EIN or LLC First: Everything You Need to Know
Should you register for EIN or LLC first when starting a business? An EIN and business registration are both important in setting up a business.3 min read
Updated November 9, 2020:
Should you register for EIN or LLC first when starting a business? An EIN and business registration are both important in setting up a business. However, it's important to know which should come first when planning to start an LLC.
Employer Identification Number
An Employer Identification Number (EIN), or Tax Identification Number is a unique number assigned to a business entity by the IRS for tax purposes and other business transactions. It is used for filing tax returns, credit reporting, and serves as a form of identification for the entity during financial transactions. The following steps are required to obtain an EIN.
Start a Business
Before applying for an EIN, an organization, regardless of whether they are established for profit or non-profit, must be a viable business entity. Business owners are required to file business registration documentation which gives the business entity a legal status with the Secretary of State where the business is to operate. It's possible for any business to obtain an EIN, including businesses established with the owner's Social Security Number such as a sole proprietorship or S Corp. These businesses are eligible to obtain an EIN, but they are under no obligation to do so. However, business owners may opt for an EIN as it offers more privacy protection compared to a Social Security Number.
Contact the IRS
Once the business entity has been established legally and the appropriate documentation such as partnership agreements or articles of incorporation signed, the next step is to contact the IRS. A business owner can apply for an EIN via:
- Phone at 800-829-4933
- Online at irs.gov
You can also file in writing by completing the IRS Form SS-4, which should be submitted to the address specified in the instructions.
After Filing the SS-4
The method of submitting the Form SS-4 determines the processing speed. If you applied via phone, you would be assigned an EIN instantly. Fax applications get assigned an EIN within four working days. It can take up to five weeks for written applications sent by mail to obtain an EIN.
A business should not apply for anything that requires an EIN such as opening a bank account before obtaining an EIN. It's not advisable to apply for such business processes with a personal Social Security Number as it may make you personally liable to the business's debts and obligations.
What Form of Entity to File
It can be hard to decide which form of business entity to file. All forms of business have their benefits and disadvantages, but your decision should be based on your interests as a business owner.
Advantages of Forming a Limited Liability Company (LLC)
There are benefits of forming a Limited Liability Company (LLC).
If you don't choose a specific type of business entity, you will be assigned one by the government. It's important to research the different forms of business entities to know which best protects your interests.
Protection from Liability
An LLC or corporation might be the best for some business owners as it protects them from liability to the business's obligations.
LLCs and corporations have a more professional outlook because they are allowed to add an “LLC” or “Inc.” to their names.
An LLC has an advantage over a corporation regarding taxation. A corporation faces double taxation as the company pays taxes on its earnings and its shareholders also pay taxes on their share of the company's profits. An S-Corporation enjoys a pass-through tax status which exempts it from paying corporate tax, but getting classified as an S Corp is difficult. However, an LLC is allowed to choose a C Corp or S Corp designation regarding its taxation.
An LLC is owned by members while a corporation is owned by shareholders. The amount of money members of an LLC can withdraw from the company is not dependent on their investment, whereas shareholders of a corporation can only receive dividends based on their ownership interest.
LLCs have a more flexible administrative process, while corporations require a board of directors and management team working for the shareholders.
Why You Should File for LLC Before EIN
It's necessary to file for LLC before EIN as you are not guaranteed your business name if it has not been registered. Also, the new regulation of the IRS requires filing the articles of incorporation and other documentation before businesses can obtain an EIN.
If you need help with EIN or LLC application, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.