The United States has the largest and most innovative economy in the world with a very simple business environment: it holds the sixth place according to the Doing Business 2020 from the World Bank. That’s why entrepreneurs from all over the world want to open their businesses in the USA. Today we’ll tell you how to do it.
Select your business structure
The first decision to make at a new company registration is to select which business structure (business entity) to adopt. The business structure affects a registration cost, a company management structure, the way of filing a tax return, its daily business operations, a level of owners’ responsibility in case of failure and much more. Here is a brief overview of all business structures available:
The easiest option in terms of legal formalities: a pass-through taxation, no need to register with the Internal Revenue Service (IRS), single-entry bookkeeping. It is perfect for various freelancers, consultants, small service companies, grocery stores and other small businesses with a single owner.
A sole proprietorship version for several owners. That business structure is usually chosen by small businesses, companies without employees, real estate agencies (since rental income is not FICA taxed regardless of the type of organization) and some businesses that provide professional services.
It offers owners (shareholders) the most reliable protection against personal liability in exchange for a higher price and complexity of registration and business operations. The corporation also has more complex accounting procedures for operational processes and reporting. There are three types of corporations: C-corp is the main type, S-corp is an option with a simpler taxation and a limit on the number of shareholders (up to 100), B-corp is for charity companies.
How to choose
You can choose one of the two options. The first one requires your use of services of a certified attorney, an accountant, or an agency to get advice on the type of business structure that best suits your needs. This will be highly recommended to you by everyone, even government officials, who will take up your documents for registration.
The second option requires you to make your own choices based on the following factors:
- Your citizenship. Foreigners in the U.S. are advised to use LLC (simpler registration and taxation) or C-corp (venture capital can be raised). A foreigner may also participate in a Partnership.
- Pass-through taxation. This means that your business income goes to your income taxes, so accountants do not need to submit a separate tax form for the company, which basically saves costs. This may be the case with sole proprietorship, S-corp, and LLC (if you choose this taxation option when registering your business.)
- Location, size, and type of business. Each individual case is different. We recommend that you read the SBA Guide or look for recommendations on the website of your desired state, such as the California Secretary of State website or the official State of Delaware website.
Select the State to Register Your Business In
If you’re a US resident
A business is better to be registered in the state where your business or the majority of it will be located. It will simplify the paperwork, accounting, and taxation. But that’s not a requirement. No one can prevent you from opening a head office in one state and a representative office in another. However, in this case, the second state will require a foreign qualification.
If you’re a non-US person
If you do not plan to be physically present in the US, you can register a new company in any state. Depending on the purpose, foreigners usually choose:
- Wyoming. If you need to establish a company in the USA to open a US bank account and/or a trading account (to accept card payments) and you will not open a branch in the USA or have your company’s physical presence there. Wyoming has the lowest annual government charges (Corp / LLC: 50 US dollars).
- Delaware. If you want to create a US company to attract a US investment/venture capital, start an online business, or open a representative office in the United States of an existing business. Delaware has the most stable legislation and some of the lowest fees and taxes.
Company Registration Procedure in the USA
Step 1: take legal advice
This is important because each state has local laws, regulations, rules and other nuances that must be considered when registering a new company. Even better if you can hire a lawyer to do everything for you, it’s easier, faster, and often cheaper.
Step 2: choose a registered agent
If your business is a partnership, corporation, nonprofit corporation or limited company, you need a physical address (a registered agent) in the business registration state to receive your official correspondence. You may perform this role yourself by entering your home or office address in the US, or you may assign it to an individual resident who is entitled to it. For example, here’s a list of certified registered agents in Delaware.
IMPORTANT. A registered agent is not a mail forwarding service. This is the person (you, your company, a friend, or other company) who/that is responsible for receiving (and forwarding to you) government and legal documents, for example, if a claim is brought against your company.
Step 3: register your company name
The first thing to do is to secure the name. This is optional, but it guarantees that the name will be reserved for you for 120 days. You can check the availability of the name at the U.S. Patent and Trademark Office, and reserve and register it at the appropriate state websites. For example, the reservation for the state of Delaware is made on the Division of Corporations webpage, and the name registration – on the Delaware Courts website. Learn more about registering a company name in the SBA guide.
Step 4: apply for opening the entity
You can register your new business online or by mail without having to be present in person. The website and registration form vary by business structure and state (here is the online form for Delaware). Usually you will need to include the company name, its structure, a registered agent, founders information, number and value of shares (if you are a corporation), and a legal address in the state of registration.
If there is no such address, use the postal services for that, for example:
- PhysicalAddress.com (from $8/month).
- iPostal1.com (from $10/month).
- USAMail1.com (from $10/month).
- TravelingMailBox.com (from $15/month).
- Sasquatchmail.com (from $29/month).
- EarthClassMail.com (from $69/month).
- Or the services from their competitors.
You can get a phone number in the state of registration in the same way, for example, by using Skype, Google Voice, Ring Central, or Grasshopper services.
Step 5: conclude an operating agreement
If there are two or more participants in the company, it is recommended to assure the rights and obligations of the parties. This can be done before or after registration through the Operating Agreement – a legal document that specifies rights, obligations, deposit sizes, business management procedures, profits distribution, etc. Here are some standard forms.
Step 6: register with the Internal Revenue Service (IRS)
To obtain a Federal Employer Identification Number (FEIN), also known as an EIN or a Taxpayer Identification Number, apply on the IRS website. To get an EIN, you need a Social Security Number (SSN). If you do not have an EIN because you are a foreign business owner use Form W-7 to obtain an IRS Taxpayer Identification Number (ITIN).
Step 7: open an account with a US bank
The rules vary slightly from one bank to another (due to differences in their KYC and AML procedures). Attendance in person, passport, EIN/ITIN and business registration documents are usually required. The account opening process takes 28 days and you may meet a refusal for any reason, even most ridiculous ones. That risk can be reduced by hiring an agent.
Step 8: open a trading account
It allows you to accept credit and debit card transactions from your customers. You can open a bank account in the same bank where you have opened the company’s bank account, or you can use the services of the following payment systems: Stripe, Payoneer, Braintreepayments, Authorize, or Paypal. The terms and conditions vary from one provider to another, usually an SSN or an EIN is required.
Step 9: publish the news about the opening of your company
Some states require publishing an announcement of a new business opening in two local newspapers. A new LLC opening announcement should be published in Arizona, Nebraska and New York, a new corporation opening should be announced in print in Arizona, Nebraska, Pennsylvania, Georgia.
Step 10: obtain necessary licenses and permits
Depending on the activity, your business may require additional permits and licenses. For example, they are required for selling liquors and alcoholic beverages, putting up a sign above the entrance, or for food production. The full list can be found at the CalGold website.
Registering a business in the US is a long and tedious process if you do it yourselves. But it can be considerably simplified by using the services of intermediary companies. They will help collect the necessary documents and fill out all the applications and forms on your behalf, which will not only reduce your time and effort, but also lessen the risk of rejection. We wish you great success in your business!