Company Formation in USA: Everything You Need to Know
Company formation in USA is a great way to get entry into the US market for your products and become a player in one of the largest markets in the world.3 min read
2. Things to Consider
Company formation in USA is a great way to get entry into the US market for your goods or services, establish credibility in the eyes of consumers and investors, and become a player in one of the largest markets in the world. There are essentially two corporate entities that provide the most protection against personal liability for business owners in the US: limited liability companies (LLC) and corporations. Both are considered “entities,” which distinguishes them from a sole proprietorship or partnership. These are other popular types of business structures that do not provide protection from personal liability for their owners.
An important distinction between the two entities is in their legal formation. Corporations are “incorporated,” that is formal Articles of Incorporation are filed with a secretary of state, and an LLC is “formed” when Articles of Organization are filed. Every state has different requirements and regulations for creating a corporation or LLC in their state, but the differences are usually quite minor. The registration process for non-US residents is a little more complicated than it is for US citizens only because issues such as international taxation laws, setting up bank accounts in the US, and getting visas for non-resident directors and officers often poses problems.
First Steps – Determine the Business Entity
If any of the owners, called “shareholders” in a corporation or “members” in an LLC, are not US citizens, your choice of business entity is limited to establishing your business as an LLC or a C corporation. Another type of corporation exists, called an S corporation, but this entity precludes any shareholders from being foreign nationals.
- There are no restrictions with either an LLC or C corporation as to the number of owners the entity may have.
- Owners can be from any country with which the US is legally allowed to do business with (restrictions can apply if sanctions are levied against a country).
- Owners can be either foreign individuals or companies (corporations, LLCs, etc.).
- Restrictions may apply in your home country as to the type of company you may form. It is always recommended to consult an experienced corporate attorney as early as possible to avoid wasting time and resources.
In the US, a corporation can be formed in any of the 50 states or the District of Columbia, regardless of where the business will be located. Some states have a reputation for being more “business friendly” states based on lower filing fees and taxation rates. Delaware, Wyoming, and Nevada are the states that attract the most entity registrations, and in particular have the most experience dealing with international clients.
Among the three, Wyoming is favored by entities that only want the ability to accept credit card payments (and thus open a bank account) and do not plan to have a physical presence in the country (as might be the case with a web-based business). For businesses hoping to attract investors, the best choice might be Delaware because most investors and venture capitalists require it as a condition of investment.
If you do plan for your business to have a physical presence in a US state, it is often more convenient to register the corporation or LLC in that state. However, that does not preclude you from incorporating or forming your business in Delaware, Wyoming, or Nevada. Just be prepared to also take the additional step called “foreign qualification” that most states require of foreign businesses not registered in their state.
Things to Consider
There are other considerations to take into account in addition to deciding the state in which the business will be incorporated or formed:
- How to optimize protection for any intellectual property owned by the company that has not been registered with the US Patent and Trademark Office, or does not have protection through WIPO-administered programs.
- The need for special licenses or permits to operate in a US state or jurisdiction.
- The need to obtain visas or other immigration documentation for workers in specialty occupations.
- Staffing needs for the business that must come from the US labor force and rules and regulations pertaining to their employment.
- Determining the best location to have access to capital markets or vital supply chains to operate the business.
- Tax breaks and other incentives that could determine the operation’s physical location and make one state more attractive than another.
As you can see, while legally establishing a business can have far-ranging benefits, the move should only be taken after careful consideration.
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