What is an EIN?
An EIN, or Employer Identification Number, is a federal tax identification number made up of unique nine-digit numbers that the Internal Revenue Service uses to identify and track the activities of a business. Think of it like a social security number for your business. A business uses an EIN for tax filings, opening bank accounts, and business lending and vendor accounts.
What are the Benefits of a Business using an EIN?
- Prevent identity theft by not using business owners’ social security number(s) for credit, accounts, filings, and other items for daily operations of a business
- Add credibility from not using personal information
- Establishing business credit. Anytime you apply for credit by providing your EIN, that account will show up on your business credit report. If you’re on time with that account, your business credit score will see a boost, which can help you qualify for good rates on business loans and favorable terms from suppliers.
- Allows the business owner to separate personal finances from business finances
When I buy a business can the EIN be transferred to me as the new owner?
The short answer is no. Not all changes, such as the change of a business’ name, will require a new EIN. The change of ownership of the business will require an entirely new EIN for the new business owner taking over when the business name being used is the same. Unfortunately, the EIN can’t simply change hands as a part of the transaction. Maybe for good reason since the Internal Revenue Service may come to the new owner based on taxes and penalties owed by the prior owner/operator.
When is a new EIN required by the IRS?
It is important in mergers, purchases of a new business, or when starting a new business to consult an experienced CPA as the guidance generally or from the Internal Revenue Service may not apply to the structure of your particular transaction.
The Internal Revenue Service states that a new EIN will be required if any of the following statements are true.
- Formation of a new corporation with new charter
- Structure change (to another kind of entity)
- Ownership change
- Sole proprietor who is filing a bankruptcy proceeding (chapter 7 or chapter 11)
- Formation of a subsidiary of a corporation
- Same owner, but new business. Every business should use a different federal tax identification number.
- A new corporation is created after a statutory merger. (not in the case of a corporate merger, with the surviving corporation using the existing EIN)
How do you apply for a Business EIN? ONLINE. Remember to keep a copy of the EIN Letter for your records.
Roberts Law, PLLC is happy to assist business owners that are getting started, getting in compliance, or growing. Contact us for a free consultation to discuss your needs and how we can help your business run smoothly.
Kelly Roberts is a business and bankruptcy attorney at Roberts Law, PLLC with over a decade of experience assisting business and business owners to navigate contracts, partnership structures, negotiations, and dispute resolution. Kelly earned her Juris Doctorate from the University of Miami School of Law.
Disclaimer: The information in this blog post (“post”) is provided for general informational purposes only and may not reflect the current law in your jurisdiction or the jurisdiction applicable to your issue/matter. No information contained in this post should be construed as legal advice from Roberts Law, PLLC or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.
