Forming your LLC is a big step to becoming an official business, but there are some requirements for registering your business that you may not be aware of. Being a business owner is already tough. When growing your products and services is top of mind, sometimes the legal requirements fall through the cracks.
If you’ve been researching how to form an LLC for your business, you’ve probably come across the words “Registered Agent” or “EIN/federal tax ID”. This article will break down what a registered agent and EIN are, why you need them, and some important tips to find the easiest way to get these things started for your business.
A quick summary:
- A registered agent is a person or entity (third party) who will receive legal and other documents on behalf of your business
- You are required to name a registered agent for your business. You could technically do it yourself, but there are disadvantages such as your private address being public for lawsuits
- A business federal tax ID or EIN works like a Social Security Number for your business
- An EIN is often required to open a bank account, which helps you properly pay and keep track of your business expenses
- An EIN helps your business build credit and maintains your LLC as a legal business entity.
What is a registered agent?
A registered agent is a person or entity (third party) who will receive legal and other documents on behalf of your business, such as subpoenas, regulatory and tax notices, and correspondence. Your registered agent's name and address are publicly available, so anyone can know who to deliver legal papers to.
Most states require you to have a registered or statutory agent to accept important legal documents on behalf of your business.
You could technically be your own registered agent, but it comes with disadvantages, including:
- Increased unsolicited junk mail
- Your personal information goes on public record
- If you get sued, you will get notified in front of your neighbors or customers
- If you miss notifications of an important filing deadline, you risk penalties such as fines or even your business being suspended
Many business owners will use a third-party registered agent service to ensure their personal privacy. A registered agent has just one job—to receive documents on behalf of the business and pass them on to the appropriate person at the business.
The agent's role sounds pretty easy in theory, but lawsuits, subpoenas, and notices tend to have strict deadlines and penalties for missing those deadlines. Failure to meet these deadlines may result in legal or even financial backlash. As a result, it's critical to have an agent who is responsible and can be trusted to pass along information quickly and with detail.
When to use a registered agent service rather than naming yourself
Some small business owners act as their own registered agent or name a family member or employee. It may help you save money but it’s not always recommended.
Using a service gives you many benefits for a small cost:
- Privacy. If you’re your own registered agent, you risk the embarrassment of having a legal action served in front of your customers, neighbors, or employees. Your address is also public record if you’re an agent, which can be a huge privacy concern for home-based businesses.
- Consistency. A key part of a registered agent’s role is to ensure the official information of a registered agent is 100% up-to-date. If you list an individual as the registered agent, you'll need to update your registered agent information if there are any changes to the person's identity or address, which can be really difficult to keep track of, and can cause issues down the line.
- Accuracy: Registered agent services are experienced, professional, and accurate. Your important documents and the required response will be handled more efficiently by a professional than an individual with little legal experience.
What is an EIN?
A business federal tax ID or EIN works like a Social Security Number for your business. Also known as a “Tax ID number,” the EIN allows you to file tax returns for your business. EINs are unique, nine-digit numbers issued by the Internal Revenue Service (IRS) and are primarily used for employment taxes.
It is often required to open a bank account, which helps you properly pay and account for your business expenses. An EIN helps your business build credit and maintains your business as a legal business entity.
Does my business need an EIN to file an LLC?
Technically you don’t need an EIN to file an LLC, but it is definitely critical to running your business. Most businesses require an EIN, unless you’re a sole proprietorship with no employees and no separate legal entity. An EIN allows you to operate on a financial level.
The SS4 is the IRS form required to obtain an EIN (Employer Identification Number, frequently called a Tax ID number). Single-member LLCs do not need EINs, unless the LLC is required to file excise tax returns or employment tax returns.
An EIN allows you to officially pay your employees and file your business tax returns properly. The number has less to do with employees and more to do with federal taxes, so if your business pays taxes, then you need an EIN.
Who needs an EIN?
- Single-member Limited Liability Companies (LLCs): While an EIN is not required for single-member LLCs, it’s a good idea to get one in order to separate your individual Social Security Number from your business finances.
- LLCs taxed as partnerships or corporations: If your LLC elects to be taxed as a partnership or a corporation, it will require an EIN number.
- Multi-member Limited Liability Companies (LLCs): If your LLC has more than one member, or owner, it will require its own EIN. Individual owners cannot elect to use their personal SSN for the LLC for tax purposes.
- Sole proprietors with employees: If your sole proprietorship employs one or more people, or if you plan to hire employees in the next 12 months, you will need an EIN.
- Corporations: Since a corporation is a separate legal entity, with shareholders instead of owners, it requires its own EIN number.
- Partnerships: A partnership, by definition, is owned by two or more individuals. Instead of a single owner using their EIN or SSN, the business is required to apply for its own.
How do I file for my EIN?
Typically, businesses can get their EIN by completing the IRS Form SS-4 to request an EIN.
However, using a third party service like Nearside or Legal Zoom will make sure you have everything you need for your LLC, and the cost of filing your EIN is typically included in these LLC packages. That way, you don’t have to worry about dealing with the IRS paperwork, and can just focus on things that matter most to you.