As a non-resident looking to set up a US company, you have even more steps to go through than a US resident, and more downside if you make a mistake. For example, there are more income tax issues for non-residents who want to take their income out of the US. Obtaining an appropriate US work visa and opening a bank account are also problems. Each of these topics is very complicated. In short, you not only have to create a workable business model, but further have to make it work within the US tax, legal and economic framework.
The 6 steps outlined below describe the critical steps that must be addressed before a business can be launched:
- What type of company is being set up
- S Corporation, C-Corporation Versus LLC Tax Comparison. (“S” corp status is not available to non-US residents)
- In which state the company will be incorporated
- Where in the US the company will conduct business
- The type and activity of the business, and its need for licenses, registrations, permits etc.
- The staffing needs, which in turn influence the need for physical location and size of facilities
Note: This information is provided as a guideline, and does not constitute legal advice.
Checklist: How to set up a US Company as a Non-Resident
STEP 1: PLANNING STAGE
• 1.1 Where to establish your US business
• 1.2 Your need for protecting your intellectual property
• 1.3 Whether you will need to obtain any special licenses
• 1.4 Your need for visas or other immigration needs
• 1.5 Your need for staffing for the business
• 1.6 Your need to access the capital markets in the US
• 1.7 Your need for marketing, supply chain and other support services
• 1.8 Any tax incentives available? What options are available to minimize your tax burden?
STEP 2: PLANNING STAGE
• 2.1 Choose the name of the company
• 2.2 Whether to be a corporation or a limited liability company
• 2.3 Which state to incorporate in and which states to register in
• 2.4 Determine the capitalization of the company
• 2.5 Determine the roles and responsibilities of the company’s officers and directors
• 2.6 Determine who will be the shareholders, officers and directors
STEP 3: ACTION STAGE
• 3.1 Provide the necessary documents
• 3.2 Form the company
• 3.3 Register the company in other states as needed
• 3.4 Hold the organizational meeting
• 3.5 Obtain the federal Employer Identification Number
• 3.6 Prepare and file BE-13 Survey
• 3.7 Open your bank account
• 3.8 Start your business
Step 1: Planning Stage
Determine what exactly you want to do, where and how you want to do it, how much it will cost and whether or not you have the budget.
1.1 – WHERE TO ESTABLISH YOUR US BUSINESS
Choosing a business location is perhaps the most critical decision, and once you are committed to a choice it is expensive to change. Each of the 50 United States has its own business regulations and tax schedules.
The location you choose should be one that fulfills business objectives in the most cost-effective way. At the outset, a company needs to identify which factors are the key drivers in the location choice.
Some of the factors to consider are:
– Demographics of your customer and/or staff
– Requirements of your supply chain
– Local competition
– Overhead costs including – labor, property purchase or rental, utilities, corporate taxes, incentive
– State and local laws, regulations, and taxes
– Quality considerations including, but not limited to: Labor skill levels, Labor flexibility (union/non-union, seasonality), Connectivity, Infrastructure, Risk, Quality of Life
All of these factors can also be broken down into sub-factors. Making a careful assessment of your priorities will help you make a smart and lasting decision on your location.
1.2 – YOUR NEED FOR PROTECTING YOUR INTELLECTUAL PROPERTY
We can recommend specifically vetted and qualified IP attorneys who specialize in the areas of intellectual property that pertain to your business – trademarks, logos, trademarks, logos, patents, trade secrets, etc.
1.3 – WHETHER YOU WILL NEED TO OBTAIN ANY SPECIAL LICENSES
From professional services (like medicine to architecture) to specialized products (aviation parts to food importing) to restricted services (military goods to certain technologies), many business needs licenses or permits in order to trade. Once you know which state or states you will operate your business in, you can check with that state’s government to find out what licenses or permits may be required for your company’s activities.
• Regulations around licensing vary widely across the US depending on local regulations
• We have seen an increase in PLLCs – Professional Limited Liability Corporations
• Two common incorporation locations are NY and Delaware: New York regs and Delaware Regs
Additional information by state
1.4 – YOUR NEED FOR VISAS OR OTHER IMMIGRATION NEEDS
If you plan to conduct within the US, someone will have to manage it. While you can hire Americans to do the work, you will probably want to maintain oversight, if not active leadership. The more time plan to spend in the US the more you will need to know about business visas.
You can start and own a US company without a visa, and without even coming to the US. Because managing a company can be considered a kind of employment, and to be employed to work within the US requires a work visa, if you intend to manage your business from within the US you will need a valid work visa.
You can be a director, as well as a shareholder, of a US corporation is allowed without any kind of visa, but being an officer and performing your duties within the US is generally not allowed. Working for your corporation or LLC within the US without a valid work visa is not allowed.
1.5 – YOUR NEED FOR STAFFING FOR THE BUSINESS
This will affect your budget, your need for office space and your knowledge of US federal, state and local employment laws.
• How many company officers are you planning to bring to the US for which you will need visas?
• Will you be hiring employees in the US?
• Are you planning on bringing employees from overseas?
– Bringing staff from abroad has become increasingly difficult over the past two US administrations unless those staff have highly specialized skills which you can prove are not easy to acquire by hiring US employees (i.e. your staff would qualify for an O-Series Visa 1, 2, or 3)
• The federal tax ID number issued for your business doubles as your EIN (Employer Identification Number)
• Here are two companies that provide payroll services and can file payroll taxes on your behalf: ADP and Paychex
1.6 – YOUR NEED TO ACCESS THECAPITAL MARKETS IN THE US
Are you self-funded or looking for loans, grants or direct investment?
• USA Corporate Services does not provide these services, but you should think through financing closely before bringing your business to the US.
• Who is going to own your US business and how much of your business will each person/entity own? (i.e. what is your capitalization table? Do you have a ledger of shareholders?)
– Securing a loan is difficult and very unlikely
– Equity investment and venture capital are also difficult but not impossible
More in our Free eBook: 7 Mistakes Non-Residents Make When Setting Up A US Company
1.7 – YOUR NEED FOR MARKETING, SUPPLY CHAIN AND OTHER SUPPORT SERVICES
Consider your service needs around:
– Product compliance with US regulations
1.8 – ARE THERE ANY TAX INCENTIVES AVAILABLE, AND WHAT OPTIONS ARE AVAILABLE TO MINIMIZE YOUR TAX BURDEN?
Should tax incentives be a factor in your decision?
Some states and cities will negotiate tax incentives to attract companies that are beneficial to their local economy — i.e. creating 100+ local jobs. Tax incentives should not drive your location decision-making unless your business is large enough or providing enough potential job creation to provide leverage with a locality.
• Good industries to possibly consider tax incentives in decision-making are film and manufacturing
• Any potential incentives would be negotiated on a local level
• If you are a small company, tax incentives should be a very minor factor
Step 2: Planning Stage
In the Company Planning Stage you will determine such practical matters as:
2.1 – CHOOSE THE NAME OF THE COMPANY
• Is your company name already taken in the US? You will need a full legal search before incorporating, but you can start on your own through this government database of registered trademarks. Keep in mind that you will not be allowed to have the same name as another company within the same product or service sector. Also keep in mind that copying a well-known name for your company will make it difficult for you to rank in search engines when customers look for you.
• Conduct a trademark search for your name and tagline if you have one. Keep in mind that companies have been sued for using the tagline of another company, i.e. a florist in Texas used “this bud’s for you,” but this was a registered trademark of Anheuser Busch’s Budweiser beer, and the florist was sued.
• Are you setting up a subsidiary of a parent company? Consider differentiating those names for clarity. For example, you may want to change “Ltd” to “Inc.” for the U.S. branch of a UK company.
• Do a search to determine if the URLs relevant to your company’s name are available for purchase?
• Last but not least, consider the intended audience for your company’s name? Does the name make sense to the US audience you want to reach? Does it have relevant associations in the US culture?
2.2 – WHETHER TO BE A CORPORATION OR A LIMITED LIABILITY COMPANY
There are two main types of US business entities: the business corporation (company limited by shares) and the limited liability company, or LLC.
For a non-US resident forming a new company, it is critical to understand the differences between the types of US business entities. Business entities are always formed under state law instead of federal law. Because each state makes its own laws, the specific rules and requirements are different from state to state. A business entity is automatically entitled to do business in the state where it is formed, but in order to do business in another state, they must register to do business there. The definition of “doing business in a state,” like so many things, is different from one state to another, but there are common themes to be aware of.
Each state has its own register of names. When creating a new company, the proposed name of the company is only checked in that state. Therefore, a company name is only protected in the state where it is incorporated and in any state in which it is registered to do business.
Limited Liability Company (LLC)
|Shareholders completely insulated from liability if the corporation stays in compliance||Members are insulated if they are not managing the company as well, and follow proper procedure to separate personal and business matters|
|Resident- and non-resident-owned corporations pay the same tax rate, although foreign-controlled corporations have to file extra information on their tax returns||LLCs are fiscally-transparent by default, which can be a problem for non-resident-owned companies. An LLC can choose to be taxed as a corporation, but if they are planning to do this could just form a corporation instead.If the company will not be used to do business in the US, then an LLC is the better entity type.|
|Tax treaties were usually designed with corporations in mind, so many foreign-owned US companies are corporations.||The treatment of distributions from LLCs to foreign owners may be hazy, so be careful of doing business in the US using an LLC|
|Shareholders are the owners. The shareholders elect the directors, who govern the corporation and set policies and goals, and review the activities and progress of the company. Directors appoint the officers, who run the corporation on a day to day basis. Only officers can bind the company and sign contracts.||Members own the LLC, and control everything. The Members create an Operating Agreement, which can be as long or short as the Members want, and which sets out all the rules of the company. The Members can appoint Managers to run the company on a day to day basis. If there are many Members, appointing Managers is a wise thing in order to control the structure (and spending) of the LLC.|
2.3 – WHERE TO INCORPORATE YOUR US COMPANY
Once you have chosen your location to set up your business, the next step is choosing a state of incorporation. You can incorporate in the state where you are doing business, or you can incorporate in another state. Incorporating in the same state as your business is cheaper. Sometimes incorporating in another state has more benefits, but will always cost more.
You are not required to incorporate in the state where your business operates; you have the freedom to incorporate in any state you prefer.
2.4 – DETERMINE THE CAPITALIZATION OF THE COMPANY
How many shares at what par value, and how much each shareholder will contribute to the company as their capital contribution.
Setting up a company and understanding shares of stock
2.5 – DETERMINE THE ROLES AND RESPONSIBILITIES OF THE COMPANY’S OFFICERS AND DIRECTORS
The officers of your company are typically a president, secretary, and treasurer. They are responsible for the day-to-day operation and success of the company. They are authorized to sign contracts and act on the company’s behalf to conduct its business.
The Board of Directors govern the corporation, set priorities and appoint the officers. They are typically elected by the Shareholders.
• Does your company need a board of directors? What sort of structure will serve the needs of the company as you grow?
• Do you need D&O insurance?
– If you plan to have a large number of shareholders, it is advisable to provide the board with Directors and Officers insurance, which protects them in the event that shareholders would bring a lawsuit.
2.6 – DETERMINE WHO WILL BE THE SHAREHOLDERS, OFFICERS AND DIRECTORS
Have you already established these roles? If not, when, who, and how are you going to choose?
How will you find your directors?
– Founders are typically directors
– If you are looking for additional directors, you will need to find someone you can trust, which in this case can include non-US citizens. They will not need a visa to visit the US for a board meeting if they can present proof of invitation to attend the meeting.
Step 3: Action Stage
After completing the Company Planning Stage steps 1 and 2, the Action Stage should be relatively smooth and fast.
3.1 – PROVIDE THE NECESSARY DOCUMENTS
Documents needed to set up a US company
3.2 – FORM THE COMPANY
Form the company by filing the incorporation documents with the state filing office, and following up with any other required formation procedures for this state. Every state is different in its requirements
You or your agent will complete the necessary forms and pay the required fees. The requirements differ by state, but always include registration with the Secretary of State of the state that you have selected.
These are some of the steps we assist our clients with, so if you are seeking professional guidance to assure correct procedures are followed, form your company online here.
3.3 – REGISTER THE COMPANY IN OTHER STATES AS NEEDED
For example, if you incorporated your company in Delaware but will be doing business in California, you will need to register your new Delaware company with the California Secretary of State by filing the appropriate documents and paying the appropriate California state filing fee.
3.4 – HOLD THE ORGANIZATIONAL MEETING
Appointing the officers and directors, issuing shares to the shareholders and taking such other actions as necessary.
3.5 – OBTAIN THE FEDERAL EMPLOYER IDENTIFICATION NUMBER
In order to open a bank account, hire employees or otherwise do business, you will need a Federal Employer tax identification number. The tax number is obtained by filing a form SS-4 with the Internal Revenue Service center for your district. We can obtain a number on your behalf for an additional fee.
3.6 – PREPARE AND FILE BE-13 SURVEY WITH US BUREAU OF ECONOMIC STATISTICS
Lesser known requirements for non-residents: Form BE-13
3.7 – OPEN YOUR BANK ACCOUNT
If you are going to do business in the US, you will need a US business banking account. Although this is changing slowly, US customers do not typically trust companies that require overseas payment.
By setting up a bank account in your company’s name that is used exclusively by your company, you are ensuring that you can cleanly and clearly document your financial transactions for tax return purposes, and defend your company in the event of a tax audit.
While requirements vary from bank to bank, opening a business bank account has gotten more regulated and difficult in the past few years. Be prepared to present the following, in person:
– Business incorporation document
– Tax ID number
– Copy of your passport
– Proof of address
You must be physically present to open a US business bank account, and some banks will not service you if you are not a US resident. Other banks may consider the account to be high-risk until long-term trust has been established and restrict transactions over a certain pre-set amount, or limit your transactions until trust has been established.
Under federal law, it is required that the signers on the business bank account appear in person before a bank representative when opening an account.
3.8 – START YOUR BUSINESS
Ready to start? Buy, lease or rent office space, hire employees, market the products, etc.
• Buy or lease office space
– Consult a commercial broker if you want to lease large amounts of office space or purchase/build your own
– Large cities offer shared space options where you can rent an office for a few people and share services such as reception, conference room, etc. Rates will vary. You can also purchase affiliate
memberships which allow you occasional use of conference spaces
– Suburban areas often have professional office space available in ‘office parks.’ A commercial broker can help you locate suitable space
• Hire employees
– Place local ads for non-specialized labor, as transportation may be a factor for employees.
– Check minimum wage regulations in the state in which you are incorporated.
– Consider the use of a payroll service or a PEO, which employs staff on your behalf.
– Specialized talent, at higher salary rates, may be available locally depending on your location. Do not depend on being able to bring talent over from abroad. Visa regulations on ‘special talent’
are very strict and may delay your operations.
– Look into local colleges, especially 2-year associate’s degree programs, which may offer a ready source of job-seekers. 2-year and adult courses cater to adults who are currently working but looking
to improve their skills and change jobs.
– If you plan to have several employees, consider hiring a Human Relations officer to handle compliance and other issues.
Free business planning templates are available from SCORE (Service Core of Retired Executives).
As an alternative, you can use the lean canvas designed to organize the strategy for a startup business. It’s free for 30 days, and very useful.
(We are not related to either site in any way).
Would you like our help?
Schedule a free consultation or chat now for help with the process.
We are available to provide advice, guidance, support, and take you step by step through the decisions you face to ensure that your new corporation provides the flexibility you need and the legal protection you require.
Chat with us live!