In this case, the new entity is a limited liability company and the old entity is a sole proprietorshio with no liability protection. Part of the protection comes from acting as if the limited liability entity is a legal “person”. Failure to do so can be used by creditors to “pierce the veil”.
There is usually some sort of document transferring the assets of the sole proprietorship into the C-corp or LLC in return for shares for membership interest, as part of the capitalization.
Perhaps talk to a CPA or a lawyer about all of this ...
