An Employer Identification Number (EIN) is a unique nine-digit number that every newly formed business needs to request. Only once the business is formed can it apply to the IRS for an EIN. This can be done online, by mail or phone and the EIN its issue is free.
The answer to if two business entities can have the same EIN depends on the structures of your two or more business entities. It also depends on how you want to protect the assets of your businesses. Generally, different business entities require different EIN’s.
However, if two companies share an EIN, then both companies are liable if one of the two is sued. That is the reason why most business owners prefer to request a separate one for each of their business entities.
One LLC can have multiple businesses under it. However, if the structure or ownership changes for any of the business entities, then they cannot use the same EIN. All businesses that are taxed differently need separate EINs.
Moreover, in some states, if a business opens in a second location it doesn’t need a new EIN. Whereas in other states, a new location must be separate from the current business. That would mean the new location will need a separate EIN.
It is always best to check the requirements with the state about permits, tax registrations, and licenses.
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Changes to EIN
If there is a change to the name of a business but without a change in the structure, then it does not need a new EIN. However, the owner must submit a name change to the IRS. A business location address and mailing address can be changed without a change in EIN. This requires the submission of Form 8822 to the IRS.
An EIN can also be canceled if a business is discontinued.
Types of businesses and legal requirements for an EIN
There are a few rules that the IRS uses to establish which types of businesses need to apply for an EIN. Read more about the legal requirements for various business entities.
Sole proprietorship business structure
A sole proprietorship that has no employees and does not file excise or pension plan tax is not required to get an EIN. However, if they have even one employee, then it must get one.
Sole proprietorships have no liability protection owner’s personal assets can be at risk. That is why attorneys and accountants usually suggest forming an LLC.
An EIN can offer small business protection from identity theft by protecting the owner’s social security number (SSN). Every business needs it to open a business bank account. Additionally, a small business that decides to employ someone won’t have to scramble to get an EIN if it already has one.
LLC business and partnership business structures
A single-member LLC that has no employees or excise tax liabilities is not required to apply for an EIN. However, any LLCs wanting to maintain a corporate veil or that needs to open a business account, must have one. An EIN also ensures the business is ready should it ever need to hire employees.
All multi-member LLCs and partnerships are required to get an EIN. This number is used when the LLC files a partnership return and when they provide K-1S to their members.
Corporation business structures
Both S Corporations and C Corporations are required to get an EIN for their tax reporting purposes.
Nonprofit business structures
All nonprofits are also required to have an EIN for their tax reporting purposes.
What about trusts and estates?
Depending on the type of trust or estate, an attorney will advise members about which need an EIN for tax reporting purposes.
Advantages of having an EIN
If you have been advised to get an EIN, it is because it carries some important advantages.
- With it, you can open a business banking account. This allows you to separate your personal income and expenses from those of your business.
- A business account and credit card help you build business credibility which allows you to qualify for business loans.
- You cannot hire employees without an EIN and the number helps you register for state employer taxes.
- All employees of the company can file their taxes separately under the LLC’s 1040 form.
- The IRS uses the EIN to track payroll taxes and as a business owner you can set up a payroll.
- Once you have an EIN, you don’t need to use your SSN and this keeps it safe from the prying eyes of others.
- Your personal accounts are more secure because they are separated from your business accounts.
Whether you run your business entities under one structure requiring only one EIN, or whether you need a separate number for each entity; the process is easy to complete with just one application for each. The issuing of EINs is fast and easy.
