In our daily lives, we often hear and experience the need for an identification number. Be it your driving license or even a passport; every documented material holds a unique identification number that differs from person to person. One of the core reasons behind the evolvement of the identification number is that it provides flexibility to identify quickly.
The application of this is not restricted to only verification of individuals, but even business entities have got their identification numbers that get counted accordingly.
Over the years, cross-border business incorporation has taken a significant spike that allowed global investors to take a call in investing internationally and grow their profits.
Now, when it comes to the incorporation of a business, the business employers are issued an Employer Identification Number (EIN), which is primarily used to report the employment taxes.
Let’s have a look at the same!
Employer Identification Number (EIN)
An EIN is a unique identification number, preferably a nine-digit number issued by the Internal Revenue Services (IRS) and is primarily used to report employment taxes. It is also referred to as a Federal Tax Identification Number (FTIN).
The moment it is issued to a business corporation, it is called a Tax Identification Number (TIN).
Holding an EIN for a business entity is not restricted to only tax purposes, but a reputed bank requires a corporate unit to hold an EIN to open a corporate bank account.
When is an EIN Required?
According to the rule books, EIN is generally required by a business unit when the ownership or structure gets altered.
Various criteria need to be followed and maintained by the business owners.
For Sole Proprietors
For sole proprietors, an EIN is required to be obtained, if:
- You establish a business unit
- You change the business structure to partnership form
- You inherit an existing business that you used to operate as a sole proprietor
For Corporations, an EIN is required if:
- The corporation receives a new charter from the secretary of the state
- When the business unit becomes a subsidiary of a corporation
- When the partnership gets altered
- In case a new business entity gets created after the merger
For Partnership Firms
When it comes to the incorporation of partnership firms, an EIN is required when:
- A new partnership firm gets incorporated
- When one of the partner’s partnership is taken over by the other partner (to operate as a sole proprietor)
- When an old partnership needs to end and begin a new one
For an LLC
An LLC is one of the most common business entities chosen globally. When it comes to obtaining an EIN, it is possible only when the following conditions stands true.
- If a new LLC gets established with more than one owner
- A new LLC gets incorporated with a single owner and is chosen to be taxed as a corporation
- A new LLC gets incorporated with a single owner and has an excise tax filing requirement
For an estate, an EIN is to be obtained if:
- A trust is created with the funds from an estate
- An individual represents an estate that has been operating the business activities after the owner’s death
When it comes to trust, an EIN is required on the following front:
- One person turns out to be the grantor of the trust
- When a trust changes to an estate
- When an existing trust gets changed to a testamentary trust
Now, an EIN is not required to be obtained, if:
- The trustee changes
- The grantor or the beneficiary changes his/ her name or address
How to Obtain an EIN?
Applying for an Employer Identification Number (EIN) turns out to be an easy process as it is available on the IRS website.
The required details are to be submitted that gets verified, and if it suffices, the EIN gets issued immediately.
Alternatively, one can also get in touch with a business consultant who is well-versed with the company incorporation process in the onshore and offshore locations. Here’s the difference between an onshore and offshore company, that will turn out to be beneficial to know before you invest in any business.
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At Business Setup Services, we take the initiative of understanding the core business needs of our clients and clear the processes in a hassle-free manner.
Since inception, our business advisors have been guiding business investors by providing tailored business setup solutions.
If you plan to get an EIN for your business or start your business at a global level, feel free to have a word with our business expert.
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