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When clients make the big decision to form a new Delaware company, one important step in the process is obtaining the EIN (Employer Identification Number or Federal Tax ID Number) from the IRS (the U.S. Internal Revenue Service). The Federal Tax ID Number is necessary for an LLC or Corporation to lawfully conduct business activities, especially if operating in the United States. All U.S. companies are required to have an EIN to open a U.S. bank account, obtain loans, hire employees and more. On a daily basis, we assist clients from all around the world in forming Delaware companies and obtaining the EIN.
In order to obtain an EIN for your Delaware company, an SS4 Form must be submitted to the IRS. The form asks that one individual be listed as the responsible party and the signature of that responsible party is required. A responsible party is a member or officer of the company who has control over the company and its assets.
For international clients without a US Social Security Number, it can take time for the IRS to issue the EIN for the company. We recently received a call from a client in India who had an urgent business dealing and needed to form an entity and obtain its EIN right away for a bank account opening. Many clients have the idea that they will receive the EIN faster if they appoint an individual who has a US Social Security number. It is important to note that this person must be a responsible party for the company.
-Can we appoint or nominate another individual who is already located inside of the U.S. as the responsible party so we can obtain the EIN faster?
If this person is not a member or officer of the company, then clients are not able to nominate this person as the responsible party. While sometimes, clients do have business partners who are based inside of the US or another country, the responsible party is generally the individual who manages, directs and/or controls the entity behind the EIN. As well, the IRS requires a company’s actual physical address, even if based outside of Delaware or the US.
Per the IRS website,
“The IRS does not authorize the use of nominees to obtain EINs. All EIN applications (mail, fax, electronic) must disclose the name and Taxpayer Identification Number of the true principal officer, general partner, grantor, owner or trustor. This individual or entity, who the IRS will call the "responsible party," controls, manages, or directs the applicant entity and the disposition of its funds and assets.”
“A "nominee" is someone who is given limited authority to act on behalf of an entity, usually for a limited period of time, and usually during the formation of the entity. The "principal officer, general partner," etc., as defined by the IRS, is the true "responsible party" for the entity, instead of a nominee.
The "responsible party" is the individual or entity who controls, manages, or directs the entity and the disposition of the entity's funds and assets, unlike a nominee, who is given little or no authority over the entity's assets.”
-I will make the person living inside of the US a member/officer of the company and then remove them. Would this be sufficient?
In theory, members of an LLC and Officers of a Corporation can be established and removed internally. However, if the responsible party is changed, clients must update the information that was submitted to the IRS on the SS4 Form using Form 8822-B.
-I have more than one business partner, can we list both names as the responsible party?
The IRS only requires a single Responsible Party to be listed and to sign the SS4 Form. If your company has more than one person running the entity, clients can choose one person for the IRS to consider as the Responsible Party.
-Can we list Harvard Business Services, Inc. as the Responsible Party?
When HBS assists clients with obtaining the EIN for their company, HBS can be listed on the SS4 Form as the Third-Party Designee, which means that the client is authorizing HBS to receive the entity’s EIN number. HBS would not be listed as the responsible party.
If you have any questions or need assistance forming your Delaware company and with obtaining an EIN, I am happy to assist. Feel free to contact me via email at firstname.lastname@example.org or I can be reached directly at 1-800-345-2677 or 1-302-645-7400 ext. 6144.
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such sourceâ€™s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.