Starting and later running a successful business is no easy feat. You have to wear multiple hats, work a lot, and pan beyond what happens in the next 30 days. Doing this in a foreign country? Even harder.
Fortunately, in today’s world, you have a throve of knowledge right within your reach—the Internet. Starting a business becomes a bit easier when you can learn and plan, even more, when you have the right motivation.
And who wouldn’t want to start a business in the US? Affordable, government-backed banking. Access to one of the world’s biggest and richest markets. Not to mention the ease of operating, low fees, and the fastest payment processing on the planet.
Of course, you’ll have to know some things before you think about starting a business in the U.S. Here’s what that entails.
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Should I Start an LLC or Corporation?
There’s more than one way to start a business in America. You can open:
- Limited Liability Company
- Sole proprietorship
It’s often the case that foreigners start an LLC or C-corporation. Why? Both of these kinds of organizations have no restrictions regarding the number of foreign owners. Sole proprietorship and partnership are often avoided since they don’t protect the owners from liability as LLCs and C-corps do.
If you’re thinking about going solo or starting a small operation, LLC will likely suit you most. In fact, LLCs are the most popular choice among foreigners starting a business in the U.S. In an LLC, those without management control got only limited liability, while profits are shared between members who pay income taxes on their personal tax return.
However, if you’re thinking about seeking investments, C-corporation may be your best bet. You can expand it if you offer unlimited stock. Moreover, it often better attracts outside investition. But corporation’s profits get double taxation:
- At the corporate level
- As dividends to shareholders.
Additionally, corporate shareholders have other advantages as well. They often receive a lower dividend rate. If the U.S. company doesn’t dominantly hold real estate, the corporate parent doesn’t pay capital gains to sell the U.S. affiliate. Ultimately, the C-corporation structure can protect you from direct IRS scrutiny. It’s key that you don’t hesitate to put your name on the U.S. tax roll.
Yes, C-corp owners pay more for this defense in the form of double taxation. But most often, you can use salaries, pension expenses, and other costs to lower corporate income and avoid much of the double taxes.
Where Should I Register my Business?
While there’s a lot more to selecting where to register your business, the two most obvious choices are Delaware and Wyoming. While this a massive oversimplification, both of these states:
- Don’t require much to operate from.
- Come with zero income tax (if you don’t do business where registered).
- Don’t come with sales taxes (if you don’t do business in the same state).
Delaware is the perfect solution if you want to involve investors and go with C-corp. Most foreign and local investors are already experienced with this state, meaning they will have an easier time investing. Even helping and guiding you.
Most of this is the result of Delaware’s legal system. Its laws are beyond business-friendly. Moreover, its courts are known for reaching decisions fast. In this case, you want fast legal processing.
Additionally, since its courts handle countless business cases here, there’s already a large body of precedents. This means fewer unknowns on your side. Ultimately, while there’s no income tax in this state, you will have to pay a “franchise tax” of around $300 yearly.
On the other hand, Wyoming will be perfect if you’re looking to form a small partnership or an LLC. This state has the same advantages as Delaware, but also some unique ones. You’ll:
- Spend less to set up and renew
- Have much fewer documents to handle
- Experience more privacy
Even more, Wyoming is simpler and more affordable for operating and registering.
Acquire an Employer Identification Number
You need an Employer Identification Number (EIN) to not only hire employees but to open a bank account, regulate taxation, and usually for getting a business license. Your best bet is to apply for the EIN directly to the IRS. For first, this is free. Second, you’ll avoid lots of online services that charge for this.
However, if your U.S. business’s principal officer — the one the IRS names as the “responsible party” — obtains a separate Taxpayer Identification Number from the agency, you won’t be able to apply for an EIN online. You’ll need to do it either via FAX or mail. When the form asks you for the Taxpayer Identification Number, you can enter none/foreign.
Open a Bank Account
Once you get your hands on an EIN, you can think about comparing different options for business bank accounts. This will depend on your needs. Do you need access to rewards? Are you running a brick-and-mortar or online business? How conveniently do you want to deposit cash?
For instance, Mercury is mostly geared toward eCommerce, SaaS, or other service-based businesses. This is because it will provide you with different savings and checking accounts in dollars. A perfect solution if you plan on using fintech like Paypal or Stripe. Moreover, you’ll receive virtual and physical debit cards at your request.
On the other hand, TransferWise is perfect if your online business requires local bank accounts in the EU, Australia, Asian market, and the United Kingdom. Or anywhere else, for that matter. This is great if you need to plan payouts from different local bank accounts.
When it comes to starting a brick-and-mortar business, your best bet is the U.S. Bank Silver Business Checking package since it has no monthly fees and allows around 120 monthly transactions for free. Ultimately, if you want convenient cash depositing, go with Wells Fargo.
Registering Your Business
What you need in terms of forms and other paperwork for registering a business depends from state to state. For example’s sake, let’s see how this process looks like in Delaware. It will serve as a simplified template for lots of states:
- You select a unique company name.
- You choose a registered agent who can acquire legal paperwork for the business.
- While a business with a physical address can appear as its own agent, this won’t be possible in other states like CA.
Then your business will need to fill out a single-page certificate of incorporation that will identify:
- The corporation’s name.
- The address and name of your registered agent.
- The complete amount and par value of the share you are authorized to issue.
- The mail address and name of the incorporator.
Your fees will begin at around $90 monthly and rise based on the number of stocks you issue or capital you raise. Once you incorporate your company, you’ll need to file a report ($50) and pay the franchise tax we already discussed. You can also use online services to help with registration or ask the state authorities to help you with all the necessary paperwork.
Acquire a Physical Business Address
While this may look like putting a cart in front of a horse, you should keep your business as organized as possible. This includes having a physical business address in the U.S. if you don’t have one already.
It’s not recommended to use your registered agent’s physical address for a plethora of reasons. The one that comes up often is that usually tens of thousands of companies are all registered at the same physical address. Even more, with the same PO box. This usually raises lots of red flags with the banks. Not a thing you want to do.
Of course, there’s no legal requirement that states you need to have the physical address in the same state where you registered your business. However, if you like to raise the least possible amount of red flags with banks, you should register and have a physical address from the same state.
A physical address will also come in handy when you need to collect mail, IRS documents, or any credit cards sent your way.