5 Steps to Setting Up a US Company for Non-US Resident
As a foreign business looking to establish an international footprint, there are numerous advantages if you start a business in the United States. Taxes tend to be lower than in many parts of the world, access to selling into the U.S. market is easier when a business is established within the country, and the legal protection available is both superior and dependable. On top of that, businesses from the United States tend to enjoy a strong reputation, driving more sales, recognition, and prosperity worldwide.
How to Start a Business in the United States
Though the idea of setting up a business internationally may seem daunting at first, foreign nationals do not only possess the capability to start a business in the United States, but with some guidance, it is an easily achievable prospect. Following these five steps will allow you to enter the U.S. market by opening a U.S. based company.
Step 1: Select your Company Structure.
As a foreign national, you have the ability to establish either a Limited Liability Company (LLC) or a Corporation (C). There are advantages and disadvantages to each of these structures and, though they can be complex, there are a few key pros and cons.
Tax Implications
Corporation
Corporations file a federal tax return each year, usually along with a state tax return. Corporations pay taxes on profits, and owners pay taxes on dividends, creating what’s known as “dual taxation.”
Limited Liability Company (LLC)
Single-member LLCs are considered a Sole Proprietorship and multiple-member LLCs are considered Partnerships, by default. However, LLCs may also elect to be taxed as Corporations. LLCs are ultimately flexible and can be a bit more complicated to manage for that reason.
Liability Protection
Corporation and LLC
Both Corporations and LLCs enjoy limited liability. Shareholders of a Corporation are only liable for the capital they invest in the Corporation. Similarly, members of an LLC are only liable for the investment made in the LLC. These structures exist to protect the personal assets of business owners.
Sole Proprietorship and Partnership
A sole proprietorship is not separate and distinct from its owner, meaning its owner bears personal liability for any debt or damages of the company. Partners in partnerships are each fully and personally liable for all partnership related debts and obligations, meaning each partner is fully liable for the actions of all other partners.
Real Estate
Corporation
Moving real estate in and out of a corporation creates a taxable event, causing the corporation to be an inefficient entity for owning real estate.
LLC
Moving real estate in and out of LLCs does not create taxable events, making the LLC a very attractive option for real estate holding.
Ownership
Corporation
Corporations are owned by shareholders, who hold shares of stock. When the company is formed, the corporation determines how many shares of stock to authorize, which represents the maximum number of shares that can be sold. The company can sell as few or as many shares as desired, up to the maximum authorized. There can be more than one “class” of shares, so that the owners can better divide up how profits will be allocated.
LLC
LLCs are owned by members who hold membership interests, typically referred to by percentage of ownership. There can be different membership classes with different rights and privileges, which is outlined in the Operating Agreement for the company.
Cautions
Corporation
Avoid corporations for holding real estate, and if you dislike complying with the legal paperwork required for this structure.
LLC
LLCs should be avoided if you are seeking investment or intend to go public. LLCs can result in complex international tax preparation challenges, so be mindful of this when setting up an active trade in the United States
Step 2: Select a state and register your business.
Companies within the United States are registered with a state, not the federal government. There are different rules for each state, and it’s typically wise to register within the state where you intend to do business. Popular choices are Delaware, Nevada, Florida and Wyoming due to lower fees, limited state-level taxation, and state-specific corporate laws.
Step 3: Federal Employer Identification Number and BE-13 Survey
While not a requirement during the business registration phase, an Employer Identification Number (EIN) from the Internal Revenue Service is necessary to open a bank account, secure a business license, obtain loans, hire employees, and pay taxes.
In addition, the BE-13 Survey must be filed with the US Bureau of Economic Statistics within 45 days of organizing your company.
Step 4: The Organizational Meeting
If you have elected to organize as a Corporation, be sure to hold an organizational meeting. During this meeting, you will appoint officers and directors of the Corporation, as well as issue shares. Be sure to document the meeting with meeting minutes so everything decided is in writing.
Step 5: Open a US Bank Account
Opening an account with the United States can present challenges, so be sure to reach out to your business advisor or accountant for assistance. The Patriot Act, in response to 9/11 attacks, has required banks to verify the identity of account holders. As a result, opening a U.S. bank account as a foreigner has become more difficult.
Through planning, forethought, and research, your business can enjoy all the benefits of being a part of the U.S. market. There will undoubtedly be challenges along the way, but each is manageable and essential in giving yourself the most opportunity. By following these steps, alongside working with an experienced accountant or advisor, starting a business in the United States is a path worth taking.