If I’m planning to convert my sole proprietorship to an LLC but have unpaid loans at this point, will I have to pay those off prior to conversion or can my LLC take on those loans?

What’s the best way to approach in this situation?

Asked on February 3, 2016 under Business Law, Washington


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 4 years ago | Contributor

Your LLC cannot "take on" those loans: you cannot assign (or transfer) liabilities, like the liability to repay a loan, so whomever currently is liable to pay the loans (presumably yourself) will still be liable to repay them. Certainly, your LLC can help you pay the loans (like a friend or family member could), but at the end of the day, you will remain liable for them.
You don't have to pay them before creating a LLC. And your sole proprietorship is not "converted" into an LLC; rather, you create an LLC which you can start conducting business under, but that's  new legal entity you created; the sole proprietoship does not become it.

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