Delaware is a popular destination for entrepreneurs looking to establish a startup and for good reason. The state offers several advantages, including a favourable legal and regulatory environment, a business-friendly tax system, and a highly skilled workforce. Additionally, Delaware has a strong startup ecosystem, with numerous incubators, accelerators, and venture capital firms that support the growth of new businesses. One requirement for fully operating in this state is Employer Identification Number (EIN). In this article, we answer the question “Why is EIN important for a Delaware startup?”
What is an EIN?
An EIN is a nine-digit number that identifies a business for tax purposes, and it is used to file tax returns, open business bank accounts, and apply for loans. An EIN, or Employer Identification Number, is a unique nine-digit identification number assigned by the Internal Revenue Service (IRS) to businesses for tax purposes. Every business, including sole proprietors, partnerships, LLCs, corporations, and non-profit organizations, needs an EIN to file tax returns, open a business bank account, and apply for loans. An EIN is used to identify a business entity and is different from a Social Security number, which is used to identify individuals.
Why is EIN important for a Delaware Startup?
Some of the reasons why the EIN is important for a Delaware startup are as follows:
- It is required to operate a legal business entity. The most common business structures in Delaware are limited liability companies (LLCs) and corporations, both of which require an EIN.
- It is often required by regulatory bodies where an application is made by a business for a licence or permit.
- An EIN is also necessary to open a business bank account, which is critical for managing cash flow and conducting transactions. Without a separate business account, it can be challenging to keep personal and business finances separate, which can create confusion and potential legal issues. In addition to opening a bank account, an EIN is necessary to apply for a business credit card or loan, which can provide the capital needed to grow the business.
- Another reason why an EIN is important for a Delaware startup is that it is necessary to file tax returns. All businesses are required to file tax returns, and having an EIN makes it easier to do so. With an EIN, a business can file its taxes electronically, which can save time and reduce errors. Additionally, having an EIN can help a business avoid penalties for failing to file or pay taxes on time.
- In Delaware, businesses are subject to state and federal taxes, including income tax, sales tax, and payroll tax. The state of Delaware does not have a sales tax, but businesses are required to collect and remit sales tax for sales made in other states. Additionally, businesses with employees are required to withhold payroll taxes and pay them to the IRS on a regular basis. Having an EIN is necessary to comply with these tax obligations and avoid penalties for non-compliance.
- An EIN is also important for a Delaware startup because it can help establish business credit. Business credit is separate from personal credit and is used by lenders and creditors to evaluate a business’s creditworthiness. By using an EIN to establish credit, a business can build a strong credit history, which can be essential when applying for loans or credit lines. Having good business credit can also help a business negotiate better terms and rates for loans and other financial products.
How do you get an EIN?
To get an EIN, you can apply online, by phone, by fax, or by mail. The fastest and easiest way to apply is online through the IRS website. Here are the steps to follow:
- Go to the IRS website and click on “Apply for an Employer Identification Number (EIN)”.
- Choose the appropriate entity type for your business. This includes sole proprietorship, partnership, corporation, LLC, estate, trust, or non-profit.
- Fill out the application form online, providing all necessary information about your business, such as the legal name, address, and business structure.
- Review your information and submit the application.
- Once your application is complete, you will receive your EIN shortly, and you can use it to file taxes, open a business bank account, and apply for loans.
An EIN for a foreign startup can also be obtained via a similar process, although foreign businesses must also complete additional steps to verify their identity. Foreign startups may be required to provide additional documentation to verify their identity, such as a passport or other government-issued identification.
In conclusion, obtaining an EIN is essential for a Delaware startup for several reasons as set out above. Startups should take the time to obtain an EIN and ensure that their business is properly registered and in compliance with all applicable laws and regulations. It is thus essential to seek the necessary advice and assistance. At Norebase, we are happy to help you launch your Delaware startups and file for an EIN. Click here to get started.