So, you’ve got a unique business start-up idea, and you want to develop it in the US? Or, you’re finally at a place where you’re ready to expand your business to the biggest economy in the World? But how do you go about doing it, exactly? What are the legal requirements? What sort of documentation would you need?
Here’s a step-by-step to take you through this process.
1. CHOOSE A LOCATION IN THE US
The United States is a national economy. This means that all the states have, more or less, autonomous trade laws, including individual tax landscapes and business restrictions. Registration, insurance, physical property rates, and license fee vary within the US, and these factors, in turn, have a direct impact on your business costs. Therefore, the first vital step is to choose a location wisely.
Some states, such as Wyoming and Nevada, are considered to be tax-friendly, and thus, easier to establish a business. However, keep in mind that your best option is to locate your business in your home state to avail yourself of extra costs if you’re a US citizen.
All of this is relevant only if you’re going to have a physical office in the US or have in-person meetings in the US. If, however, you’re going to conduct business online, then this is not as relevant.
2. CHOOSE HOW TO INCORPORATE
US law recognizes several business entities:
A. SOLE PROPRIETORSHIP: This is a good choice for a small-risk, home-grown business under the control of one person. Sole Proprietorships pay tax through their owners, and no separate documentation is required. This also implies that you are entirely liable for the debts and other losses of your business as an owner. Note that if you don’t register as any other entity before conducting business in the US, you are automatically given the status of a Sole Proprietor.
B. LIMITED LIABILITY COMPANY (LLC): An LLC is one of the most popular options for a start-up. A significant advantage of the LLC is that while it protects you from being personally liable for losses incurred, it also offers a much cheaper taxation structure.
The LLC uses a ‘pass through’ tax structure, which means that you can pay tax through your individual income tax form without facing a separate (and much higher) corporate tax. Overall, LLCs are the best option for medium-risk, small-scale enterprises controlled by more than one person.
C. CORPORATIONS – C CORP: Corporations offer the most substantial protection to their owners, as they are separate legal entities, independent of the persons running the show. One of their most considerable benefits is that key employees, shareholders, and directors can come and go without affecting the business.
C Corps require high maintenance in terms of compliance and complex bookkeeping to be done by professionals. Opt for this structure if you aim for a high-risk business to scale up and eventually make it public or sell. You will need this model to attract investors and key employees, to whom you can offer shares instead of salary and getting onboard, respectively.
C Corps, while providing substantial legal benefits, suffer through double taxation. This means that the corporation is taxed as it generates profits (Corporate Tax), and again when the dividends are distributed to the shareholders (Capital Gains Tax).
In short, choose a C Corp only if you plan to go big.
D. CORPORATIONS – S CORP: First off, S Corps are not available to non-US residents. With that out of the way, go for an S Corp if you are a US resident, and your business meets the specific criteria for S Corp.
S Corps are unique corporations available in some states of the US. These entities are structured to avoid double taxation as a C Corp., But there are some limitations; for example, an S Corp cannot have more than 100 shareholders, and all of them must be US citizens. S Corps also require unique filing with the IRS (Form 2553) to get S Corp status.
Note that if you choose to do business in more than one state, you will have to register your business separately in each state through a process known as Foreign Qualification.
E. CORPORATIONS – B CORP: These are pretty much the same as a C Corp in terms of taxation, documentation, personal liability, and bookkeeping. But where they differ is that Benefit Corporations must provide a public benefit in addition to financial gain to be considered a B Corp.
3. BUILD YOUR WEBSITE
An essential part of creating your business is choosing a unique domain name and then building your website to provide information about your services and products and stand out in the market. A well-developed website is a personality in your industry, even if your business is in-person or on-site. This involves choosing a unique name for your business, registering your domain name, and designing and developing your brand.
PX Media LLC is one of the leading web design and marketing firms based in Los Angeles/Pasadena. We are leaders in web design services, including web and graphic design, web development, search engine optimization (SEO), content writing services, marketing, and advertising.
4. REGISTER YOUR BUSINESS
Most business structures, be it LLC, C Corp, S Corp, or B Corp, must register with the State Department of each state where they operate. For this purpose, you need to get in touch with a Registered Agent. That’s the person who receives legal documents on behalf of your business and will keep you updated on the necessary annual compliance.
We recommend that you get an expert to help you with the documentation and information required for filing. Typically, LLCs need to submit Articles of Association and LLC Operating Agreement to the authorities. Corporations of any kind need to submit Articles of Incorporation. Bye-laws and Resolutions.
The entire process could cost between $300 to $3500.
5. GET YOUR TAX ID NUMBER
Now, it’s time to apply for an Employer Identification Number (EIN), also knows as the State Tax ID and Federal Tax ID. This number is issued by the IRS. With the EIN, you will be able to hire employees, file corporate tax returns, open a corporate bank account, and apply for the various licenses (where relevant) needed for operating as a business in the US.
The IRS provides an online form on its website for US citizens seeking an EID number. However, if you are a non-resident, you will have to fill a separate form SS4 issued by the IRS. If you don’t have a Social Security Number, you’ll have to go to their office for further documentation. Usually, this process is done at the same time you are filing for your corporation
Businesses usually require licensing to operate in the US, depending on the nature of their business. The US government has issued separate lists that categorize businesses by type and whether they are controlled by the Federal government, or State government, or in some cases, both.
Here’s a brief to get you started: https://www.sba.gov/business-guide/launch-your-business/apply-licenses-permits.
Renewing your licenses should be a priority because it’s easy to forget. Having an agent comes in handy for this reason. With a dedicated agent, you never miss filing dates or renewing licenses, both of which can incur penalties or could even lead to being shut down.
7. GET AN ADDRESS
Businesses in the US need a physical address so the authorities can contact you, and it is a mandatory requirement for opening a bank account. If you don’t already have a physical address in the US, a mailing address will solve this for you. There are plenty of reliable mailing services like Sasquatch, USAMail1, etc., that come in handy as dependable business mailboxes.
8. OPEN A BANK ACCOUNT
One of the most crucial steps after setting up your business structure is to open a business bank account. Do this just before you’re ready to begin transactions, like purchasing equipment, hiring subcontractors, or investing in your business.
For this, US citizens will need your EIN, business incorporation documents, agreements, and licenses. However, if you are a non-resident, you can always hire a banking service that specifically caters to foreigners opening business bank accounts in the US.
Alternatively, you can open an overseas business bank account through a US bank with a branch in your country, like Citibank. Another great option is a virtual account: these days, many virtual bank payment systems such as PayPal, Payoneer or Stripe, have also become a standard solution for businesses that solely operate as virtual.
9. SOME IMPORTANT POINTS
Some businesses may be mandated to purchase insurance before they are allowed to operate in the US. It is worth checking beforehand if your business falls into such a category.
Suppose you are a non-US resident or you don’t have an SSN (Social Security Number). In that case, You’ll need an ITIN (Individual Tax Identification Number) for setting up your business in the US. You can get this through a reliable, IRS accepted agent.
It’s also relevant to check out if the US has a tax treaty with your native country so that you can evade double taxation on your business profits. For example, the US has a double taxation treaty with India, under which Indians running businesses in the US are liable to pay tax in only one jurisdiction.
However, keep in mind that while you may not be subject to tax in the US, you are still required to disclose your income to the US authorities, and therefore, you must report your income to the IRS through its various forms, e.g., Form 5472 for LLCs.
Now, you know the basic steps to opening a business in the United States. Good luck and get cracking.