Steps to Incorporating a US Entity for Foreign Founders
The United States welcomes foreign businesses and makes registering your company and doing business easy. Registering a US entity offers many benefits, such as:
- Creating an easy market to do business in from a customs and tax point of view;
- Accessing the capital markets in the US for venture capital, angel investors, and public markets;
- Boosting the reputation of your company, both to US customers and international markets; and
- increasing the possibility of obtaining a work visa in the US.
Incorporating a US entity as a foreigner is straightforward. Below is a summary of the process.
types of corporate entities available to foreigners
There are two basic types of business entities that foreigners may register. They are Corporation (C-Corp) and Limited Liability Company (LLC). C-Corps are more attractive to foreigners because they can expand by offering unlimited stock. Nevertheless, there are some advantages to incorporating as an LLC.
The most obvious of these is limited liability for business decisions or actions. Thus, personal assets are safe if the company incurs debt. LLCs are also free from the strict regulatory requirements necessary for C-Corps and have almost no restrictions on profit sharing between members.
Visa Requirements
You do not need a visa to open a US business. However, foreigners seeking to visit the US for business purposes may choose from various visa options, including the B-1 visa, the E-2 visa, the H-1B Specialty Occupation Visa, and the O-1A Extraordinary Ability and Achievement Visa. In addition, you may be eligible for a Green Card by Investment if you can invest a minimum of $900,000 in your business upfront.
State of Incorporation
The best state to register is where you will be conducting business. However, suppose you operate as an online company. In that case, do business across regions or do not intend to conduct business in the US, it is recommended to register in a state with lower tax burdens. Nevada and Delaware are flexible states and offer the best incentives for entrepreneurs.
Process of Incorporation
The process for registration varies slightly from state to state and depends on the type of business entity. The basic steps are as follows:
- selecting a proposed business name for registration and conducting an availability search;
- Selecting a local agent with a local address for service of documents;
- Completing the formation documents. These outline the company’s name, the company address, the name and address of the registered agent, the value of authorized shares, and the name and legal address of the incorporator. The official fee for filing depends on the state of incorporation and may increase based on the share capital;
- File formation documents and pay franchise tax;
- Obtain an employer identification number or EIN. The EIN allows you to hire employees, open a bank account, pay taxes, and obtain whatever licenses you need. The principal officer must have already obtained a Taxpayer Identification Number to apply for a company. You must apply for the EIN by mail or fax if there is no Taxpayer Identification Number.
- Opening a bank account: Opening a bank account can get complex for a foreigner in the US, so it is best to seek the advice of professionals.
While the general processes are straightforward, as a foreign founder, things can get complicated quickly as most of the available platforms do not cater specifically to the needs of foreign founders. It is therefore imperative to use the services of a law firm with experience dealing with foreign founders registering businesses in the United States.
The law firm will also advise on other incidental issues, such as making the US entity the Holding Company of your existing operations and the tax implications of structuring your businesses in the US.
Tax Obligations
Registering in the United States has various tax obligations for foreign founders and the shareholders of those businesses. This is, of course, dependent on the circumstances of the person or persons involved. Part II of this series will discuss general tax implications for foreigners with US-registered businesses.
Please note that the contents of this article are not intended to convey legal advice and are therefore only for general informational purposes. The contents of this article are also subject to change.
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