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When do business owners need an employer identification number?

On Behalf of | Apr 19, 2023 | Corporate Law

Entrepreneurs have many tasks to complete when starting a new business or altering an existing one. Unfortunately, even seasoned business owners may overlook a few steps as they juggle so many issues simultaneously.

The last thing you need when starting or changing a business is trouble with the Internal Revenue Service (IRS). One way to avoid potential problems is knowing when to obtain an EIN or employer identification number—a unique nine-digit number identifying your company for tax purposes.

Who needs one?

Those who operate sole proprietorships without employees are not typically mandated to apply for an EIN. However, the IRS will use social security numbers to identify sole proprietorships without an EIN.

Some business entities, such as corporations and partnerships, must obtain a number, even if they have only a few workers.

Are EINs issued in perpetuity?

Many business owners may never need to obtain a new EIN. The company may operate successfully for years or decades without any modifications. However, companies that make legal changes must obtain a new EIN even for the same business.

Examples of when businesses need a new EIN:

  • A sole proprietorship incorporates
  • A partnership changes its business name
  • A corporation becomes a corporate subsidiary

You may obtain an EIN even when not required by law. Many business owners do so to keep their social security numbers secure and file their tax returns as a legal entity instead of as an individual.

Matters involving the IRS benefit from legal guidance to ensure compliance with business taxation and other laws. Since companies must comply with federal laws and local regulations, entrepreneurs are well-served by a Colorado firm knowledgeable about both issues.