When starting a business, one common question entrepreneurs face is whether to obtain an Employer Identification Number (EIN) or form a Limited Liability Company (LLC) first. The recommended approach is to form your LLC first, as having an official business name is necessary when applying for an EIN. Below, we’ll explain why this order is important and how it benefits your business setup.
Why Form Your LLC First?
An LLC is a legal business structure that offers liability protection and operational flexibility. When you apply for an EIN, the IRS requires you to provide your business name, which should match what is registered with your state. Forming your LLC first ensures that your EIN is correctly tied to your business entity.
Steps to Follow:
- Register Your LLC – File the necessary documents (Articles of Organization) with your state and receive approval.
- Obtain an EIN – Once your LLC is officially registered, apply for an EIN through the IRS for free.
- Set Up Business Operations – Use your EIN to open a business bank account, hire employees, and handle tax reporting.
Why Getting an EIN First Can Be Problematic
- Name Mismatch Issues – If you obtain an EIN before forming your LLC, you may end up with an EIN under a different name, requiring an update with the IRS.
- Unnecessary EINs – If your business structure changes, you may need to apply for a new EIN, leading to extra administrative work.
- Banking and Compliance Delays – Many banks require an LLC formation document before allowing you to open a business account with your EIN.
Exceptions to the Rule
There are cases where obtaining an EIN first makes sense, such as:
- Sole Proprietors – If you are operating under your personal name, you can get an EIN without forming an LLC.
- Nonprofits and Trusts – These entities may need an EIN before completing other legal filings.
Final Thoughts
For most entrepreneurs, forming an LLC first is the best approach. It ensures your EIN is correctly registered and prevents unnecessary complications. If you’re unsure about the process, consult with a business attorney or tax professional to make the right decision for your specific situation.