Setting up a business in the USA

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Updated 2021-08-04 12:26

Many people dream of being their own boss and building their own little empire from scratch. The United States is home to the “American Dream”, the wonderful concept that if you have a good idea and you work hard enough, you will be successful.  

It is, thus, not surprising that a large number of budding entrepreneurs see the US as the perfect place to get started with their empires. Statistics seem to be on their side — as almost half of Fortune 500 companies in the country were at one point founded by American immigrants or their children.

The good news is that you don't have to be a US citizen or even a US resident to start a business in the country. However, you do need to be well versed in all related procedures and regulations.

If you're moving to, or already living in the United States, and intend to start your own business, it is important to plan properly and understand all the procedures, including visa considerations, registering and maintaining your business, tax obligations, responsibilities and liabilities and more.

Most common company types in the US

You will first need to decide on what type of company you intend to open. This is a very important decision as it will determine your daily operations, taxation, how much of your investments are at risk and more. There are three main options you will have here:

  • LLC or limited liability company
  • C-Corporation
  • And S-Corporation

LLC

LLC (or a limited liability company) is typically the most suitable company type if you want to start a business in the US as a non-citizen.

A limited liability company protects your assets from business debts and lawsuits. Basically, in the unfortunate case that things don't go as planned, your personal assets (such as your savings, your home, your car, etc. will be protected). What's more, LLCs generally offer cheaper and simple taxation structures. A limited liability company is a pass-through tax entity — thus, the earnings you make from your business only go through your income taxes. Because of this, you won't need your accountant to file separate tax forms, which is a great cost-saver.

C-Corporation

If you are a non-US resident, you may consider starting a C-Corporation. This company structure is generally recommended to those who want to share responsibility with other shareholders who will also invest in the business.

Corporations are generally a good fit for investors as they can hold shares passively without having to partake in business activities.

The one big downside of corporations is that they are double taxed. So, when a corporation makes a profit, the corporation is taxed. Additionally, when a shareholder receives a dividend from their shares, they are also taxed on the amount they receive.

A C-Corporation makes a lot of sense if you are a non-US resident and want to have shares in a company that you can then easily transfer to other investors or employees.

However, if you are a resident of the US, it is typically not advised to form a C-Corporation — an S-Corporation might be a better option.

S-Corporation

An S-Corporation is a domestic corporation and is not available for non-US residents. It avoids double taxation and is, instead, only taxed as an S-Corporation. Thus, if you are a US resident and want to start a business in the country, an S-Corporation would be a better option than a C-corporation.

The biggest difference between an S-Corporation and an LLC is the taxation structure. If you have opened an LLC and you don't choose to be taxed as an S-Corporation, you will be taxed as a sole proprietor; and if your company has many proprietors — a partnership. So, all the ninety that you make (or lose) with your LLC will pass through your tax return and will only be taxed here.

With an S-Corporation, on the other hand, you can choose to pay yourself a salary. This will let you keep the money in your business and not pass it through your income tax filing.

Depending on the size of your business's profit, one or the other will be able to save you more money in taxes.

Note that you can not be a shareholder in an S-Corporation if you are not a US resident.

Sole Proprietorship

Now, the simplest way to start any business in the US is to form a sole proprietorship. Technically, it is the simplest business type that doesn't require any formal filings.

You will be automatically considered a sole proprietor if you are involved in business activities but have not registered any business entity.

There is one major disadvantage of forming a sole proprietorship — you will be personally liable for all business matters. Basically, this means that your company assets and liabilities are not separate from your personal assets and liabilities. Thus, you can be held personally accountable for all the debts and obligations of your company.

Registering your business

Once you have decided on what type of company you want to form, you will need to go through the company registration process. You will need to complete all the necessary steps to register your business before you can start operations in the US.

Depending on what type of company you are forming as well as your legal status in the US, the exact procedures of incorporation may differ.

You will also need to think of the following:

  1. Location. Where do you plan to hold operations and where do you want to set up your company? What is your decision based on? Consider supply chain options, availability of skilled personnel, necessary support services and overall infrastructure. Some locations may also offer tax incentives and simplified business registration procedures for expats.

  2. Getting an EIN (Employer Identification Number). This is a number that is issued by the US Internal Revenue Service (IRS) to identify a business. You need an EIN to legally conduct business activities in the US. If you are a US citizen and have a social security number, you can apply for the EIN directly from the IRS website. If you are not a US resident, you can get a foreign EIN. However, the process of obtaining it will differ from the one intended for US citizens.

  3. Getting a US mailing address. If you already have a business address, you can use it as your mailing address. This is where all the correspondence regarding your company will arrive. If you don't yet have a business address, you may use a service that will provide one for you. This service will make sure that all the correspondence you receive for your company will be forwarded to where you specify.

  4. Opening a US bank account. If you are currently in the US, you can open a bank account in person. However, if you want to open an account from outside the US, things can be trickier. You can try opening an account remotely using a special service, open a US account via a bank in your home country or if these don't work, fly to the US to open an account in person. Generally, to open a bank account in the US, you will need the following documents:

  • EIN
  • Copy of Articles of Organization of your company
  • Ownership Agreements (if you are opening an LLC)
  • And your passport.
  1. Getting business insurance. Business insurance will protect you from possible unexpected costs associated with running a company. These may be related to natural disasters, accidents, lawsuits and so on. It is generally advised to get your business insured to avoid any related issues should anything go wrong.

  2. Getting an ITIN (Individual Tax Identification Number). If you are not a US citizen and do not have a Social Security number, you will also need to obtain an ITIN. This is a number issued by the IRS to those who need a US taxpayer identification but do not have a Social Security number. You will need to contact the IRS and then follow the required steps to apply for your ITIN.

  3. Understanding your tax setup and filing taxes. It is strongly advised that you consult an accountant about the related tax procedures for your business. With a professional consultation, you may also be recommended ways on how to reduce taxes.

Amazon FBA sellers: taxation. Note that if you are a non-US resident and your only activity in the country is selling products on Amazon, you are not subject to the Federal Income Tax.

  1. Keeping your business and personal accounts separate. Keeping your financials separate will help make sure that you are not personally liable for your company's financial obligations (if you form an LLC).

  2. Obtaining all necessary business licenses and protecting your intellectual property. If you plan to operate in areas that require a special license, you will need to inquire with proper administration units about the prices of obtaining this license. If you need to protect your intellectual property or plan to file for patents, you will need to look into related processes as well.

  3. Maintaining your business and paying related fees on time. Once you have formed your company, you will need to maintain it in all accordance with US laws and regulations. Failure to do so may result in the loss of company assets.

Important:

Starting a small business in the U.S. is like any other country. It's crucial to do market research, have a carefully thought-out business plan and secure the capital needed to put your plan into action. The U.S. Small Business Administration is an official government agency that helps to counsel and assist small business owners.

Visa considerations

Those who hold a Green Card and are, thus, legal residents in the US, do not need to worry about this section. Every other foreign national, however, will need to carefully consider their visa options. The three most common types of visa used for expats who start a business in the U.S. are the E-1, E-2, and EB-5 visas.

E-1 Trader Visa

A trader visa is an option for managers or specialists who are involved in international trade. It allows them to enter the U.S. and continue trading. In this case, 'trade' includes commercial transactions with goods or in services such as banking, insurance, tourism or consulting.

E-2 Investor Visa

This visa allows expats to either start a new business or buy an existing business that they will directly manage. Investment amounts vary based on the type of business, and although this is a nonimmigrant visa (meaning it does not lead to citizenship), it is valid indefinitely as long as you continue to run the business.

EB-5 Immigrant Investor Visa

Known as the 'million dollar Green Card,' this visa is available to those with a large amount of capital that they will actively invest in a new or existing business. The minimum investment is USD $500,000 for rural areas or USD $1,000,000 in urban areas. You must prove that your funds are from a legitimate source and that your investment will result in the creation of at least ten full-time jobs. With this investor visa, you can obtain a green card for permanent residency.

Depending on your situation, other possible visa options may include a temporary work visa or a family visa (if you have relatives or a spouse in the US). Note, however, that these visa types are not meant for staying in the US for longer than specified and you will be limited in the activities you can do while in the country.

It's always a good idea to do some general research prior to making plans. However, once you have decided to come to the United States to establish a company, it is strongly advised that you consult a qualified visa professional about your options.

Useful links:

U.S. Small Business Administration
Internal Revenue Service (IRS) small business checklist
Internal Revenue Service ITIN 
US visas

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