Lots of people dream about being their own boss and starting their own business. The United States is famous for the "American Dream", the idea that if you have a good idea and work hard, you can be successful. That's why many aspiring entrepreneurs see the US as the perfect place to kickstart their ventures. Fun fact: almost half of the Fortune 500 companies were started by immigrants or their kids.
The good news? You don't have to be a US citizen to start a business there, but you do need to know the ropes. Whether you're moving to the US or already living there and want to start your own business, it's crucial to plan ahead. You will need to understand all the procedures that go into starting a business, 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, which are:
- LLC or limited liability company;
- C-Corporation;
- S-Corporation;
- Sole proprietorship.
Limited Liability Company (LLC)
An LLC is a smart choice for starting a business in the US, especially if you're not a citizen. The key benefit is that an LLC shields your personal assets (like your savings, home, and car) from business debts and legal troubles. So, if things don't go according to plan, your personal assets stay safe. Another plus is the simple and cost-effective tax setup. With an LLC, your business earnings flow through your personal income taxes. No need for extra paperwork or separate forms, saving you money on accounting. It's a win-win for protecting assets and keeping taxes hassle-free.
C-Corporation
Considering a business structure, but not a US resident? A C-Corporation might be the best choice for your situation. This setup is great if you're sharing business responsibilities with other investors. Investors love corporations because they can own shares without diving into day-to-day business tasks. However, the issue with this structure is that corporations face double taxation. When the business makes a profit, it gets taxed. Then, when shareholders receive dividends from their shares, they get taxed again. Despite this, a C-Corporation makes sense for non-US residents who want shares that they can easily transfer to others. If you're a US resident, you might want to explore an S-Corporation instead — it's usually a better fit.
S-Corporation
If you are a US resident, then an S-Corporation might be your best bet. Unlike its C-Corporation counterpart, this structure sidesteps double taxation and gets taxed only as an S-Corporation. This makes it a more tax-friendly option for US residents diving into the business world. The major distinction from an LLC? It's all about the tax structure. If you've chosen the LLC route but not the S-Corporation tax status, you'll be taxed like a sole proprietor or, if you have multiple owners, like a partnership. All your business earnings or losses flow through your personal tax return. With an S-Corporation, you have the flexibility to pay yourself a salary, keeping money in the business and avoiding it passing through your personal income tax filing. Depending on your business's profit size, this choice can save you more on taxes. Remember, though, only US residents can be shareholders in an S-Corporation.
Sole Proprietorship
Sole proprietorship is probably the most straightforward way to kick off a business in the US. If you're in business but haven't formally registered any entity, you're automatically a sole proprietor, but here's the downside: personal liability. In a sole proprietorship, your business assets and debts are tied to your personal ones. So, if your business faces financial trouble, you could be personally responsible for all the debts and obligations. It's a quick and easy start, but it comes with a more direct personal risk.
Registering your business in the US
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.
If you are not resident in the US when you start your business, you may wish to acquire a registered agent, also known as a resident agent, which is an individual or entity officially acknowledged by the state where your business is incorporated. This agent must reside within the state where you register the business and is designated by your company to accept legal documents on its behalf.
If you are not yet able to be on the ground in the US, having a registered agent can be very helpful. They can handle important legal paperwork and ensure you obtain and renew business licenses and stay compliant with deadlines.
Each state has its own requirements for registered agents, but generally, they must possess a physical address within the state, be available during regular business hours, and be at least 18 years old. Alternatively, you have the option to enlist the services of a company, like CorpNet, that specializes in providing registered agent services.
Depending on what type of company you are forming, your legal status in the US, and whether you are using an agent, the exact procedures for registering your business may differ.
Ten important steps to consider include:
- 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;
- 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;
- 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;
- 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),
- Your passport;
- 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;
- 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 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;
- 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. NB: 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;
- 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);
- 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;
- Maintaining your business and paying related fees on time. Once you have formed your company, you will need to maintain it in 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 US 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 US Small Business Administration is an official government agency that helps to counsel and assist small business owners.
Visa considerations in the US
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 visas used for expats who start a business in the US 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 US and continue trading. In this case, “trade” includes commercial transactions with goods or 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 non-immigrant 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 for 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:
US Small Business Administration
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