Company Registration in the USA (United States of America) - An Overview
Registering your company in the United States of America can be a great way of expanding your business. You don't necessarily have to be a US citizen to start a Company there. Any foreign national can register or set up a company in the USA either as an LLC (Limited Liability Company) or Incorporation (Inc) by following the due procedure. Today, entrepreneurs seeking to take their businesses to a global level are eager to set up a company in the United States of America. However, it may not be as simple as one may think. Given the multi-dimensional nature of the registration process, one needs to be aware of the registration process and other related requirements.
Benefits of Company Registration in the USA
United States of America (USA), commonly known as 'States', is one of the most powerful countries in the world, situated in the northern hemisphere of the continent of North America. It is the largest economy in the world and a conglomerate of 50 different states is coming together as a democracy to form one of the largest federations in the world. Every big corporation wants to register its business in the States as the global hub of the digital revolution. This gold rush is due to corporate-friendly schemes and large consumer markets across 50 states. The federal structure of US politics also helps develop corporate-centric ideologies and gives an independent feel to every State of this great country.
Following are the benefits of company registration in the USA:
- Distinguished International Reputation -
Registering your Company in the USA can help you to gain an international reputation for your business. The USA, one of the most popular countries, can give your business due recognition, and people would love to partner with you.
- Business-friendly laws and regulations-
The USA is one of the few countries globally with business-friendly laws and regulations. Companies registered there enjoy various incentives and benefits in terms of lower tax rates. Hence more and more entrepreneurs are attracted to it. Its laws and regulations promote ease of doing business.
- Easier access to capital -
When a business entity registers in the USA as a corporation, the such entity can issue shares and raise equity capital, which can help the entity financially in the long run. Further, applying for and obtaining a bank loan for your company is relatively more straightforward. Registered businesses can access different sources of capital. Hence, banks know that these businesses can quickly repay their debts from these different sources.
- Lower corporate tax-
One of the most common and fundamental reasons to register your company in the USA is that corporate taxes in this country are lower. A number of the states in the USA offer attractive financial incentives to investors who desire to register a company there. These incentives range from lower corporate tax structure to various other tax-related incentives.
- Technologically advanced country-
The USA is one of the most technically advanced and tech-friendly nations. Investors who have set up their companies in the USA already have access to some of the most advanced and cutting-edge technologies. Having such technologies at their disposal can boost business productivity.
Company Registration in the USA: Essential Checklist
Before you go ahead with Company Registration in the United States of America, there are a few points that you must ponder. We have specified a few questions below that must be whose answers should be sought by the entrepreneurs before a business can become operational:
Q- What Kind of a company is being set up, S Corporation, C-Corporation or LLC? ("S" corp. is not available to non-US residents)
Q- In which state will the company be registered?
Q- Where in the US will the company conduct its business?
Q- What kind of activity will it do, and what are its requirements regarding licenses, registrations, permits etc.?
The next question you need to answer is where you want to register your company in the US and where the business shall be conducted.
Different states in the USA have different tax structures, labour charges, and capital requirements. You have to choose according to your business structure and target consumers where you want to set up your business in the USA. According to the location of the company, the dynamics differ for officeholders. Following are the different things that you need to consider before incorporating your business in a particular area:
- Demographics of your employees and Target Audience: Any successful business has two essential things: a good customer base and excellent employee satisfaction on the job. Hence, these factors must be considered while registering your business in the USA. Some common investor-friendly states are Wyoming, South Dakota, Alaska, Florida, Montana, etc.
- Requirements of your supply chain: Supply chain management is an essential feature of a business, according to the type and set-up of your business. The supply chain management issues include transportation, storage, delivery patterns, etc. These are different for every business set-up.
- Local competition: Local competitions are a boon and a bane for any new business set-up. Boon because it indirectly indicates that the product or service you are taking to the market has a customer base in the area where you are planning to do your business, bane because it might overshadow your presence in the market. Hence, it is advised that the business owners know about the local competition in the region.
- Overhead costs: Overhead costs include labour, property, utilities, corporate taxes, incentives, and other day-to-day expenses. It is the responsibility of the business to accommodate these charges according to its business structures and select the area which offers all the services at the least possible charge.
- State and local laws, regulations, and taxes: Being a federation, the United States offers a variety of cultural ethnicity and variations in legal compliance according to the area. Each state has the power to make laws relating to businesses, land, and other civil matters. Hence it is crucial to know the corporate tax policies, employment rates, and other checklists that each State may prescribe for the incorporation of your company. Considering all factors, the states of Wyoming, South Dakota, Alaska, Florida, and Montana offer the best conditions to work in the USA.
- Quality considerations: Quality assurance is necessary not objectively per se but for the mental and spiritual growth of the organisation that is to be incorporated. The labour orientation and skill set are substantial indicative factors in the success of a business. The list is not limited to connectivity, infrastructure (schools and hospitals), risk, and quality of life, which indirectly affect the quality of a corporation's business in the long run.
Eligible Business Structures under Company Registration in the USA
While pondering these questions, the registration procedure will require you to decide on the kind of company you want to set up. This means whether it will be S-Corp, C-Corp or an LLC. While "S" corp. is not available to non-US residents; hence you need to decide between C-Corporation or LLC. Let’s understand all these corporations in detail.
Following are the major types of companies that are commonly adopted by businesses to do business in the USA:
- Limited Liability Company (LLC)
- C Corp
- S Corp
- B Corp
- Close Corporation
- Non-profit Corporation
- Limited Liability Company (LLC)-
A Limited Liability Company, commonly called LLC, is a type of company that consists of both the features of a partnership and a company. Similar to an LLP, the members of an LLC have limited liability. The members generally choose this form of corporate structure to protect their house, vehicles, personal assets etc., against the debts and obligations of the business they undertake.
In the eyes of the law, the members of LLCs are self-employed and hence are liable to pay taxes on their self-employment. An LLC can have one or more owners who are not personally liable. They must pay either self-employment tax, personal tax, or corporate tax.
In some states, LLCs do not have perpetual existence; hence, they have not considered the best jurisdictions for the registration of LLCs. These jurisdictions include New Jersey, New York, California etc. Certain states mandate signing a new agreement altogether on the exit of a member from the LLC.
The structure of an LLC is ideal in the case of those entrepreneurs that want to protect their assets and want to pay lower taxes compared to that of a corporation.
- Corporation or C Corp -
A Corporation or a C Corp is a business entity in the USA with a separate legal personality distinct from its members. It is a distinct legal person that has a right to own and sell property, to sue and be sued. C Corp is distinct from an LLC in that a C Corp has a perpetual succession. This structure offers stronger protection to the members against their assets. Though, they require more money to be incorporated.
It can be incorporated with 1 or more persons, and the owners are not personally liable for the corporation's acts. A C Corp is liable to pay only corporate tax. It pays taxes on its profits and the dividends paid to its shareholders. It is easier for a C Corp to raise investment by selling its shares. It is a good business vehicle for those companies who want to raise investment for their company and eventually go public.
- S Corp -
An S Corp is a Special Corporation where the company is not liable to double taxation as in the case of C Corps. All the profits and losses incurred by the S Corp go to the owners' income; hence, they are not subject to corporate tax. All the states in the USA do not recognise these forms of business entities. Some treat them as C Corp only, while others treat them like an S Corp till they meet a certain threshold in profits and on breaching that limit, they are treated as C Corps only.
A maximum of 100 shareholders can be consist of an S Corp, and all of them are supposed to US citizens only. The owners of these companies are not personally liable and are subject to personal tax only. It has the features of C Corp, and it functions independently from its shareholders.
- Benefit Corporation or B Corp -
A Benefit Corporation commonly referred to as B Corp, is a form of business entity that is a for-profit organisation for doing public good. Along with doing public good, it is driven by profit and mission. These organisations are required to submit benefit reports in some of the states in order to demonstrate their contribution to the public good. These corporations differ from C Corporations in terms of their purpose and accountability. However, they are taxed similar to C Corps only. 1 or more than one person can incorporate a B Corp. Here, the owners are not personally liable for the corporation's activities.
- Closed Corporations -
Closed corporations are similar to B corporations. However, they are less formally structured than the latter. In this way, they are not required to follow too much of formalities that the bigger organisations are supposed to undertake. A small group of shareholders manages its operations and do not have a board of directors. Further, its shares cannot be traded in public.
- Non-Profit Corporations -
A Non-profit Corporation does not earn any profit and functions for the benefit of society. Charities, educational institutions, and religious organisations are set up in the form of Non-profit Corporations. Since these entities do not earn profits, they are exempted from payment of all kinds of taxes. The rules for their incorporation are similar to that of a C Corp. These organisations are required to disclose usage of profits that they made during the year. Though they are exempted from payment of taxes, the profits can be distributed among the members.
Procedure for Company Registration in the USA
An applicant going through the process of company registration in the USA has to follow the below-mentioned prescribed procedure:
- Choosing a desired name for the company
- Choosing the right business structure for your business
- Filing the certificate of incorporation
- Appointment of a Registered Agent
- Preparation of by-laws for the corporation
- Appointment of the first directors
- Distribution of stocks of the corporation to every shareholder
- Obtaining the required business permits and licenses for the company
- Choosing a desired name for the company -
As a business owner, you need to decide upon the name of your prospective corporation to be registered in the USA. Such a name should be unique and not be similar to any other name of a pre-existing company in the USA. Choosing a unique name and registering your IPR according to the repository available at USPTO is key to ensuring the registration of your company. This requires comprehensive dedicated legal research because the law is strict regarding the protection of Intellectual Property Rights in the USA.
- Choosing an appropriate business structure for the company -
The promoters of the company are also required to choose an appropriate business structure for the company. The business structure should be chosen based on the target audience, commercial activities to be undertaken, taxation structure of the corporations in a particular jurisdiction etc. The promoters must decide which business structure mentioned above would be most suitable in order to achieve their objectives.
- Filing the certificate of incorporation -
The company's promoters must file the certificate of incorporation with the Secretary of the respective state. The certificate contains important information related to the company, viz. the name of the company, the purpose of the company and the commercial activities undertaken by the company, the official address of the corporation's registered office, the capital structure of the corporation etc.
- Appointment of a Registered Agent -
A registered agent is a person/entity that resides in the State of incorporation and takes full responsibility for handling communication and other business-related inquiries. Non-resident incorporation must name a registered agent who is available during working hours and may receive and sign documents and attend queries in the business's name.
- Preparation of by-laws for the corporation -
The corporation is also required by law to prepare the by-laws for the corporation, which shall act as the internal rules or ground rules for the internal functioning of the corporation.
- Appointment of the first directors -
The incorporator, i.e. the person who has signed the papers of incorporation, has to appoint the first directors of the corporation and accordingly hold the first board meeting of the corporation. These appointed directors shall remain the directors of the corporation till the conclusion of the first annual meeting of the shareholders. Therefore, these first directors may or may not continue with their directorship.
- Distribution of stocks of the corporation to every shareholder -
Thereafter the stocks are issued by the corporation to every shareholder that has made an investment in the corporation.
- Obtaining the business permits and licenses for the company -
As per the type of business entity, LLC or C-Corp, you must obtain licenses and permits required to carry out your business in a particular state. This is a mandatory requirement that, if left unmet, may lead to the imposition of heavy penalties.
Post-Incorporation requirements for a Corporation in the USA
Once a corporation has been registered, a few more responsibilities are required to be undertaken. These are called post-registration compliances. We have listed some general post-registration requirements, although there may also be some other guidelines that a particular state in the US may prescribe.
- Obtaining EIN/FEIN -
FEIN stands for Federal Employer Identification Number. It is a number issued by the Internal Revenue Service of the USA. The EIN will be required by the Company's Owner whilst opening a bank account in the USA. However, one needs to check with the local banks to see if banks require EIN to open a bank account.
- Opening of a bank account in the name of the company -
It is advised to open a US bank account for handling domestic clients. In the case of foreign ownership, after obtaining EIN/FEIN, a company can open a bank account in the USA. Opening a bank account in the owner's home country is also advised.
- Registered Phone number-
Every company must have a registered phone no. which is open to receive calls and communication. It is the responsibility of the management to check that the line is operational and working during the company's business hours.
- Filing of the annual tax returns of the company -
The company is required to meet all the company's tax requirements, along with the associated post-registration compliance due to be met the company.
- Building a dedicated website and Logo for the company -
Opening a registered company website with a logo, as mentioned in the nomenclature, is essential. This can be beneficial for your business in the long run.
- Filing of Form BE 13 -
The companies that have Non-Resident partners or are owned by residents must fill up the questionnaire, known as Form BE-13, with the Bureau of Economics and Statistics. This is crucial as non-adherence invites a heavy penalty of 2500 USD. This is specifically for foreign investors and not for domestic partners or corporations.
Corporate Tax in the United States of America
Corporate Tax in the USA is imposed at all levels, i.e. Federal, State and local levels, on the income of those entities considered Corporations. The maximum Federal Corporate Tax applicable to corporations in the USA is 21%. In addition to this, states and local governments impose corporate income taxes generally on the same tax base. However, these additional taxes are generally deductible from corporations' federal income tax base. On average, the combined corporate income tax rate is almost 26% in the USA
Documents for Company Registration in the USA
The documents specified below should be kept ready for registration purposes:
- Passport Copies of all the desired officeholders.
- Pan Card (in case of an Indian national) of all the desired officeholders
- Photo Identity Proof (Driving License or any other registered photo ID card) of all the desired officeholders.
- Certificate of Incorporation of the corporation
- Bye-Laws of the corporation
- Utility Bills like electricity, municipal tax receipts or water bills. (If you have a residence in the US, not older than 2 months).
- Specimen Signatures of all the desired officeholders.
- Trade name for your company.
Many investors and entrepreneurs are keen on setting up a company in the USA as it offers them various advantages ranging from enhanced credibility in the international market to taxation benefits, among others. However, one needs to completely understand the incorporation process to register a company in the USA on their own. Hence it is advisable to seek the assistance of a professional in this field. Enterslice provides foreign incorporation services to businesses that seek to either set up their home-grown brand into a foreign company or set up a new company in a foreign market.