Federal EIN and State Registration Guide: Sequence Matters to Get Your Company Operational

US Federal EIN and State Registration Guide for Startups

Your company's certificate of incorporation has arrived. The legal entity exists, but it isn't operational. It cannot open a bank account, hire its first employee, or accept investment capital. This gap between legal formation and operational readiness is where many founders face their first bureaucratic hurdle: a confusing sequence of federal and state filings. This guide provides a clear path for any founder looking to understand how to get an EIN and register a startup in the US. We will cover the critical filings needed to get your company running, avoid common pitfalls with banks, and manage compliance as you expand. For broader context, see the Legal Structures & Reporting Rules hub.

Section 1: The Operational Checklist for Your First 48 Hours

Once incorporated, your immediate priority is establishing the company's financial identity. This involves a federal ID and initial state-level filings. Getting this sequence right is essential for opening a bank account and setting up payroll without delays.

Step 1: Secure Your Federal Employer Identification Number (EIN)

First, you must obtain a federal Employer Identification Number (EIN). An Employer Identification Number (EIN) is a unique nine-digit number issued by the IRS that functions as your business's Social Security Number. It is a non-negotiable requirement for opening a US bank account, hiring employees, and filing federal taxes.

The federal tax ID application process depends on whether the founder, or designated 'responsible party', has a US tax identification number.

• For Founders with a US SSN or ITIN: The fastest method is the online portal on the IRS website. The online EIN application requires the responsible party to have a U.S. Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). This process typically delivers your EIN immediately upon completion.
• For Founders without a US SSN or ITIN: The process is manual and requires more time. Applicants must file Form SS-4, "Application for Employer Identification Number," via fax or mail. You should plan for a turnaround time of several weeks or even months.

Upon approval, the IRS issues an official confirmation document designated as Form CP 575. You must safeguard this document, as it is the primary proof of your federal tax identity and will be requested by banks and other financial partners.

Step 2: Complete Your State Business Registration Steps

With your EIN secured, the next step is addressing state-level requirements. This is a common point of confusion, especially for companies using the popular model of incorporating in one state while operating in another. For instance, a startup may incorporate in Delaware for its favorable corporate law but have its entire team in California. This creates two distinct sets of state vs federal business requirements.

• In your State of Incorporation (e.g., Delaware): You must remain in good standing. This includes appointing a registered agent and fulfilling annual obligations. For example, Delaware corporations must pay an annual franchise tax to maintain their legal status.
• In your State of Operation (e.g., California): You must register to legally conduct business. This is called 'foreign qualification'. Completing this registration is a prerequisite for paying state payroll taxes and establishing a physical presence, such as opening an office.

Section 2: The Mismatch Problem and Why Your Bank Application Might Fail

After securing an EIN and completing initial state filings, many founders head to the bank, documents in hand, only to have their application for a business account rejected. This frustrating delay almost always stems from a single issue: mismatched information across official documents.

Under federal Know Your Customer (KYC) regulations, banks, payroll providers like Gusto, and payment processors like Stripe are required to perform strict identity verification. They cross-reference the details on your EIN confirmation (CP 575), your Articles of Incorporation, and your state registration. The slightest inconsistency can trigger an automatic rejection.

Common errors include:

• Name Variations: Listing "Stellar SaaS, Inc." on one form and "Stellar SaaS Inc" (without the comma) on another.
• Address Discrepancies: Using your registered agent's address on your incorporation documents but your main office address on the EIN application.
• Principal Officer Mismatch: The individual listed on the bank application is not the same as the responsible party named on the Form SS-4.

The solution is precision. Every character in your company's name and address must be identical across all federal and state paperwork. A scenario we repeatedly see is founders getting delayed at the bank. What founders find actually works is bringing physical copies of both the official EIN confirmation letter (CP 575) and the certified Articles of Incorporation to the bank appointment. This allows the banker to verify every detail directly from the source documents, preventing rejections due to minor data entry errors.

Section 3: Expanding Your Footprint and Triggering Nexus

As your startup grows, its operational footprint expands, and so do its compliance obligations. The key concept to understand is 'nexus', a connection between your business and a state that obligates you to register and pay taxes there. For early-stage companies, understanding nexus triggers is essential for any startup compliance checklist.

Physical Nexus: The Remote Employee Trigger

The most common way startups create nexus in a new state is by hiring. Hiring a W-2 employee in a new state establishes a physical nexus. This single action is not just a business milestone; it is a compliance event that triggers an immediate requirement to register your business in that employee's home state before you can legally run payroll.

Consider this example: A Delaware C-Corporation with its main office in San Francisco hires its first remote software engineer in Austin, Texas. Before the employee's first day, the company must complete the following state business registration steps:

1. Foreign Qualification: Register with the Texas Secretary of State as a foreign corporation authorized to do business in Texas.
2. Tax Registration: Register with the Texas Workforce Commission to pay state unemployment taxes.
3. Payroll System Update: Enter the new Texas state tax identification numbers into your payroll system to ensure proper state tax withholdings for that employee.

Failure to complete these steps can result in penalties, back taxes, and legal complications that distract from growing your business.

Economic Nexus: The Sales Volume Trigger

For SaaS, E-commerce, and other businesses selling across state lines, nexus can be created without any physical presence. This is known as economic nexus. Following the landmark *South Dakota v. Wayfair* Supreme Court decision, states can now require businesses to collect and remit sales tax based on sales volume. Economic nexus is typically triggered by reaching a threshold, such as $100,000 in revenue or 200 transactions, within a single state in a year.

For example, an E-commerce company based entirely in Florida might sell $120,000 worth of goods to customers in Illinois. Despite having no employees or offices in Illinois, crossing the state's $100,000 revenue threshold creates economic nexus. The company must then register with the Illinois Department of Revenue and begin collecting and remitting Illinois sales tax on future sales. Platforms like Shopify, when properly configured with tools like QuickBooks, can help track sales by state to monitor progress toward these thresholds.

Practical Takeaways for the Business Entity Registration Process

Navigating these registration requirements can feel complex, but it boils down to a few core principles. Establishing good habits around these initial steps will prevent significant headaches down the road.

1. Sequence Matters.

The correct operational sequence is critical. First, obtain your federal EIN from the IRS. Second, use that EIN to file for foreign qualification in the state where you actually operate. This two-step process unlocks your ability to open a bank account, set up payroll, and begin hiring without delay.

2. Precision is Paramount.

Inconsistencies are the primary reason for rejection by financial institutions. Before submitting any application, triple-check that your company's legal name and principal address are listed identically across your Articles of Incorporation, your EIN confirmation letter (CP 575), and your state registration documents. A single misplaced comma can cause a problem.

3. Growth is a Compliance Trigger.

Your first remote hire or a spike in out-of-state sales is a compliance event that likely triggers nexus. Proactively track where your employees are located and where your revenue originates. For SaaS or E-commerce startups, this means actively monitoring state-by-state sales data in your accounting system to anticipate when you might cross an economic nexus threshold.

4. Create a Central Document Repository.

From day one, establish a secure digital folder to store all your core legal and financial documents. This includes the certified Articles of Incorporation, the EIN confirmation letter (CP 575), all state registration certificates, and annual reports. This repository becomes the single source of truth for bank applications, investor due diligence, and setting up new vendors, saving you hours of searching for critical information. For related guidance, explore the Legal Structures & Reporting Rules hub.

Frequently Asked Questions

Q: What is a registered agent, and why do I need one for my startup?
A: A registered agent is a designated individual or entity responsible for receiving official legal documents and government notices on behalf of your company. You are required to have one in your state of incorporation and in any state where you are foreign qualified. This ensures your business can always be contacted for legal matters.

Q: Can I use my home address or a P.O. Box on my EIN application?
A: You can use a physical home address, but you cannot use a P.O. Box as the principal business address on your EIN application. The IRS requires a physical street address. Ensure the address you use is consistent across all your formation documents, state registrations, and bank applications to avoid mismatches.

Q: How long does the federal tax ID application take without an SSN or ITIN?
A: For founders without a US Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN), the federal tax ID application must be submitted by fax or mail using Form SS-4. This manual process is significantly slower than the online application, with turnaround times often ranging from several weeks to a few months.

Q: Do I need to register my e-commerce business in every state I sell to?
A: No, not initially. You only need to register to collect and remit sales tax in a state once you establish "economic nexus." This is typically triggered by exceeding a certain revenue threshold, such as $100,000, or a number of transactions in that state within a year. You must monitor sales per state to know when you meet these thresholds.