If you’re a non-US resident or non-US citizen, you CAN start a business in United States.
As a business lawyer for non-US entrepreneurs, I’ve assisted hundreds of non-US clients just like you start their business and I can definitely help you with yours.
It is not necessary to be a U.S. citizen or to be a U.S. resident or to have a green card to start and operate an LLC or a Corporation in the U.S.
With a U.S. company, you’ll be able to:
- Sell to U.S. clients
- Open online accounts with Stripe, Amazon, etc.
- Enhance the reputation of your company, both to U.S. customers and overseas, and
- Access the U.S. markets for investors, venture capital, and public markets
If you’re looking start your business in the US as a non-resident or non-citizen, email me at [email protected] to get started.
With that being said…
Here are the 13 actionable steps you need to take to start your business in US in 2018:
1. Decide which business type is right for you
You first will need to decide on which business type is right for you…
LLC or C-Corporation or S-Corporation
The decision to choosing the correct business type is important because the type of business you create determines your tax responsibilities and important personal liability.
It’s important to understand each business type and select one that is best suited for your situation and objectives…
LLC (most recommended in most situations)
LLC is the most common (and typically most recommended) business type in United States.
LLC protects your personal assets from business debts and lawsuits. What this means is that if something happens to your business then your personal assets such as personal bank account, car, and home will be protected.
LLCs are also simpler and cheaper structures for taxation purposes.
LLC has “pass-through” taxation which means your earnings just pass through to your personal income taxes.
I recommend LLCs for most entrepreneurs if you’re trying to keep it simple and easy.
C-Corporation (usually not recommended)
If you’re a non-US resident, you should also consider forming a C-Corporation.
I recommend Corporation for companies who want to have “shares” for their company and who expect to have investors invest in their business.
Corporations are better for investors because investors can passively hold shares without having to worry about tax consequences until they sell them again sometime down the road.
Why Corporation can be bad? The biggest negative is that Corporations are “double taxed.” When a Corporation earns income, the Corporation is taxed. Then anytime the Corporation issues a dividend, the shareholders are taxed on the amount they receive. As a result the income is “taxed twice.”
In summary, if you’re a non-US resident and you’re looking to have shares for your company (where you can easily transfer shares to investors or employees of your company), then C-Corporation makes sense.
However, if you’re a US resident, I would NOT recommend forming a C-Corporation and instead should look to form an S-Corporation (see below…)
S-Corporation (most-recommended for US residents)
If you’re a US-resident, I definitely recommend S-Corporation.
With an S-Corporation, you would be able to avoid self-employment tax which save you usually around 15.3% of your income.
What is S-Corporation? An S-Corporation is an eligible domestic corporation that avoids double taxation (once to the shareholders and again to the corporation) by electing to be taxed as an S-Corporation.
The biggest difference between an S-Corporation and LLC is the pass through taxation.
If you have an LLC and you don’t choose to be taxed as an S Corp, you’re either being taxed at the federal level as a sole proprietor or, if you have multiple members, as a partnership. This just means that the money made (or lost) and distributed by your LLC all passes through to your personal tax return and is only taxed there.
With an S-Corporation, you can pay yourself a “reasonable salary.” This allows you to keep money in your business and not distribute it directly to your personal income tax filing.
Depending on how much money your business makes, one or the other will save you more in taxes.
However, if you’re a non-US resident, you cannot be a shareholder for an S-Corporation. But if you are a US resident, then you should highly consider forming an S-Corporation.
Why not sole proprietorship?
Sole proprietorship is the simplest business entity and it does not require any formal filings.
The huge disadvantage of a Sole Proprietorship and the reason why you should NOT start your business as a Sole Proprietorship is that you will take personal liability for all business matters.
What this means is that if your business gets sued or if something happens to your business, then you will be personally responsible for your business (which you definitely don’t want to do).
So you should 100% look to form an LLC, C-Corporation, or S-Corporation if you’re starting a business.
What if I still don’t know which business type is right for me?
If you still can’t decide which business type is right for you, send me an email at [email protected], tell me a little bit about your business, and I will tell you which business type is right for you!
2. Decide where you should form your LLC or Corporation
If you’re a US resident, you should form your LLC or Corporation in the state in which you have physical presence.
For example, if you’ll be operating your business in California, then you SHOULD form your LLC in California.
However, if you’re a non-US resident and you do NOT plan to have physical presence in the US (meaning that it will operate solely from outside of the US), then you should form your LLC in Delaware, the best and most business-friendly state for non-US residents.
Where you should form your business if you’re a US resident
If you’re a US resident, you should form your LLC or Corporation in the state where you currently have physical presence.
If you’re a US resident, you should ignore all of the Nevada, Wyoming, and Delaware advice and only form your company in the state where you will be doing business.
For example, if you’ll be operating your business in California, then you SHOULD form your LLC in California.
If you choose to form your business in any other state outside of the state where you have actual presence or are physically doing business, you would have to also register your business in your own home state as well.
This is because you need to let your home state know that are you operating a “foreign” LLC in their state, and as a consequence, you would be responsible to pay filing fees and annual fees in BOTH states — which you do NOT what to do.
So the answer really is:
If you’re a US resident, you should form your LLC or Corporation in the state where you’re actually conducting business — this also doesn’t matter if you’re operating an online business.
You should form your business in Delaware if you’re a non-US resident
If you’re a non-US resident, you should form your LLC or Corporation in Delaware.
Delaware is the most business-friendly state for non-US residents. In fact, Delaware is the most popular state for LLCs in the U.S.
The top 3 reasons why Delaware is the best for non-US residents are:
- Cheaper filing fees
- More privacy
- Business-friendly laws
In the past 3 years, all of my non-US clients have been really happy with forming their LLC in Delaware and I’ve never had any issues with Delaware.
That’s why I always recommend Delaware for my non-US clients.
Overall, forming your company in Delaware is generally the easiest and most efficient for non-U.S. residents.
What if my company operates in more than one state?
If your non-US company operates in more than one US state, you may incorporate in any of these states, but you must also register to do business in the other states through a process called Foreign Qualification.
An LLC or Corporation conducting business in one state when incorporated in another is considered a foreign corporation and must qualify as a foreign corporation to legally do business in that state.
For example, a business incorporated in Nevada that wants to do business in California would be considered a foreign corporation in California, and as a result, the Nevada corporation must qualify (or register) as a foreign corporation to do business in California.
If you need Foreign Qualification to conduct business in another state, email me at [email protected] to register your Foreign Qualification
3. Get a Registered Agent
Cost: $45 to $100/year
LLCs and Corporations are required by law to designate and have a Registered Agent with a physical address (not a P.O. Box) during normal business hours to receive important documents on behalf of the business.
Registered Agent is someone with an address in the state where you want to form your LLC in Corporation who accepts legal documents on behalf of your business.
Think of the Registered Agent as a service to ensure you don’t miss any important documents related to lawsuits or state taxes.
These documents include documents related to lawsuits and renewal notices from the state.
Note that a P.O. box is not accepted for a Registered Agent’s address.
Keep in mind that a Registered Agent is not a mail forwarding service and you cannot use the Registered Agent address as your business’ legal address, or even the mailing address of your company.
Registered Agent requirements:
- Registered Agent must be physically located in your state of formation
- Registered Agent must be present at that address continuously during business hours
- Registered Agent’s name and address must always be kept current with the state, and
- Registered Agent’s information will become publicly and can easily be searchable.
To reiterate, you do not need a U.S. address to incorporate a business in United States. Having a Registered Agent is the only requirement related to physical address.
Having a Registered Agent will allow you to form an LLC or Corporation in the U.S..
However, in order to obtain an Employer Identification Number (more on this later) or open up a bank account, you are going to need a U.S. mailing address (not necessarily in the state of formation). In this case we recommend you to look for a “mail forwarding” service provider (more on that below)
You can always shop around online for the best and cheapest Registered Agent service in your desired state of formation — prices will vary from $45 to $100 per year. Please note that this is a recurring fee which you’ll have to pay for every year.
If you need a recommendation for a good Registered Agent service, send me an email at [email protected]
4. Register an LLC or Corporation
Cost: $400 to $1,200
After you’ve decided which business type is right for you (if you still don’t know, you can email me at [email protected]), and after you’ve decided in which state you should form your business in, then you should look to register your LLC or Corporation by filing the necessary filings.
As a business lawyer, I help entrepreneurs form their LLC or Corporation (depending on which type is right for them).
Forming your LLC or Corporation yourself and making sure you’re doing everything correctly is complicated and unless you have a lot of time and patience, I would not recommend it.
Email me at [email protected] to get help register your LLC or Corporation.
How long does the incorporation process take?
How long it takes to register your LLC or Corporation depends on which state you form your business in but it typically can take anywhere from 1 day to 4 weeks, depending on the workload and how long the Secretary of State takes.
Do I need to submit any documents to start my business in the US?
No, you do not need to submit any documents to start your business in United States.
5. Apply for your Employer Identification Number (EIN) (Tax ID)
Every business in United States needs an Employer Identification Number (EIN) (also known as Tax ID number) to start a business.
EIN is a Tax ID number issued by the U.S. Internal Revenue Service (IRS) to identify a business.
Think of an EIN as the social security number for your business. Just as a social security number is important for U.S. citizens to have, an EIN is necessary for an LLC or corporation to lawfully conduct business activities in United States.
You will need an EIN to:
- Start a business
- Open a U.S. bank account
- Hiring employees
- File taxes
If you are a US citizen and you have a Social Security Number (SSN), you may apply for your EIN using IRS’s online website here.
However, if you’re a non-US citizen, you most likely don’t have a Social Security Number (SSN) or Individual Tax Identification Number (ITIN).
If you don’t have an SSN or ITIN, you should do the following:
- Get a business lawyer to act as your third-party designee for you
- The business lawyer will prepare your EIN application and file your EIN application with the IRS
- The business lawyer will receive your EIN on your behalf
To guarantee completion of the EIN application process, I HIGHLY recommended having a business lawyer act as your third-party designee apply for your EIN on your behalf.
6. Get a U.S. Mailing Address (if necessary)
Most U.S. banks also require a mailing address or residential address for opening a bank account.
You can provide your business address if you have a business address in United States.
However, if you don’t have a U.S. address, you can use one of the following companies to get a U.S. address:
- TravelingMailBox.com (from $15/month) (most recommended)
- USAMail1.com (from $10/month)
- EarthClassMail.com (from $99/month) (expensive)
These services provide a U.S. mailing address for your business.
They scan your mails and send you an email. You can either view your mails online or forward those mails to any other international address no matter where you live.
Please note that before you can use their service or forward mail in your mailbox, you may need to submit Form 1583 from the United States Postal Service (USPS) to authorize these services to open your mails on your behalf.
Form 1583 only authorizes these services to receive mail on your behalf. It does not forward any of your current mail to them.
To forward all your mail to your mailbox, you need to submit a Change of Address request to USPS.
For instructions on how to do this, you can read this article.
If you do not want to forward all your mail to the mailbox, do not file the Change of Address with USPS.
Instead, you will need to manually update mailing addresses with those who you want to have mail sent to your new mailbox. Then they will send you automatic email notifications when you receive new postal mail in your mailbox.
7. Open a U.S. Business Bank Account
Cost: Usually Free
Most non-U.S. residents find this step the most challenging when it comes to setting up a business in United States.
If you already have a personal bank account with a US bank you can try calling them to open a business checking account. This is the best option if you already have a personal bank account.
If you don’t live in United States, I would suggest finding a US bank in your country (typically Bank of America, Citi Bank, or Wells Fargo) and calling them to ask what they require.
In most cases, you will be required to walk in to the bank and provide proof of ID (your drivers license or passport) and your EIN.
If you are planning to visit the US in the near future, you can just walk into a bank with the incorporate documents and your EIN to open a bank account.
Be careful: nobody can do this for you and if you find a company offering this service, be aware that you could be victim of fraud.
Below you’ll find my advice on how you can open a US bank account as a non-US resident. Most of my clients have been able to use this advice to help them successfully open a US bank account.
In response to the 9/11 attacks, The Patriot Act has made it difficult for foreigners to open a U.S. bank account.
The Patriot Act requires that banks verify the identity of any person opening an account, and that these persons pass all mandatory anti-money laundering and anti-terrorism checks.
The Patriot Act also makes it nearly impossible if you are from Iran, Iraq, Afghanistan, Pakistan, North Korea, Sudan, Western Balkans, Burma, Liberia, Zimbabwe, or if your name appears on the OFAC (Office of Foreign Assets Control) list of blocked persons or companies.
The requirements for opening a business bank account vary from bank to bank, but typically you will need your incorporation documents (Articles of Organization for an LLC or Articles of Incorporation for a Corporation), your Employer Identification Number (EIN), and 2 pieces of photo identification (such as a Passport or ID card).
When it comes to opening up a U.S. business bank account, you have 4 solutions…
Your best option is to find a U.S. bank (such as Well Fargo, Citibank, or Bank of America) that also has a location locally in your country that will allow you to open up a U.S. bank account. It’s always a good idea to have your bank close to you. You can open up a business bank account in dollars in your home country, if possible, in a bank where they already know you.
First, talk to the bank in the U.S. They will tell you that they need to identify you in person to open your bank account. You can tell them that their local branch in your home country could do that identification on their behalf — then ask if that would work for them. If this is the case, ask for their contact information and ask them to call the local branch you are going to visit.
Then go to that local branch in your country. Tell them you are opening a bank account in the U.S. and that you just need them to identify you with your driver’s license or passport, and tell them that they’ll get a phone call from their headquarters in the U.S. asking for your identification.
The point here is to make the U.S. bank branch in your country provide the identification check in person procedure required by the Patriot Act by meeting them in person with the proper identification.
If for some reason, you can’t or don’t want to open up your bank account in your country, continue reading…
Your next best option is to book a trip to United States to open a bank account. For instance, you could travel to the U.S. with a visitor visa, go to your favorite bank and open up a bank account right away.
You typically will need your incorporation documents, your Employer Identification Number (EIN), and photo identification to open up a bank account in United States.
You don’t necessarily need to travel to the same state in which you are going to setup your company, so it’s best to talk to the bank before you book your ticket.
If you can’t visit the U.S. to open up a bank account yourself, your next option is to have a company which will help people like you open corporate bank accounts in the U.S.
Here are just a few of these options:
- ACME Filings: New Bank Account for US and International Clients
- Futuramax: US Corporate Bank Account Opening
- Inc Plan: US Bank Account
- Global Corporate Services: Open a US Bank Account
- Valis International: US Corporate Bank Account
As a practical matter, that company or individual may need to be either an officer of the company or show a bank-specified resolution documenting his or her authority to open the account.
You can tell a company is real when they warn you that they reserve the right to reject you as a customer. Otherwise, they would be going against the Patriot Act itself.
Also, the Silicon Valley Bank is known for helping foreign entrepreneurs open bank accounts in the U.S. However, this is only possible if you meet certain conditions. SVB works with technology companies from inception through late/public stage that have raised or are raising venture capital funding.
Typically, these companies have proprietary IP in the sectors of software, hardware, life science/biotech, and clean tech, as well as some level of institutional backing. The requirement of having a startup that is investor backingis especially important. Unfortunately, SVB is not able to provide banking services to companies that fall out of scope on these requirements.
Be careful! If you find a company offering this service, be aware that you could be victim of fraud. We don’t recommend this action as this could cause some unforeseeable problems in the future.
As your last resort, if opening up a U.S. bank account is important for you and if you run into difficulties as a foreign company, you can form a U.S. subsidiary, which will like make it much easier to open up an account. Once you create a U.S. subsidiary, you can then take those papers to a bank and open up a U.S. bank account.
Note: If you intend to open a bank account in your home country or if a local company or government office will require proof of the formation of your LLC or Corporation, you may need to have the company formation documents certified with a “Certificate of Authentication” or “Apostille.”
8. Open a Merchant Account to Accept Payment
The most popular options for opening up a merchant account are:
- Stripe.com (does not require a SSN, all you need is an EIN)
- Payoneer.com (great for non-US residents)
- Paypal.com (requires SSN which most non-US citizens do not have)
You can also find other alternatives to Paypal here since Paypal requires a Social Security Number (SSN) which most non-U.S. citizens do not have.
9. Get a U.S. Phone Number
Cost: Free to $9/month
10. Understand your Tax Responsibility
If you’re a non-US resident, you’re taxed in the US only on US-source income.
If you’re a US resident, you’re taxed on your worldwide income.
I’m not an accountant, and I strongly advise that you consult with an accountant about how to deal with business taxes as a non-US resident.
Also, you can refer to this page to help you figure out your tax responsibilities.
Non-U.S. businesses that do not operate in the United States (for example, do not have any income from U.S. sources), do not owe any federal income taxes; however, there may be annual state charges or fees for maintaining the LLC or Corporation.
Non-U.S. companies that do not want to form a business here but merely wish to import their products to the United States should explore import rules by reviewing the Commercial Importing Procedures and Requirements.
As a non-U.S. resident, your LLC will only be taxed in the U.S. on income from U.S. sources, meaning that income from other countries will not be taxed by the U.S.
If you choose to form an LLC, any profits U.S.-sourced income will be taxed by 30%. This 30% goes to the IRS. At the end of the year, you will file your U.S. taxes on Form 1040-NR with the actual amount due. If the amount due is less than the 30% initially taxed, the IRS will issue a refund in the amount overpaid.
To make sure the LLC is sending the proper amount to the IRS, the LLC must designate a tax withholding agent to calculate the proper amount that must be sent to the IRS before any of the money is released.
Because of these difficulties, many non-U.S. residents choose to form Corporations, unless they are forming the LLC to do business strictly outside of the U.S., in which case, the LLC would not owe any U.S. taxes.
If you form a Corporation, your Corporation will be taxed as like any other U.S. corporation. The corporation will pay the same taxes that any other U.S. Corporation would on all U.S.-sourced income and your Delaware Corporation would also be taxed on all foreign earnings, in accordance with U.S. Treasury regulations. Since the corporation was formed in the United States, it is taxed as a domestic corporation and you will file Form 1120.
If you form an LLC, you will need to file annual tax returns Form 1065.
If you form a Corporation, your Corporation will have to file an annual tax return (Form 1120). Your State of Incorporation will also probably request that you renew your incorporation via a form which updates the address of the corporation, its officers and directors, and its registered agent for service of process.
Also, annual tax returns Form 1040 Schedule C are filed by sole proprietorships and IRS Form 1065 for General Partnerships.
If you have any other questions regarding your tax responsibilities as a non-U.S. international resident, visit IRS’s website of Taxation of Nonresident Aliens and IRS’s International Taxpayers portal.
Again, we highly recommend talking to an accountant regarding your tax responsibilities as tax laws are very complicated in United States.
12. Keep your business and personal accounts separate
If you do form an LLC or Corporation, make sure to keep your business and personal accounts separate.
Keeping your business assets separate from your personal assets can help ensure that your LLC or Corporation is solely liable for its debts and liabilities, and that you and other members are protected.
This is very important.
If you don’t maintain this financial separation, you risk losing the liability protection that your LLC or Corporation provides.
To get started separating your assets, follow these steps:
- Consider opening a bank account and credit card account that is entirely in the LLC’s name that will be used only for business expenses
- Consider moving personal property that will be used by the LLC, such as real estate or a vehicle, out of your name and into the name of the LLC
11. Maintain & Pay Annual Fees on Time
Keeping your LLC or Corporation compliant is essential and continues long after you’ve formed your business.
If you do not maintain your LLC or Corporation according to U.S. law, your personal liability protection will be pierced, putting your personal assets at risk.
For a non-U.S. residents, compliance with the law is absolutely essential to avoid visa, immigration and tax problems.
Most states have some form of an ongoing cost for having an LLC or Corporation.
In Delaware, the ongoing cost of a Delaware LLC is an annual fee of $300 due by June 1st, beginning the year following formation.
In California, all California LLCs, regardless of income or activity, must pay an $800 Franchise Tax fee every year. $800 payment for the LLC Franchise Tax is due by 15th day of the 4th month after your LLC is filed.
So make sure you understand what your annual fees are and make sure you pay it on time.
12. Make sure you’re complying with city or county (if you’re a US resident)
Even though you have complied with state laws to form your LLC or Corporation, you need to also contact the city or county where your LLC is located to determine if you need any business license or permit.
These requires vary, depending on where your business is located, and what what industry you’re in.
Please be sure to check with your city or county regarding any required business registrations.
13. Bonus: Other Useful Tools
Here’s a list of other useful tools I recommend when you’re starting your business:
- HelloFax.com – fax number and allows you to fax out documents easily. Post incorporation will require you to fax in & receive a fax back from the Secretary of State or the IRS easily.
- HelloSign.com – makes it easy to important documents and sign those documents online. There will be plenty of PDF documents during and after the business incorporation process that will need to be signed.
Know of a useful tool that’s not included in this list? Email me and let me know!
Starting a business in United States is complicated and challenging.
The biggest mistake entrepreneurs make is never forming an LLC or Corporation before starting their business. This puts important personal assets (such as a personal bank account, home, car, property, etc.) at risk.
Also, for some reason, entrepreneurs have come to believe that using an online company formation service is an acceptable option even when they are getting started with their first business venture.
This couldn’t be further from the truth…
Choosing the right business type and doing everything correctly can save you thousands of dollars in taxes, administration costs and wasted time.
Consulting a business lawyer is a valuable investment if you’re serious about starting your business.
Make the wrong choices, however, and you could find yourself losing control of your company, unable to raise finance or even find yourself in lawsuit trouble.
There’s no simple answer to every entrepreneurs’ needs when it comes to starting a business in the U.S.
The steps to take depend on careful assessment of the business plans, legal rules in the United States and abroad, financing issues and more.
As a business lawyer for entrepreneurs, I’ve assisted hundreds of non-US clients just like you start their business and I can definitely help you with yours.
► If you’re looking to start your business in the U.S., email me at [email protected] to get started