In preparing to start your own business, you may have heard talk about an employer identification number, or EIN number. The EIN is sometimes referred to a taxpayer ID number. Many entrepreneurs are confused about why such a number is necessary, and how to go about obtaining one.
The EIN is important (and typically required) to open a company bank account. As you are probably aware, it’s extremely important to keep all of your company’s finances separate from your personal assets and funds. Commingling company assets with personal property can lead to a “piercing of the corporate veil,” which in layman’s terms means that courts and creditors can invalidate the liability protection provided by your company and collect against your personal assets for any judgment levied against you. The only way to protect against this is to be meticulous in ensuring that your personal and business assets are kept separate.
The first step in this process, of course, is to open a business bank account. Requirements vary by state, but typically banks will require, at a minimum, a copy of your Certificate of Incorporation and an EIN number issued by the IRS. The EIN is a nine-digit number that serves as a sort of Social Security number for your business, and is a critical tool for the IRS when tracking revenue in and out of your business.
C-corporations, S-corporations, and multi-member LLCs all must obtain an EIN from the IRS. If you are the only member of a single-member LLC, you may be able to use your Social Security number rather than obtain a separate EIN number. However, keep in mind that you will need an EIN if you hire employees for your company, and it may be a good idea to obtain one in case your bank requires it.
The IRS allows you to apply for an EIN online. Although the process appears relatively simple, it’s a good idea to retain an attorney to ensure that you are answering all the questions on the application correctly. Answering a question incorrectly at the outset can lead to complications down the line, so getting it right upfront will save you time and resources later on.
In some situations, you will not be able to obtain an EIN online, in which case you will need to fax or mail a Form SS-4 to the IRS and wait for them to send your EIN back. Entrepreneurs without a Social Security Number will not be able to obtain an EIN number online; they must either apply for an Individual Taxpayer Identification Number (ITIN) or use a third-party designee to co-sign the Form SS-4. An attorney or accountant is the most common third-party designee, especially if they are already familiar with the process.