Does my Start-Up need and EIN?
The long and the short of it.
Many entrepreneurs waver on the decision to obtain an Employer Identification Number (EIN). With the seemingly insurmountable research and paperwork that a new business owner will undoubtedly face; it is understandable that the thought of applying for an EIN is something one might want to put off until a later date. If you are one of the several entrepreneurs wondering if you need an EIN for your startup, let this article be your guide.
It is always wise to work with a savvy and knowledgeable attorney from the very beginning of your startup endeavors. Setting forth a plan, that takes into consideration not only your current circumstances but your short and long-term business goals, with an expert in startups, will be the bedrock on which your company is built. Entity planning, selection, and formation will be one of the main determining factors in deciding if your business will need an EIN. Although certain business formations do not require an EIN, it is highly recommended to have one. This nine-digit number is much like a social security number, which identifies your business and allows organizations to safely perform many tasks. Whether you make the decision to file for an EIN or the decision is determined for you, based on the type of entity your business requires, having an attorney will ease the burden of the decision making and application process.
Who doesn’t need an EIN?
Like a lot of bootstrap startups, you may hit the ground running as a sole proprietor or an individual owner with a limited liability company (LLC). LLCs and sole proprietorships are not required to have an EIN. Using your social security number to set up a business bank account, complete the paperwork necessary to work for clients, and file your business taxes is perfectly acceptable. While using your social security number may seem like a more simple method for getting one’s business off of the ground, there are many other factors to take into consideration when opting not to obtain an EIN.
It is inevitable that unexpected circumstances will arise, no matter how well you try to prepare. Having the foresight to plan for complications, that may interrupt business, will shore up the success of your company. It is important to think about the direction in which you would like to take your organization. Future plans to take on partners or hire employees will require an EIN. Furthermore, doing business under your name and social security number may leave you vulnerable to identity theft, and a poor credit rating due to criminal activity. There are also benefits to take into account. Having an EIN can make you more appealing to potential clients by establishing an independent contractor status. Companies often rather hire an independent contractor versus an employee. This saves companies money and minimizes their liability. Additionally, an EIN legitimizes your business helping potential clients trust your commitment to any possible project.
It is important to keep in mind, whilst having an EIN has its benefits by validating your credentials, making doing business easier, and protecting your personal identity and credit, a sole proprietorship EIN will still be tied to your social security number. This means that your personal credit will be taken into account when applying for a business loan or credit card, in the same regard, the IRS will tax any revenue as personal income.
Who does need an EIN?
As a business owner you are legally obligated to use either your social security number or business EIN as an identification source for tax authorities, potential lenders, and creditors. Any business formation, that is not a sole proprietorship or an LLC operated by one individual, is required to create an entity separate from the individual owner(s). Even so, there are certain circumstances that will call for an LLC or sole proprietor to procure an EIN. Similar to a person having a social security number, an EIN works in the same manner, in that it is an identifier for that entity. This separates the organization from the entrepreneur.
There is no getting around having an EIN if your company is a partnership, corporation, or an LLC that is taxed as a partnership or corporation, If your business has employees, is involved with certain types of trusts, estates, real estate mortgage investment channels, nonprofits, farmers’ cooperatives, provides a 401(k) and other nuances which should be sorted through with a knowledgeable startup attorney.
How do I obtain an EIN?
There are multiple ways of applying for an EIN, by mail, phone, fax, or with today’s technology many entrepreneurs opt to apply online. The process is fairly simple if you are well-prepared. It is crucial that you are equipped with all of the details needed to fill out each form completely and properly. The applicant must be an owner, principal, or officer of the business, and have a social security number. Have at the ready, the founding date, legal name of your business entity, and the trade name if any, provide the complete address including the street number and name, county, and state where your business is located. We understand that the application process can easily become complicated and time-consuming process if your paperwork is not in order. Not only are we here to assist and guide you in your entrepreneurial endeavors, Sentient Law is here to help you make sense of the startup process and build a cohesive plan for the success of your organization.