How to Register Your Business in the U.S.A.
How to “Form,” “Register,” License and Permit Your Business in the U.S.A.
First things first, “registration” should not be confused with “formation.” Formation generally refers to the basic step of creating an entity such as a limited liability company or a corporation.
“Registration,” on the other hand, normally refers to “registering to do business” in a given state (e.g., registering for an employer identification number for tax and employment purposes). Other examples of “registration” include registering Your trademark or obtaining necessary licenses or permits to do business. We’ll cover all of that in this article and attempt to do it in the order You would normally encounter these requirements when launching Your business in the U.S.
Launching or starting a business in the U.S. is much easier than You think. You are not required to be a citizen or be here physically, and You do not need a visa. Non-citizens can be an owner, shareholder, member, director and/or officer of a company. However, to actually perform duties in the U.S., You would generally need a visa or some other permitted basis for being in the U.S.
Before we get into the “nuts and bolts” of "forming" and “registering” Your business in the U.S., however, we recommend that You consider the following:
First, we recommend surrounding yourself with a good team. We’re here to help You with that and if we do say so ourselves, You’re off to a great start reading this article.
Next, we recommend that You organize Your priorities:
- Why the U.S.?
- What are Your goals?
- Where in the U.S.?
- Where are Your clients?
- Where are Your employees?
- Where are Your “raw materials”?
- Where do you have a support network?
- Are You ready?
Finally, we also recommend that You carefully consider:
- Your local competition
- Finding Your supply chain
- Comparing state laws and regulations for Your particular business
The decision You make should be one that will meet all the business objectives for Your company in the most cost-effective manner without sacrificing quality. Big cities in the U.S. can bring more business to Your company, but will also like bring more regulation and competition. Each business is different, so You will need to decide what factors are the most important for Your business. Is it the location? Transportation? Accessibility to skilled labor You’ll need to know the answers to those questions to properly "form" and “register” Your business in the U.S. For example, You won’t need to register as an employer in Florida unless You have employees in Florida!
We first need to know the type of business entity You would like to form
The most common choices are an LLC or Corporation (1). To aid in that decision, we need to know:
- Who the “owner(s)” will be (presumably the foreign entity as a “parent”);
- What kind of business the entity (“You”) will be doing (software, manufacturing, services, etc.);
- What kind of “contacts/exposure” You will have to the U.S. (virtual, sales, in person sales and/or “boots on the ground”);
- Expected number of employees (if any);
- If You plan on having employees, where they will reside and physically be doing Your business; and
- Where You would like Your U.S. home office to be.
We normally recommend an LLC because of its flexibility.
Next, We Need to Know Which State You Would Like to Form in
With that said, the actual state You choose to incorporate Your entity in is generally not really an important consideration. We almost universally recommend Delaware given its “business-friendly” and “international-friendly” approach. However, you can form an entity in any state. We are happy to discuss Your alternatives and why we recommend Delaware.
We normally recommend Delaware.
LLC or Corporation Formation Requirements
Once You have decided on the type of entity and where You would like it formed, there are only a few more pieces of information we will need (in addition to the information from above):
The Company Name
First, pick an entity name. (This is different than a trademark (2)) We will undertake a name availability search to be sure Your choice is available in Your chosen state. If it is not available, we will contact You for alternative names.
We highly recommend that one of Your first steps is to conduct a trademark search to see if Your “trademark/brand” (name) is available for use in the U.S. Protecting Your trademark is an important aspect to doing business in the U.S. We also that you secure that brand by way of a U.S. Trademark Registration if that’s possible.
You will need a Registered Agent in the state of formation. A Registered Agent is simply a person or company that has a physical address in the state of formation. The Registered Agent will forward You any official communications and will accept service of process of lawsuits initiated against Your U.S. entity. This is a readily available and normal service.
Formalize the entity with an Operating Agreement/By-Laws and appointment of Directors, Officers, Members, etc.
We recommend that the foreign entity be the sole member of the U.S. entity and that at least one officer be a U.S. resident.
After Your entity has been formed, there are additional steps that You may need to undertake to establish a presence in the U.S. One of these steps is arranging a U.S. business address. A U.S. address is highly recommended and You will need one to open a U.S. bank account.
Cove provides a virtual office solution that will allow You to use its office address as Your U.S. address.(3) Cove will receive and forward You Your mail. Cove’s virtual office solution simplifies the process involved in obtaining a U.S. address.
Obtaining an Employment Identification Number (EIN)
Before obtaining a U.S. bank account or otherwise doing business in the U.S., You will need to obtain an Employer Identification Number (“EIN”). While this is a very simple step, it can be a time consuming process. To obtain an EIN, You will need to designate a “Responsible Party,” who is generally someone associated with either Your U.S entity who has an existing U.S. Social Security Number (“SSN”) or Your parent entity if they have an International Taxpayer Identification Number (“ITIN”).
To complete the application for an EIN number, we need the following information:
- Who You would like the Responsible Party to be? (This should be an officer or other significant person in the ownership or control of the entity);
- The number of employees You expect to be working for Your U.S. entity over the next 12 months; and
- The date that You expect Your U.S. entity to formally issue wages.
Once we have the above information, we will complete the form for You and get it filed once its signed.
As You can see, opening a bank account turns on whether someone associated with your U.S. or parent entity has a SSN or ITIN.
Alternatively, if no one associated with Your U.S. or parent entity has a SSN or ITIN, it may be possible able to arrange for a U.S. citizen to become an officer of Your U.S. entity and act as the Responsible Party (after appropriate vetting) for a limited period of time for a fee. Typically, such a service terminates as soon as the entity has a better Responsible Party and before the end of the first quarter of such services provided Your U.S. entity has obtained either an SSN or ITIN.
Opening a U.S. Bank Account
With an EIN in hand, and assuming You want to accept U.S. payments, You want to open a U.S. bank account. While it may seem very straightforward, there are actually some complexities involved, including a requirement to be physically present at the bank branch to open an account. A virtual U.S. officer can be helpful on this front as well.
“Registrations,” Permits and Licenses
Next, we’ll need to determine if You need any other “registrations,” permits or licenses. To do this we’ll need to look at where You’ve decided to do business and understand actually how Your business will do that (virtually or with a physical presence). Your services, goods, location and business structure determine how You’ll need to register, permit and license Your business. Determine those factors first, and registration becomes very straightforward.
Register with Federal Agencies
Most businesses don't need to register with the federal government to become a legal entity, apart from simply filing to get a federal tax ID. However, many businesses do register with the federal government for trademark, copyright protection or tax-exempt status.
Register with State Agencies
Registering with State(s) agencies, primarily to pay taxes, is part of this same process and that may need to be done even if You don’t have employees. Sales tax is a separate concern which turns on State by State regulations of the sales process.
File for Foreign Qualification in Other States
Foreign qualification normally takes place by way of registering to do business in those States You choose to have a physical presence in (sometimes called qualifying to do business). In essence, this process really just lets the States know that You are doing business there. Foreign qualified businesses typically need to pay taxes, file an annual report and pay certain fees in both their State of formation and States where they’re foreign qualified. You will typically file a Certificate of Authority and many States also require a Certificate of Good Standing from Your State of formation.
Register with Local Agencies
Typically, You don’t need to register with county or city governments within a given State to do business. However, this is not universally true. Depending on the county or city You’ve chosen to do business in You might need to file for licenses and permits from the county or city.
Some counties and cities also require You to register Your trade name or fictitious name if You use one (a “Doing Business As” filing).
State and local governments determine registration, licensing, and permitting requirements, so visit local government websites to find out what You need to do.
FAQs - common questions
Can Non-Residents own an LLC or Corporation in the U.S.A.?
The simple answer is yes. You do not have to be a U.S. resident to own an interest in an LLC or share within a corporation.
Can the Foreign Business Own the U.S. Company?
Yes. A foreign entity can own an interest in an LLC or shares in a corporation. However, neither a foreign entity or person can own shares in an S corporation.
U.S. Personal Taxes for Foreign Entrepreneurs
Simply forming an entity in the U.S. does not affect Your tax residency. As such, that alone will not create an obligation to pay taxes in the U.S.
If You spend a substantial amount of time traveling to the U.S. to conduct business, or plan on moving to the U.S., You should consult with an accountant and tax specialists to determine what the consequences will be for Your personal tax obligations.
Can Foreign Citizens Work in the U.S. If They Own an LLC or Corporation Registered in the U.S.?
Unfortunately, forming an entity in the U.S. does not entitle You to work in the U.S. Generally, foreign citizens cannot receive salary or compensation for work completed while residing in the U.S. unless they first obtain a work visa granting them authorization to work there. Fortunately, launching a U.S. business will likely make it easier for You to successfully apply for certain classes of visas specific to entrepreneurs.
(1) While You can also choose to operate as a partnership or sole proprietorship, those are uncommon choices, but choices we are happy to discuss.
(2) While we determine entity name availability for formation purposes, that does not mean that You will be free to use it in connection with Your goods or services.
(3) Cove virtual office services generally cost between $500-$1,000 per year.