When aspiring entrepreneurs first make the decision to run their own business, they sometimes dive in with a lot of feeling…but not too much basic business knowledge.
They know that they want to break out of the corporate bubble, that they have something they’re very passionate about, that they plan on making a living out of. (Sound familiar?)
Sometimes, that’s all a newbie entrepreneur needs to get going – and kudos to those whose enthusiasm carries them that far along. But eventually, if you’re that startup business owner, you’re going to want to start doing things by the book – especially if you plan on hiring employees. You’ll want to obtain a business license, choose the right legal entity for your startup, and look into all areas that concern your business, from trademarks to DBAs.
But right now, let’s focus on a very basic first step: Getting an Employer Identification Number, sometimes referred to as a social security number for your business. Here’s some FAQ about the EIN.
What’s an EIN?
An EIN number is a federal identification number used by the IRS to identify a business entity. It does for an individual business what a license plate does for a car and gives your business an identity that’s easy to look up. EINs have also been referred to as Federal Tax ID numbers. For most business structures, having one in place is a legal requirement and EINs are essential to keeping your company compliant with tax law.
[pullquote]An EIN comes with a bonus of never expiring and as an entrepreneur, once you get that taken care of, you can focus on the rest of your company and making your business dreams come true.[/pullquote]
If you’re a sole proprietor, you have the option of using your social security number, rather than obtaining a separate EIN. Most advisors, however, will probably tell you to apply for an EIN. Using an EIN over your SSN helps protect you from identity theft and since it’s used only as a federal identifier, it’s much less of a big deal if anyone knows it than your social security number would be.
So when will I need this number?
An EIN is necessary for any business that does the following:
- Opens its doors for business
- Is formed as an LLC or Corporation
- Hires, or plans to hire, new employees
- Opens a bank account
- Purchases another ongoing business
- Creates a trust or pension plan
If you plan on partaking in any of the above activities as a business owner, chances are you will be legally required to obtain an EIN.
An EIN comes with the bonus of never expiring and as an entrepreneur, once you get that taken care of, you can focus on the rest of your company and making your business dreams come true.
Deborah Sweeney is the CEO of MyCorporation.com. MyCorporation is a leader in online legal filing services for entrepreneurs and businesses, providing start-up bundles that include corporation and LLC formation, registered agent, DBA, and trademark & copyright filing services. MyCorporation does all the work, making the business formation and maintenance quick and painless, so business owners can focus on what they do best. Follow her on Google+ and on Twitter @deborahsweeney and @mycorporation.