How to start a company in the USA as a foreigner?
05 March, 2021
If you are about to open a new business, you should know that it is exciting, but it is scary as well. The number of complications that come with opening a company in a foreign country can overwhelm you. Nonetheless, the US has always been quite welcoming to foreign businesses. And it is not that tough to even incorporate a business as a non-citizen in the USA. Here is a guide that would help you with what you need and guide you with the steps you should take.
Can a Foreigner Start a Business in the USA?
Let us begin by answering this question. And the answer for this is - yes, absolutely. Even though there is no exact percentage of it, there are plenty of foreign-owned companies here in the US. And yes, there are some extra things that you will have to take care of being a foreigner. But as we share the steps below, you will realize that these are not that onerous.
The only thing you need to ensure is that you have a firm that can help you set up your business efficiently and correctly. Also, being a foreigner, you would not be able to form an S-corporation without the US resident shareholders. But that won't be much of an issue (you will understand why below).
Benefits of Starting a Business in the US
Well, America is America. And we all know that this is the place people's dreams come to life. So, even if you want to be an actor, a singer, or even just an entrepreneur, the US has got enough to offer you. Here are some of the reasons why foreign entrepreneurs prefer to start a company in the USA:
- Banking - The US banking system offers a lot of benefits. They provide low-cost government bank accounts that run in a stable currency. It also allows you to make transfers to anywhere easily.
- Fees - Unlike some other countries, the US doesn't charge thousands in notary, legal, government, and additional fees to start a new company. Even the maintenance is not costly at all here.
- Reputation - Having a company here would mean that your company would automatically get a good reputation, bringing in more leads and sales for your business.
- Payment processing - Your business in the USA can easily sell to people worldwide thanks to the excellent payment processing system.
- Ease of operating - You can have your company set up in a day or two. There isn't much paperwork as well.
- Taxes - The taxation system is very simple and the tax is quite low here. Moreover, you will also be able to deduct a lot, lowering your tax burden.
Steps to Start a Company in The USA as a Foreigner
Now that you know what makes the USA great and the best place for your company, here are the steps to follow if you want to open a company in the USA:
Step 1: Choose Your Company Structure
There are many structures to choose from, but some of the main ones include sole proprietorship, partnership, LLC, S corporation, and C corporation. LLCs are most common amongst many entrepreneurs. However, many foreigners usually tend to choose the C corporation for their company. This is because it can expand by offering unlimited stock and is usually more attractive to outside investors.
But it does have a negative point: it is taxed twice, once at the corporate level and then at the personal level, on the dividends that the shareholders get. However, many benefits come with it, especially for the corporate shareholders. The shareholders in the corporation usually qualify for a lower dividend rate. Moreover, during the tax return filing, the corporation can easily get a lot of deductions. Also, the company would not have to pay any capital gains on the US affiliate's sale until the company does not hold any real estate. In fact, the C corporation shields the foreigner from direct IRS scrutiny.
Obviously, the C corporation has to pay more for being shielded through double taxation. But if you are smart enough and get the right advice, you will be able to use pension costs, salaries, and other expenses to reduce the company's earnings and reduce double taxation.
With this said, another great company structure is the limited partnership one. In this, the partners without management control have limited liability. Moreover, the profits are passed through to the company members. And in turn, these members pay the income tax on their personal tax return for what they get. This means that there is no double taxation, but there is limited protection.
You will need to see which structure best suits your business and choose wisely. Do take the advice of a lawyer in the US or a firm that can guide you through the complete process better.
Step 2: Choose the State of Incorporation
It is effortless to form an LLC or a corporation in any 50 states in the USA. But when you choose the state in which you want to form the company, it should be based on why you are creating the company. For instance, a few states are more "international-friendly" or "business-friendly" than the others. This includes states like Wyoming, Nevada, and Delaware.
Step 3: Choose a Company Name
The name of your company needs to be unique and should stand out. To see if the name is unique and original, you can search for the name on the Secretary of State's website to see if no other company has the same name as well. If it is not available, then you will have to choose another name for your business. Also, based on the company structure, you would have to add LLC or Inc behind the name. Ensure that you follow the rules appropriately. Check out the details for naming your company on the Secretary of State's website.
Step 4: Hire a Registered Agent
A registered agent is a company or a person with a physical address in the state of formation. This company or person has to be available during business hours to accept and then sign any legal documents that come for the company. The company would accept the documents and scan them to then email them to you. In case needed, you can also get the documents posted to you via International mail.
Note: A registered agent is not a mail forwarding service. Their main responsibility is to be the one who accepts documents from the state, and other legal institutions to send them to you.
Step 5: Share all the Names & Addresses of Companies/People Involved
Give all the names and addresses of the directors, officers, members, and whoever is involved in the company to the government. This would be done when you are filing to register your company. If you take the help of a firm that offers the incorporation services and can act as your registered agent, they will handle all this along with the filing process to register your company in the USA.
Step 6: Get the FEIN
The FEIN, whose full form is Federal Employer Identification Number, is the number that is given by the US Internal Revenue Service (IRS). It is used to identify the companies for tax purposes, which is also why it is called the Tax ID Number or EIN. Although it is not compulsory to get it initially, it is advised to get it as soon as you have filed your company with the state. This number would be used to open a business bank account.
Step 7: Obtain the Apostille or Certificate of Authentication (Optional)
If you want to open a business bank account in your home country or if you need an official document to show your local government about your company's formation in the US, you will need to get your company's documents certified with the "Certificate of Authentication," or "Apostille." The Apostille is an agreement between countries to accept each other's records. And your country should be a member of the Hague Convention to be in this agreement. Check out the list of the countries under this here.
If you are a foreigner who wants to invest in the USA, it is crucial to set up a domestic corporation. It is advised to take the help of experts who know about the laws in the US and then decide what to do. Moreover, when you make a choice to incorporate your company in the US, you will also need a registered agent. Ensure that you choose the right one who can help you with being your registered agent and guide you and help you set up and run your company.
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