Do I Need to Register My Business Federally?
There is a common misconception that when setting up a business entity one should “register her business federally” first. Before we get into the nitty gritty of that, let’s discuss terminology.
There is no such thing as “registering your business federally.” When people use this phrase, they are often referring to the process of applying for an Employer Identification Number (EIN). The IRS supplies businesses with EINs and this is much like the social security number for a business. The EIN is used when filing taxes, when obtaining a 1099, when opening a bank account, and for various other business identification purposes. Applying for an EIN does not provide a business with any limitations on liability.
So what’s the order of operations for obtaining an EIN?
A business owner should form her business at the state level first by filing the articles of incorporation or articles of organization. This is the action that provides the business owner with limited liability.
Then, and only then, should the business owner apply for an EIN. Do not apply for an EIN if no state entity exists. This will cause a lot of confusion with the IRS and it is time consuming to clear up this type of mistake.
The only exception to this is for those operating as a sole proprietor (and not using an assumed business name) and planning to continue operating as a sole proprietor. In that case, no state filing is required and the person can skip straight to applying for the EIN.