We have discovered an account that was set up incorrectly when it was opened and we are not sure of the best way to correct it.

Here is the scenerio:

Jane and Jill operate a small salon together. They do not pay wages to any employees as each stylist is self employed (including themselves). The stylists' customers do not pay the sylist directly rather they make checks payable to the business name, for example "great cuts salon". The checks are deposited in the account. My guess is that each stylist is then written a check for their share minus chair rent. Interest income on the account is reported to the IRS on Jill's tax return and Jane reimburses Jill for half of the tax amount.

The account was originally set up as an interest bearing joint account with Jill and Jane as owners using Jill's SSN. There is no mention of the business name on the signature card.

I know that I will need to take away the interest on the account since it is a business account. We want to add the business name to the account so we will not be depositing business checks into a joint account. The question has arisen as how to style the account. This is not a sole proprietor and this is not a formally drawn up partnership with an EIN. If we set this up on the system as a partnership (informal), can we still use the SSN or would we have to require them to get an EIN?

Any advice would be appreciated.

With or without a written agreement, two or more people involved in a business for profit = a partnership. (Many states have a uniform partnership statute which creates a "one size fits all" agreement for these situations.) To maintain an account that way, you would need an EIN, a partnership resolution and any other documentation that your bank would require.

If Jack and Jill just have the checks made out to themselves from now on, this all goes away... As you have explained it, the relationship is actually that of two sole proprietors sharing expenses, not a partnership. However, they are confusing the issue by having checks made payable to a nonexistent business.