With that said, your errand person will most likely present you with an option to get an Employer Identification Number (EIN). The government has made this mandatory for some industries while optional for others. You might be wondering if this is necessary to form a company in the US.
Generally, the EIN is necessary for independent contractors. But not getting one may not hinder your plans to form a company in the US. To learn more about this EIN, kindly stay tuned to this article. It will prove useful, especially since you are starting your own business.
What Is an Employer Identification Number (EIN)?
Before we tackle the issue of whether the EIN will hinder you in your plans to form a company in the US, let us define what this is. The Employer Identification Number is a nine-digit number assigned by the Internal Revenue Service to your business. You can think of it as your company’s Social Security Number but for tax purposes only. Kindly bear in mind that this is for businesses only.
The EIN is issued by the state and used on the state tax forms. The following business structures are required to have EINs:
- Limited Liability Companies (LLC)
Regarding your question about whether the EIN is necessary to form a company in the US, you may have to determine if you are registering as a sole proprietor or incorporating under US laws. If you file as the sole owner of the business (sole proprietor), you are not required to get one. Unless your business falls under the following:
- You have employees or plan to hire them.
- You want to offer Keogh or a solo 401(K) retirement plan.
- You are inheriting or thinking of buying a sole proprietorship.
- You need to file for bankruptcy.
Kindly take note that the IRS requires trusts created by estate funds and representatives who oversee an estate that operates a business after the owner’s death. Please also bear in mind that independent contractors, freelance workers, people running small businesses out of their homes, and people with side jobs who capitalize on the gig economy are generally not required to get an EIN.
Why Can I Not Use My Social Security Number?
If your business falls under those entities that need to get an EIN, kindly remember that this number is for tax purposes. More importantly, the government wants to separate them is to avoid identity theft. An EIN helps keep your personal and business finances separate. Thus, you will be using your SSN for personal needs while the EIN is for your business.
Registering a business can be tedious especially preparing the required documents. But remember that the paperwork is necessary for you to pursue your dream. The great thing is that you can delegate this task to others.
If you are ready to form a company in the US, you should immediately reach out to Doola. We will be more than happy to help you with dreary paperwork so that you can focus on building your company. Start your journey with us!