptroller can forfeit the LLC’s right to transact business in Texas, at which point you can become personally liable for the company’s debts — the exact outcome the LLC was supposed to prevent.12Texas Comptroller of Public Accounts. Texas Franchise Tax Public Information Report and Ownership Information Report
Write an Operating Agreement
Texas doesn’t require an LLC to have a written operating agreement (the Business Organizations Code calls it a “company agreement”), but going without one is a mistake even for a single-member LLC. The agreement sets out ownership, profit distribution, and what happens if you take on a partner, sell, or die. Without one, state default rules fill the gaps, and those defaults may not match what you’d actually want.
Banks and lenders often ask to see the operating agreement before opening accounts or approving loans. Having one on hand also reinforces the point that the LLC is a separate entity from you, which is what makes the liability protection real.
Move the Business Into the LLC
The LLC is a separate legal person. To finish the switch, everything the sole proprietorship used has to move into the company’s name. This is where corners get cut and where liability shields fail.
- Open a new business checking account in the LLC’s name and route all business income and expenses through it. Mixing personal and LLC money is the quickest way to lose liability protection.
- Review contracts with vendors, clients, and landlords. Most need a formal assignment or a fresh contract naming the LLC. Some agreements contain anti-assignment clauses, so read before assuming you can just swap names.
- Retitle any business vehicles or titled equipment to the LLC through the county tax assessor-collector’s office.
- Update state and local business licenses to reflect the LLC. If you hold a professional license, check with your licensing board about operating through an entity.
- Notify your insurer and have the LLC added as the named insured. A policy in your personal name won’t automatically cover the LLC.
For federal tax purposes, moving assets from a sole proprietorship into a single-member LLC taxed as a disregarded entity isn’t a taxable event. The IRS still treats you as owning the assets directly, so there’s no gain or loss on the transfer.7Internal Revenue Service. Single Member Limited Liability Companies
Close Out the Sole Proprietorship
A sole proprietorship has no formal dissolution because it was never a registered entity. You do have loose ends:
- If you filed an assumed name certificate (DBA) with the county clerk, file an abandonment statement with that same county clerk. It has to include the assumed name, the offices where the original was filed, and your name and address. If the new LLC itself needs to operate under a name other than its legal name, that assumed name certificate gets filed with the Secretary of State, not the county.1Office of the Texas Secretary of State. Name Filings FAQs
- Close the old sales tax permit through the Comptroller’s website once the LLC’s new permit is active.10Texas Comptroller of Public Accounts. Texas Sales and Use Tax Frequently Asked Questions
- If the sole proprietorship had its own EIN and employees, file final payroll returns (Form 941 or 944) under the old EIN and check the box marking them final.
How Federal Taxes Look After the Switch
If you’re the only owner, your federal return barely changes. The IRS treats a single-member LLC as a disregarded entity, so you keep reporting business income and expenses on Schedule C of your Form 1040, exactly as you did as a sole proprietor.7Internal Revenue Service. Single Member Limited Liability Companies Self-employment tax on net earnings works the same way.
The LLC does give you the option to elect a different tax treatment by filing Form 8832 to be taxed as a corporation or Form 2553 to be taxed as an S corporation. Those elections can lower self-employment tax in the right circumstances, but they bring added complexity and compliance costs. Most small LLCs stay with the default disregarded-entity treatment, at least at first.
The real payoff of the LLC isn’t a tax break. It’s the wall between business debts and personal assets. That wall only stands if you actually run the LLC as a separate entity: separate bank account, contracts in the company’s name, and consistent use of the LLC identity in every business dealing.