How to Start a Company in the USA
To open a company in the United States from your home country is a relatively simple process that often will lend credibility to your business and give you access the U.S. market and its customers.
This step-by-step guide provides foreigners, non-citizens, and Americans living abroad with essential information about how to start a business in the USA. It details how to form an LLC or incorporate your business in the USA, establish a U.S. bank account, accept credit and debit transactions, and maintain legal standing. It also estimates the cost of keeping your business registered in the United States.
But first there are two common visa and citizen questions that you will need to know the answers to before setting up a company in the USA.
Do I Need a Green Card or Work Visa to Start a Company in the USA?
The great news is that you don’t need work permits like a green card or visa to start a company in the USA. You also don’t need to be a US citizen.
Can I Move to the USA and Work For My Company If I’m Not a Citizen?
Unfortunately, if you aren’t a citizen you need a green card or a work visa to live and work in the USA, including for your company. However, you can always legally work for your company from your home country.
So now you understand more about whether you can legally setup and a work for a company in the USA, let’s get started with the next steps.
1. Choose the Legal Entity You Want to Form
The first step in the process is deciding how to structure your entity. The two main types of business foreigners seek to establish in the USA are C-corporations, simply known as corporations, and limited liability companies, which typically goes by the initials LLC. These two entities have key differences, which are described below.
A corporation is a separate entity that pays its own taxes and shelters the owners from any debt the company incurs or damages that result from lawsuits filed against it. Corporations can buy real estate and enter into contracts on their own; U.S. law treats them, in many respects, the same as individuals. Other key features of a corporation are as follows:
- You can raise money to expand your business by selling stock, or shares in the business’s profits.
- People who own the company stock are called shareholders. They elect a board of directors, who in turn appoint officers, such as the president and treasurer. These officers run the day-to-day operations of the company. (In the beginning, you can be both director and officer and hold 100 percent of the company’s stock.)
- Whoever owns a controlling interest (i.e., a simple majority) of the stock owns the business. Thus, it does not have to remain in the hands of its original owners.
- Companies exist in perpetuity. They aren’t dissolved when the owners die.
- Corporations must hold an annual meeting of directors and shareholders and keep written minutes of their major decisions.
The chief advantages of corporations are prestige and potential for many tax deductions. On the other hand, they have more requirements to maintain than an LLC, and they are more expensive to start.
Limited Liability Companies
LLCs are a hybrid between a partnership and a C-corporation. There are fewer formal requirements needed to manage an LLC, and it provides “pass-through” taxation, meaning that business’s profits and losses are calculated on the owner’s personal tax returns. While it offers its members some liability protection, personal funds used to finance business expenses are not exempt.
The owners of an LLC, called members, use an operating agreement to register their company. It sets forth the rules that govern the company, which can be amended as the business develops. This is the main document you need to register an LLC. Unlike corporations, you do not need to hold an annual meeting or publish written minutes.
2. Decide Which State You Want to Register Your Company In
U.S. companies must be registered in a state. Each state is allowed to develop its own laws, registration fees, renewal rules, and processing times. While in theory you have 50 states to choose from, some states have developed rules that make them more friendly to the establishment of a company outside the U.S.
Generally speaking, three states —Delaware, Nevada, and Wyoming — are the most friendly to incorporation (i.e., registering a corporation) in the USA. Of the three, Wyoming may be the best choice for new companies because it has inexpensive fees and maintenance costs; Nevada’s fees are more costly, and Delaware has a high franchise tax.
If you are interested in launching a technology start up, particularly if your goal is to raise funds through angel investors and venture capitalists, then consider registering a C-corporation in the state of Delaware. That state corporate entity has streamlined the process for start up investors.
LLC formation requirements also vary by state. Some states, like New York and Illinois, have registration fees that are significantly more expensive than other states.
You need to consider whether your company will have a physical presence in the USA. If so, you can still register in the cheapest and most convenient state, but you will need to re-register in the state where you do business as a foreign entity. This adds a layer of bureaucracy and doubles the expense.
3. Fulfill the Requirements to Register Your Company
After you choose a legal entity and state to register your company in, there are only a few basic requirements you need to fulfill.
Decide on a Company Name
You need to choose a unique company name for your LLC or corporation. That is, it has to be a name that is not already registered. You can search state records for yourself to see if the name is available or pay a third party to do this for you.
Identify the Company’s Principal Players
If you are registering an LLC, you need to provide the names and addresses of the members.
If you are registering a corporation, you’ll need to list the names and addresses of the company’s officers and directors.
Designate a Registered Agent
The registered agent’s job is to receive any mail, including certified and registered mail, during regular business hours. You must have a registered agent in the state where you formed the company in order to operate a company in the USA. This individual has a statutory responsibility to accept all official state documents, legal summons, and other notifications, which they will then forward on to the company’s principals.
The registered agent does not need to be affiliated with the business except for that fact that they act in this role on the company’s behalf. Typically, company’s hire someone to perform this service on their behalf.
In order to receive mail or, in some cases, to be able to open a bank account, you may need to have a physical U.S. address separate from your registered agent address. You can arrange for a “virtual office” or “mail forwarding” address in the same state where you incorporated your business or registered your LLC.
When you create your company in the USA with Filenow, we include the first year of registered agent for free.
Get a Federal Employer Identification Number
If you want to open a bank account for your corporation in the United States, you will need a Federal Employer Identification Number (FEIN, or simply EIN). This is a tax identification number for companies. You may not need a FEIN if you are operating an LLC where you are the sole member and have either a social security number or an individual taxpayer identification number (ITIN).
Unless you are an American citizen or satisfy certain immigration requirements, you are not eligible for a social security number. The ITIN, however, allows you to file a personal income tax return in the U.S.
Individuals who do not have a U.S. social security number or ITIN can still apply to receive a FEIN from the IRS; however, you must obtain an ITIN before April 15 of the year after you registered your company.
Certify Your Company by Apostille or with a Certificate of Authentication
If you intend to open bank accounts for your company in both your home country and the USA, you must get your formation documents certified by apostille in order to prove that you legally formed the company.
You may not need certification by apostille if you only intend to bank in the United States or operate a physical company in the state where you formed the company. Your registered formation documents and FEIN will suffice.
4. Obtain a U.S. Phone Number for Your Business
You have a number of options for getting a U.S. phone number, and the cost is relatively inexpensive. You can opt for a toll-free number or get a number in the area code where you registered your formation documents.
U.S. phone number providers offer a variety of services, including voicemail, fax, and automatic routing that will forward your calls to the number of your choice.
Having a U.S. phone number allows you to connect directly with customers in case there are problems with orders, and you may need a phone number in order to open a bank account in the United States.
5. Open Bank Accounts
Getting a U.S. Account
Banking is essential to your business, and most foreigners who register a company in the United States want to open an account in the U.S.
Unfortunately it is difficult to open a U.S. bank account remotely, especially if you are not a U.S. citizen. If you can travel to the USA to open the account yourself or have a U.S. based partner, you can work around this difficulty. There are also managed services that will handle your U.S. bank account remotely, though these can be expensive and have restrictions.
Another option is to find a bank that has branches in your native country. You may be able to open an account more easily that way. Some multinational banks are Citibank, Bank of America, Chase, Wells Fargo, and USBank.
Finally, when opening a U.S. bank account, you want to do your homework and make sure that you bring the right documentation, as different banks may require different proof that your business formation documents were obtained legally..
Opening an Account in Your Home Country
If you are not able to open an account in the United States right away, you can open a business account at a bank in your country by getting the formation documents certified with a certification of authentication or apostille. Your initial clients in the U.S. can arrange to pay by depositing into this account via wire transfer. When you are more established, you may opt to fly to the United States to open an account or hire a managed service.
6. Open a Merchant Account (to Allow Credit and Debit Payments)
There are various ways that clients can pay for the goods or services you offer – Paypal, bitcoin, wire transfer services, and good old-fashioned checks. However, being able to process credit and debit transactions is crucial if you want your company to appear reputable and grow.
In order to allow customers to pay by credit, you will need to open a merchant account. This type of bank account lets companies accept payments by using their credit or debit cards. The merchant account works in tandem with a payment gateway, which sends encrypted information in a three-way loop among your website (or other payment portal), the credit card company, and the merchant bank.
Merchant banks deposit the funds processed through payment gateways, and then transfer those funds directly into your company’s bank account.
You need at the very least to have a U.S. bank account and phone number in order to be considered for a merchant account. You can also expect to pay higher fees until you can establish a strong merchant history.
7. Understand Your U.S. Tax Obligation
It’s good to understand the U.S. tax system on the onset. It is notoriously complex, with many different types of employer and business tax, including tax on income, sales, payroll, and franchise taxes.
Though not intended as a deep dive, the following looks briefly at these separate categories.
How your business is taxed depends on the legal entity you choose. Corporate profit — otherwise known as capital gains – is charged at one rate, while the profit on pass-through entities like LLCs are charged at individual members’ marginal tax rate at both the state and federal levels.
To complicate matters further, the Tax Cuts and Jobs Act not only lowers the capital gains tax rate but also allows a 20 percent deduction on the gross profit from qualifying pass through entities, making it hard to know which business structure is more profitable.
Sales tax is a flat surcharge on certain goods. Both the tax rate and the items exempt from taxation are determined by individual states. Five states – Alaska, Montana, Delaware, New Hampshire, and Oregon – don’t have a sales tax at all.
You will need to pay this tax if you hire regular employees in the United States. Calculated as a percentage of the gross salary you pay each regular employee, payroll taxes are the employer’s share of an employee’s Social Security and Medicare withholdings. Companies that employ contractors do not need to pay this tax; this category of employee pays their own income and self-employment taxes.
This annual tax is the cost of maintaining the company you registered in certain states. Not every state has a franchise tax, but one of the most popular states for incorporating a company, Delaware, imposes an annual franchise tax of $300 for LLCs and a fraction of the value on each corporate share you own.
Your registered agent will let you know if and when you owe a franchise tax on your company.
8. Anticipate the Cost of Establishing and Maintaining Your Company
To ensure your company’s survival through the start up phase, you should allocate enough funds to pay for the initial cost of forming the company as well as maintenance costs for at least one year.
Establishing Your Company
The cost of registering a company in the USA is only a fraction of the total amount you will need to run your company in good standing year after year. The cost of registering formation documents is as little as $49 if you use Filenow.com, plus the state filing fee which varies by state.
Maintaining Your Company
In order to keep your company in good standing, you’ll need to do several things each year above and beyond normal operating costs:
- File an annual report with the state where you registered your business. Most states charge a fee for this service and have additional recurring maintenance fees. Some, as mentioned under the tax section above, charge registered companies an annual franchise tax as well.
- Maintain your registered agent and other physical address. Like the annual report, this is a requirement of keeping your business in good standing, and there is an annual fee for this. If you have leased a physical address in order to receive mailings and qualify for a U.S. bank account, you will need to pay that recurring cost as well.
- Pay a tax professional. If there is any activity in your company – even if you don’t turn a profit – you will be required to file a tax return. In order to avoid mistakes, you should hire a professional certified public accountant to handle the tax forms. That service will cost you between $300-500 for a simple return.
Your best bet is to set aside a lump sum – roughly between $3,000 and $10,000 – based on the approximate sum of establishing your company and the amount you will pay for the first year of hiring a registered agent, renting a physical office space, having a U.S. phone service, filing your annual report, and paying other recurring taxes and fees.
To get you off to the best start possible, our experts at Filenow can create your company in the USA for a low cost with a money back guarantee.