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Venturing into a new business in the United States is an exciting yet daunting endeavor. Creating a business in a foreign land can seem overwhelming due to its complexity.
Luckily, the process of incorporating as a non-citizen is relatively straightforward, and numerous resources are available to help you. This all-encompassing guide is designed to simplify the complexities associated with starting your own company in the US.
How to Start a Business in the United States as a Foreigner – Step-by-Step Guide
Many aspiring foreign entrepreneurs aspire to launch their businesses in the United States. The appeal lies not only in the robust economy and high demand for products and services but also in the additional advantages of setting up a business there.
Nonresidents who establish a U.S.-based company can tap into this lucrative market while benefiting from lower tax rates and stronger legal protections.
One of the most enticing aspects is that neither citizenship nor residency is required to start a small business in the United States.
The process of forming a business entity is much simpler than anticipated. So, let’s delve into the steps involved in forming your own company and provide you with an easy-to-follow checklist to kick-start your entrepreneurial journey.
1. Choose Your Business Structure
Foreign entrepreneurs who aren’t residents of the United States have two main choices when it comes to structuring their businesses. They can either opt for a C Corporation or a Limited Liability Company (LLC), both of which are great options for foreign-owned firms.
While S Corporations are widely chosen by U.S. citizens, they’re not suitable for non-residents. This is because forming an S Corporation in the U.S. is only allowed for shareholders who are either American citizens or permanent resident aliens.
To help you make an informed decision about your options, let’s take a closer look at the C Corporation and the LLC and see if one of these business entity types is right for you.
A C Corporation is a distinct legal entity compared to its owners and shareholders, ensuring the protection of their personal assets from any liabilities or obligations incurred by the company.
All profits and losses are solely associated with the corporation itself. One can freely sell an unlimited number of stocks or shares in a C Corporation and, if desired, even take it public.
It’s worth noting that investors favor this business structure due to its potential for expansion and access to external funding.
There are certain drawbacks to consider when opting for a C Corporation. These include increased paperwork requirements, additional deadlines necessary to maintain compliance as a C Corporation, as well as the issue of double taxation.
Double taxation refers to the corporation paying taxes on its profits and individual shareholders being taxed on dividend income received from the business.
Limited Liability Companies (LLCs)
LLCs offer a level of liability protection that’s comparable to C Corporations but with less stringent compliance obligations.
Individuals who own an LLC are referred to as members, and an LLC has the option to be taxed as a C Corporation or distribute profits and losses directly to its owners. The flexibility of an LLC allows for different tax strategies depending on the preferences of the owners.
2. Choose the State for Formation
Most entrepreneurs who are residents tend to choose the states where they live to establish their businesses. However, as a nonresident, you can register your business entity in any state you prefer.
When it comes to deciding which state is best for your business, there are several factors you should consider. These include the business environment of the state, including its regulations and restrictions, as well as its access to crucial resources like materials and employees.
Another important consideration is the cost of doing business in that particular state. Some states may have high tax rates, while others offer tax incentives specifically designed to attract new businesses.
To find your ideal location for establishing your business, it’s crucial that you thoroughly research each potential state and weigh these important factors against each other. By doing so, you can make an informed decision that aligns with both your short-term and long-term goals for success in entrepreneurship.
3. Obtain a Registered Agent
A resident agent, also known as a registered agent, is an individual or organization that’s officially acknowledged by the state where you incorporate. This person or entity must be located within your state of formation and is designated by your business to accept service of process on its behalf.
If you’re not a resident of the United States, it can be advantageous to have representation in the country to handle legal documentation such as service of process notices, communications from the Secretary of State, and other official government notifications.
Your registered agent can also assist with obtaining and renewing business licenses and ensuring compliance with deadlines.
The requirements for registered agents vary depending on the state. However, they must have a physical street address within that particular state, be available at that address during regular business hours, and be at least 18 years old.
Alternatively, you may choose to hire a company like Northwest Registered Agent that offers registered agent services.
4. Obtain a Taxpayer Identification Number
Every American business must possess a Taxpayer Identification Number (TIN). The TIN is an identification code employed by the IRS for managing tax regulations.
Instances of Taxpayer Identification Numbers encompass:
- Social Security number (SSN)
- Employer Identification Number (EIN)
- Individual Taxpayer Identification Number (ITIN)
- U.S. citizens are mandated to provide their Social Security number when applying for a business Employer Identification Number. However, foreign entrepreneurs lacking a Social Security number have the option to apply for an Individual Taxpayer Identification Number (ITIN) instead.
To acquire an ITIN, fill out the IRS Form W-7. This particular form serves as the application for an Individual Taxpayer Identification Number issued by the IRS. When completing the Form W-7, one must provide supporting documents that verify their foreign status as well as their true identity.
5. Set Up a Business Bank Account
In order to effectively manage a business in the United States, establish a business bank account within the country.
While the implementation of the USA Patriot Act, which followed the events of 9/11, has added complexity to this process for foreigners, it’s still feasible by adhering to specific guidelines set forth by each individual bank.
Typically, you’ll be required to provide your official corporation documents containing an officially registered U.S. address, as well as an ITIN number and a valid passport.
The most favorable approach for opening a U.S. bank account is visiting a branch in person. However, alternative options may be available, such as finding branches of the same bank in your home country that offer overseas setup services.
If these options aren’t viable for you, consider reaching out to various international banks that may have online services specifically designed to assist with account setup.
6. Maintain Business Compliance
In the United States, ensuring compliance with business regulations is an ongoing responsibility even after starting your business. Regardless of whether you have established a C Corporation or an LLC, it’s to file an annual report.
This report serves to update and maintain accurate information about your business, including its physical location, registered agent, and shareholders. Even if there have been no changes from the previous year, this form must be submitted annually.
As a non-resident business owner in the US, you’re obligated by the Internal Revenue Service (IRS) to pay taxes on income generated within the country. There may be a requirement to pay an annual fee to the state where your business is incorporated.
How to Start a Business in the United States as a Foreigner
What if You’d Like to Move to the U.S.?
When you decide to relocate to the United States in order to effectively manage your business, what are your options? There are two visas that you can consider: the E-2 Visa or the EB-5 Visa.
The EB-5 Visa is open to foreign entrepreneurs who invest a minimum of $1 million (or $500,000 if it’s in a targeted employment area) and generate 10 new job opportunities. The E-2 Visa is available for foreign business owners from countries that have treaties with the United States and have less stringent requirements when it comes to job creation and investment.
To obtain an E-2 visa, there are three fundamental criteria that need to be fulfilled:
- Substantiate your genuine ownership and control of funds, including U.S. tax returns. The investment in the business should involve personal financial risks, like having credit card debt and business loans in your name, not the business’s name.
- Maintain hands-on, day-to-day management and operation of the business.
- Demonstrate a substantial investment. While there’s no fixed E-2 Visa amount, you must show that your investment is adequate to support your family and enable future employee hiring.
Since you’ve already begun your business operations in the United States, demonstrate your dedication to bolstering the American economy by making investments and generating employment opportunities.
In case you have any apprehensions regarding Visa approval, seek assistance from a knowledgeable professional.
Will You Need a Visa to Open a US Business?
In the United States, establish and possess a company even if you’re not a citizen. It’s lawful to oversee an LLC or corporation while residing outside of the country, but entrance into the United States necessitates possession of a valid work visa.
Should you require additional information or have any inquiries regarding visa application procedures, please reach out to either the US Embassy in your home country or the US commercial service.
While there are various types of business visas available in America, entrepreneurs tend to favor the E-2 visa. To acquire an E-2 visa, one must satisfy three key prerequisites:
- You need to hold citizenship in a country that has a Treaty of Friendship, Commerce, or Navigation with the United States.
- You must have either already invested or have concrete plans to invest a substantial sum (minimum $100,000) in a U.S. company.
- You should be able to prove that you have a controlling stake in your company, with ownership of 50% or more.
Entrepreneurs who meet certain criteria may be eligible to obtain a ‘Green Card through Investment,’ enabling them to attain permanent residency in the United States.
However, this immigration law specifically pertains to foreign investors who can invest $1 million into a new business endeavor (or at least $500,000 in specified employment areas).
E-2 Visa Alternatives
If the E-2 visa doesn’t seem suitable for your needs, there are numerous other visa options to consider. The US Citizen and Immigration Service’s Entrepreneur Visa Guide provides a comprehensive list of these visas, but among the most frequently used ones are:
- The F-1 OPT (Optional Practical Training) Visa is for F-1 Visa students in the U.S. who wish to establish a business directly related to their university major.
- The H-1B Specialty Occupation Visa mandates employment in a role typically requiring a bachelor’s degree or higher in a specialized field.
- The O-1A Extraordinary Ability and Achievement Visa is awarded to individuals who can demonstrate “extraordinary ability” in fields like sciences, arts, education, business, or athletics, often necessitating sustained national or international recognition.
If you can invest a minimum of $500,000 in your business initially, you might also qualify for a Green Card through Investment. This would grant you permanent residency status in the United States.
What State Should I Register My Business In?
The optimal choice for registering a business is the state where you plan to operate. However, if your company operates online or across multiple regions, it may be beneficial to consider registering in a state with lower tax burdens.
Nevada and Delaware are two states known for their affordable business registration fees. Delaware is particularly popular due to its corporate laws that offer extensive protections for shareholders and directors.
Incorporating in Delaware also has the advantage of not requiring a physical address or bank account. In fact, the state is so welcoming to international entrepreneurs that its corporate law website is available in several languages.
What Is the Process for Registering My Company?
The procedure for registering a foreign business in the US varies slightly from state to state and depends on whether you’re forming an LLC or a C-Corp. Nevertheless, Delaware’s process can serve as a good example of the fundamental steps and requirements:
Select a unique name that has not been previously registered in the United States. To check for existing trademarks, you can utilize the trademark database provided by the US Patent and Trademark Office. It’s necessary for either you or an appointed company agent to be available to receive all legal documents pertaining to your company.
Once you have established your chosen business name and designated an agent, you will be required to complete a certificate of incorporation.
This document includes details such as your company’s name, the address of either yourself or your representative agent, the authorized shares’ value, and information regarding the incorporator’s name and legal address.
The fee associated with filing this certificate begins at $89 but may increase based on factors such as issued stock or raised capital. Following this step, it will be necessary for you to file an incorporation report while also paying any franchise tax obligations that may apply.
To complete the task at hand, it’s crucial that you acquire an Employer Identification Number (EIN). This EIN will grant you the ability to hire staff members, open a bank account, fulfill tax obligations, and obtain any necessary licenses.
To apply for an EIN free of charge, you can do so online through the IRS. However, either you or the principal officer of your company must have already obtained a Taxpayer Identification Number (TIN).
If neither of you possess a TIN, there’s still a way to obtain an EIN- but it requires submitting your application via mail or fax.
Best Business Registration Services in the US for Foreigners
If the idea of starting and registering a business in the United States appears overwhelming, you can seek assistance from registered agent services. These business registration services can help you establish your business without any difficulties. Below are some of the top-rated services available to you.
Firstbase.io simplifies launching a business in the United States by providing a comprehensive online solution through an integrated dashboard. From registering the company to arranging banking services, handling transactions, overseeing payroll, and ensuring continuous adherence to regulations, Firstbase.io addresses all aspects of initiating and managing a business in the US.
Through valuable partnerships, the platform streamlines documentation and procedures for legally establishing your entity. Using Firstbase.io, individuals can access a wide range of advantages that US-based companies enjoy, such as legal protection, conducting transactions in USD, and compliance with US tax laws. The platform guides at each stage to ensure a smooth and accessible process for users.
Using Firstbase Start™, individuals can initiate their enterprise by paying a one-off charge of $399, with a 7-day refund guarantee. For continuous accounting requirements, Firstbase Accounting™ is accessible at $79 per month or $790 annually (16% price reduction). Moreover, Firstbase Agent™ is obtainable at an annual fee of $99 per state. Although Firstbase specializes in overall integration processes, users may seek advice from an attorney for more complex legal matters.
ZenBusiness is a digital LLC formation platform that specializes in assisting entrepreneurs and small business owners with the establishment and expansion of their companies. They offer reasonably priced and extensive packages for LLC formation, which include registered agent services, annual report filing, as well as other notable features.
In addition to this, ZenBusiness provides continuous support and access to valuable resources aimed at ensuring businesses remain compliant and achieve success.
Swyft Filings is a company that focuses on forming LLCs quickly and effortlessly. They provide a variety of services related to LLCs, such as incorporation, ensuring compliance, and acting as a registered agent.
Additionally, Swyft Filings offers personalized assistance to guide businesses through the process of forming an LLC and adhering to both state and federal rules. Their goal is to make the entire process streamlined for their clients.
Tailor Brands is a digital service that specializes in branding and design, assisting businesses in establishing a polished and unified brand image.
They provide various branding options encompassing logo design, business card design, and social media branding. Additionally, Tailor Brands offers an array of design tools and resources for businesses to create and personalize their own branded assets.
The Bottom Line – How to Start a Business in the United States as a Foreigner
In most cases, individuals from foreign countries with business ventures or investments in the United States should consider forming a domestic corporation.
Before proceeding, it is recommended to consult with tax law specialists in both your home country and the U.S. This is important as regulations for foreign nationals can be more complex compared to those for citizens.
About the author
Dr. Alexander Sterling, Esq, a distinguished legal scholar with a business law degree and a Doctor of Juridical Science, is a leading expert in business registration and diverse business departments. Renowned for his academic excellence and practical insights, Dr. Sterling guides businesses through legal complexities, offering invaluable expertise in compliance, corporate governance, and registration processes.
As an accomplished author, his forthcoming book is anticipated to be a comprehensive guide for navigating the dynamic intersection of law and business, providing clarity and practical wisdom for entrepreneurs and legal professionals alike. With a commitment to legal excellence, Dr. Alexander Sterling, Esq, is a trusted authority dedicated to empowering businesses within the ever-evolving legal landscape.