Which Comes First? State Registration or Federal ID Number?

Did you ever wonder which came first, the chicken or the egg? Similarly, you may have wondered if you should be filing your company with the State or with the Federal Government first? Or perhaps they’re just one and the same?

They are not.

There is an order which you should follow, but consultants offering quick and helpful tips will tell you to register for a tax identification number first. After all, if you’re a small business owner just getting started, you need your tax id to open a bank account and give to vendors to receive payments. Obtaining a tax ID may be your primary concern and all that other paperwork can be handled by them.

Note: Most banks require your State registration documents to open a bank account.

You pay them to set up the tax ID for you, and you don’t hear back unless there’s a problem–but usually there isn’t and you obtain your tax ID immediately.

Note: You can apply for a business tax ID for free on the official government website.

Then a month later, you may discover that you cannot use the name of your business. Someone else has already claimed it but you didn’t know because you didn’t check the name on your local State’s Secretary of State website.  It’s a quick and free search that prevents you from pursuing registration for a name that is not available to you.  In other words, it prevents you from wasting time and money.

So now what? You have to change the name on your tax ID because it doesn’t match. You may have to change website domain names, email names, logo designs, business cards, and other promotional material in which you’ve already invested.

Not ideal.

To avoid a situation where you have to back track, start the process the right way.  The correct order for starting a business in California is as follows:

1. Determine your business needs by the type of business you’ll be doing.
2. Talk to a professional (such as an attorney) about the best way to organize your business (e.g. partnership, LLC, corporation).
3. Decide on the organization and tax methods.
4. Decide who will be the primary responsible person.
5. Decide on a company name, trade name or “doing-business-as” (DBA) name.
6. If applicable, search the State’s Secretary of State business website for the business name of your choice.
7. If the name is available, prepare documents for registration.
8. Pay applicable fees.
9. Wait for the documents to arrive.
10. Apply for the Employer Identification Number (EIN), aka “tax ID”.
11. If applicable, order a copy of your corporate book.
12. If applicable, order your marketing materials.

Starting a business can be challenging. While it’s tempting to allow companies that offer package deals to do-it-all for you, it’s important to realize you need to know what they are doing for you. Is it to your advantage? Will your business outgrow the model? Is the organization or tax method appropriate for your type of business? Consult a business attorney for professional advice.