Does a single-member LLC Need to Change Its Name After Electing S Corporation Status?

When a single-member LLC elects to be taxed as an S Corporation by submitting IRS Form 2553, it’s common for business owners to wonder if they also need to change the business’s legal name to reflect its new tax classification. Let’s clear up this confusion.

The Difference Between Legal Entity and Tax Status

First, it’s important to understand that an LLC and an S Corporation are two different things:

• LLC (Limited Liability Company): This is a legal entity created under state law, designed to limit the personal liability of its owners.
• S Corporation: This is not a legal entity type but rather a tax status that businesses can elect. It allows LLCs or corporations to be taxed differently under the IRS rules. An S Corporation is taxed as a pass-through entity, meaning the business’s profits and losses flow directly to its owners without being subject to corporate taxes.

By default, a single-member LLC is taxed as a sole proprietorship. However, many business owners opt to elect S Corporation status because it can help save on self-employment taxes. This election is made by filing IRS Form 2553.

Do You Need to Change Your LLC Name to “Inc.”?

No, there is no need to change your LLC’s legal name after electing to be taxed as an S Corporation. The S Corporation election is purely a tax decision and does not affect your business’s legal structure. Your business will still be recognized as an LLC under state law, and you can continue to use “LLC” or “Limited Liability Company” in your business name.

Here’s why:

• LLC vs. Corporation: An LLC remains an LLC even after electing S Corporation status. The LLC does not automatically become a corporation, and there’s no requirement to include “Inc.” or “Incorporated” in the business name.
• State Law and Naming Requirements: State laws typically require that an LLC include “LLC” or some variation of it in the business name to distinguish it from other entity types. These rules remain in place regardless of your tax status with the IRS.

Why Choose S Corporation Status?

While the legal entity type remains the same, electing S Corporation status may offer several benefits, such as:

• Self-Employment Tax Savings: By taking a reasonable salary as an employee of the LLC (S Corporation), you can reduce the amount of profit subject to self-employment taxes.
• Pass-Through Taxation: Profits and losses flow through to the owner(s), avoiding double taxation typically associated with corporations.

Legal Structure vs. Taxation

It’s crucial to distinguish between how your business is legally structured and how it is taxed. When you form an LLC, you are choosing a legal structure that offers limited liability protection. When you elect S Corporation status, you are simply choosing how the IRS will treat your LLC for tax purposes.

If your LLC elects to be taxed as an S Corporation, there’s no need to change your business name to include “Inc.” Your LLC remains a legal LLC, and the change to S Corporation status only affects how your business is taxed.