How to start a company in the US
LLC or C-Corp? Which legal form is the best for your future company?
Starting a company in the US will win you the trust and favor of American customers and suppliers. We know the process – we’ve been through it ourselves – and we’d love to share with you a few basic tips. We believe they will help you avoid unnecessary mistakes that could cost you a lot of time and money.
Your company structure decides the legal form
If all owners of your company are not American residents, you can choose from two legal models, an LLC and a C-Corporation. A third type, called S-Corporation, exists but applies solely to companies owned by American residents, with the exception of certain investment trusts.
While choosing a legal form, it is important to carefully consider your future management structure. You should not be guided only by tax optimization, but also make sure your company is set for the long run. You will save yourself some unpleasant surprises as your business grows.
A Limited Liability Company is similar to the basic form of many European companies. As the simplest and most commonly used legal form, it protects its owners against personal liability for any debts of the company. The LLC is also a pass-through entity. In other words, the owners of the company pay taxes, therefore the LLC itself does not. You have two options:
Direct management – “Member-managed” model
All owners are equally responsible for the operation of directly managed company. No intermediates. No delays.
Management through a manager – “Manager-managed” model
To start a company in the U.S., a particular manager (director) may be responsible for its operations. It can be one of the owners, but also someone outside the structure of the company, hired specifically for that purpose. We often see this model in companies whose owners prefer to remain in the role of investors.
We believe, you have better things to do with your time than reading terms and conditions or legislation. We are here to help you establish your company as smoothly as possible.
As an American counterpart of a European joint-stock company, a C-Corporation similarly offers a more refined structure of your company. It requires 4 types of roles:
Board of Directors
In this model, the liability is divided between officers, who are in charge of the company´s operation, and the Board of Directors, which supervises their activities.
Just like an LLC, a C-Corp offers certain protections against personal liability for the company´s debts. In case of failure/bankruptcy, your debts equal the amount of your investment in the company, and C-Corps can also represent the loss in future years. Another advantage can be separate taxation from the tax obligation of the owner or shareholders, as well as the possibility to employ the owner(s) directly.
Deciding which legal form to choose is just the first step in founding a company in the US.
Registered office and identity
A well-chosen office location will save you money and energy. You can choose any of the 50 US states, including Washington, DC. You will not find big differences between them regarding the operation of your future company, but some of them are more suitable for particular business activities than others. The most “business friendly” ones are usually Delaware, Nevada or Wyoming. Nevertheless, the purpose of starting a company in the US must be taken into account as well.
Do you only need a bank account without a physical branch? Some states will offer you lower fees to form your company in their state.
Do you need to open a physical branch? We recommend having your headquarters in the place of business to avoid having to register the company twice – the so-called foreign qualification – and avoid the extra related paperwork.
You need to have a real address to start a company in the US. You physically don’t need to open a branch if you don’t have a use for it. We usually solve this requirement by using virtual office addresses, which enable you to locate the company in an attractive or prestigious location.
There are no limits to your imagination; perhaps just on a practical note, the name must be available in the relevant state. If it is not, do not lose hope. In most cases, even a slight modification enables carrying out your original plan.
In addition to the name, you need to provide the names and addresses of all people involved in your company, in order to start a company in the US. However, this information is usually provided only to tax authorities and is not publicly available.
The federal Employer Identification Number (EIN), commonly also the Tax ID Number, is issued by the Internal Revenue Service (IRS). This number will accompany your business throughout its existence and is parallel to the European VAT number. For example, you will need it to open a bank account or to file taxes.
Unlike in most European countries, opening a bank account in America can be a difficult procedure. The conditions are getting stricter each year, and it often depends on a bank or a particular banker if your request will be approved at all.
In the globalized society of the 21st century, it is not easy for us to write that physical presence of owners is unfortunately usually required to open an account. Therefore, one must prepare for the entire process. It is optimal to get in touch with a reliable person with good contacts and support the negotiations with the financial institution with his or her credibility.
Do you want to start your company without any unexpected surprises?
Schedule a free consultation for more information.
Have you already started a company?
Make sure you follow operating duties
To start a company in the US, it is usually a quick process. You can order this service the web in a few minutes. However, this apparent shortcut may not necessarily pay off.
Starting a company in the US is a quick process, that you can do on many web sites in just a few minutes. This might not necessarily pay off. Here’s why.
In most cases, setting up the internal processes and modifying them according to the rules governing the US regulatory system is not included in the price of cheaper options. And instead of enjoying your new business life in the US, you may face unpleasant surprises in the form of unexpected penalties and sanctions, which will slow your business success.
Therefore, you should be aware of the following:
Regular financial reports
It’s not just a tax return. Depending on the nature of your business, you may be required by law to have various reporting duties throughout the fiscal year.
Regulatory requirements and compliance
From time to time, we come across the impression that doing business in the US is not regulated in any way. But in reality, thanks to the federal structure of the US governing system, a complex and penalty-laden labyrinth of regulations on the local, state and federal level exists.
For example, there is a complex system of sales taxes for selling physical goods, insurance requirements for selling any type of devices, vast food regulation segment within the Food and Drug Administration (FDA) and specifications with any business connected to the automotive industry.
Complying with such a labyrinth of rules and regulations for each industry means that a universal solution does not exist. Based on our experience, we recommend the use of reliable professionals with case-by-case knowledge to help you navigate the process. We are more than happy to welcome you into our community of experts.