Do you want to know how to incorporate business into the U.S.? Make sure to read the 4 crucial steps on how to form a company in the U.S.
Select a Business Structure
According to Schwartz International tax advisor and lawyer Richard Hartnig, most foreign nationals choose to form a C corporation, which can expand by offering unlimited stock and is typically more appealing to outside investors. However, its profits are taxed twice: once at the corporate level and then as dividends to shareholders.
The benefits to corporate shareholders are usually obvious: corporate stockholders frequently qualify for a lower dividend rate. When the corporate parent sells the U.S. affiliate, it won’t have to pay capital gains as long as the U.S. firm doesn’t primarily hold real estate.
According to Harting, even individual foreign owners are better off with a C company because the structure shields them from direct IRS examination. Foreign individuals are quite reluctant to register for taxation in the United States.
In fact, because of the double tax, C corporation owners pay more for that shield. However, tax planners can lower company income in many circumstances and eliminate much of the double taxation by using salaries, pension costs, and other expenses.
Choose a State For Business Registration
The location of the organization should be determined by its business. If a single state dominates a market, it’s preferable to incorporate there–no way to evade the duties of doing business in, for example, California, a notoriously high-cost jurisdiction, by registering in Nevada or Delaware, two notoriously low-cost jurisdictions. However, if the business is not focused in a single state, most consultants will likely recommend Delaware incorporation, followed by Nevada.
State-specific forms and other regulations for incorporating a company entity vary. Here’s how Delaware, which serves as a basic model for many states, handles incorporation:
- The company’s founders should come up with a unique name.
- They select a registered agent who can receive legal paperwork on behalf of the corporation. (In other states, such as California, a firm with a physical location in the state can operate as its agent.)
- The corporation fills out a one-page certificate of incorporation that includes the company’s name, registered agent’s name and address, the total quantity and par value of the shares the corporation is permitted to issue, and the incorporator’s name and mailing address.
- Once a company is formed, it must file a report ($50) and pay a franchise tax (starting at $175) every year. Though many online services exist to assist with entity formation for a fee that ranges from a few hundred dollars to thousands, the paperwork is generally simple, and states (usually through their secretary of state) provide guidance online to help individuals file the proper paperwork.
Obtain a Federal Employer Identification Number (FEIN)
An Employer Identification Number (EIN) is required to create a bank account, pay taxes, and, in many cases, obtain a company license. Apply for an EIN for free directly with the IRS, rather than paying for it through one of the many online providers with government-sounding web addresses.
However, unless the principal officer (dubbed the “responsible party” by the IRS) has already obtained a separate Taxpayer Identification Number from the agency, the U.S. company cannot submit an application for an EIN online. They must apply by mail or FAX and enter “foreign/none,” where the form asks for a Taxpayer Identification Number.
Once you obtain your EIN in the U.S., you should browse for a business bank account that meets your specific requirements. Rewards, access to brick-and-mortar and online services, the ease of making cash deposits, and the possibility to earn competitive interest rates on your savings are all important considerations.
Foreigners with business or investments in the United States should, in most situations, establish a domestic corporation. Before leaping, seek advice from tax specialists in your home country and the United States, as the regulations for foreign nationals might be more complicated than for citizens.
Doola is a valued partner in assisting international entrepreneurs in forming their businesses in the United States. We enable our customers to incorporate, use U.S. payment systems, and stay legal year after year through ongoing support, business essentials, and a global-first approach. Discover how to form a company in the U.S. by reaching out to us today!