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Do I Need a New EIN if I Change from a Sole Proprietorship to LLC?

By on March 22, 2023 3 min read
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Do I Need a New EIN if I Change from a Sole Proprietorship to LLC?

Converting your sole proprietorship into an LLC is a great way to develop more security and protection for personal assets and the future of your business. As with any transition, certain adjustments must be made; in this case, one of those might include changing your EIN (Employer Identification Number).

But how exactly do you go about making this change? Rest assured – we've got all the information you need! In this guide, we'll explore what an EIN is and how it relates to the conversion process from a sole proprietorship to LLC, plus offer advice on how to make the changes appropriately. 

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What is an EIN?

Starting a business can be an exciting journey. Still, it can also be a little overwhelming when it comes to navigating the world of taxes and legal requirements. One important piece of information you'll need to know is what an EIN is. EIN stands for Employer Identification Number, and it's essentially a unique identifier for your business.

Think of it as a social security number for your company instead of yourself. Having an EIN can also be beneficial in establishing business credit, hiring employees, and opening business bank accounts. Don't worry; applying for an EIN is a relatively simple process and can be done online in just a few minutes.

Related Reading: The Most Common Questions About EINs

EIN requirements for a Sole Proprietorship

It is very common for sole proprietors not to obtain an EIN when they first start their business. While it may seem like another task to add to your list, obtaining an EIN can benefit you in several ways. It allows you to hire employees and file excise taxes and opens the door to forming a partnership or corporation in the future. However, if you choose not to obtain an EIN for your sole proprietorship, you will be required to use your Social Security number instead.

EIN requirements for a LLC

Almost all LLCs are required to have an EIN. If your LLC has employees, files excise taxes, or elects to be taxed as a corporation, it needs an EIN. An LLC with a single member that does not have employees and does not owe excise taxes may choose to use the owner's Social Security number instead of obtaining an EIN.

However, getting an EIN for your LLC is still advisable, even if it is not required. Having an EIN helps to keep your personal and business finances separate and provides additional protection against identity theft. An EIN allows you to open a business bank account and apply for funding in your business's name.

What is the difference between a Sole Proprietorship and LLC?

When starting a business, it's essential to understand the various legal structures available to you. Two popular options are Sole Proprietorship and LLC. The main difference between the two comes down to liability.

  • As a Sole Proprietor, you are personally responsible for all debts and liabilities the business accrues.
  • On the other hand, an LLC provides limited liability protection, separating your personal assets from those of the business. This can give business owners peace of mind knowing their personal assets are protected in case of legal issues.

However, deciding which structure to choose ultimately depends on your business needs and goals. 

Related Reading: LLC vs. Sole Proprietorship: Which is Best for my Business?

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How to Change your EIN from Sole Proprietorship to LLC

Yes, you can change your EIN from your sole proprietorship to an LLC, but you will have to obtain a new EIN. To change your EIN from a sole proprietorship to an LLC, you must complete Form SS-4, Application for Employer Identification Number, available on the IRS website. When completing the form, you must indicate that you are applying for a new EIN for an LLC and provide the necessary information, such as your LLC's name, address, and the date it was formed.

Additionally, you must provide supporting documentation, including your LLC's articles of organization and operating agreement. Once you have completed the form and gathered the required documentation, you can submit it to the IRS by mail, fax, or online. It is important to remember that changing your EIN may take several weeks, so it is essential to plan accordingly and inform relevant parties about the change, such as your bank, creditors, and the IRS.

When Should you Change your EIN?

You should plan to change your EIN when you upgrade your business structure. When transitioning from a sole proprietorship to an LLC you will need to update your EIN to reflect your new business structure. Additionally, if you plan to change your business structure from a sole proprietorship to a partnership, you'll need to change your EIN. 

Tips to Remember While Changing Your EIN

First and foremost, make sure to inform all relevant parties about the change, such as your bank and creditors, to avoid any confusion or potential issues. Updating your records with the new EIN is crucial to ensure that all future transactions, taxes, and documentation are correct. Finally, don't forget to notify the IRS; they need to update their records to reflect the change. By remembering these tips, changing your EIN can be a stress-free experience!

When deciding when to make the switch, it's also important to remember that you will want to file taxes for each business separately and avoid having both entities on the same tax form. Additionally, updating customers, suppliers, contractors, and other entities with access to the old EIN should be done promptly once the change has been made.

Finally, for those of you making this transition, remember that you're taking steps towards letting your business thrive – so make sure you have everything prepared and have a clear plan before diving into anything new! 

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