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Embarking on a business venture in the United States can be quite daunting, particularly when it comes to registering your company with the relevant authorities. However, before immersing yourself in the registration process, it’s crucial to have a clear understanding of the expenses associated with registering a company in the US.
Having insight into the upfront investment required enables you to make informed decisions and avoid unexpected financial challenges in the future.
This article seeks to offer a comprehensive breakdown of all the costs linked to company registration in the US, encompassing state and federal government fees, as well as expenses related to legal representation and business formation services that may be necessary throughout this process.
All Costs Involved in Registering a Company
Entrepreneurs can enjoy several advantages by incorporating their startup business, with the primary benefit being safeguarding personal assets from any business-related debts or liabilities. However, various necessary steps are involved in the incorporation process, each of which incurs its own fees or costs.
1. Incorporation Filing Fee With Secretary of State
Under state law, corporations are established by filing the “Articles of Incorporation” or “Certificate of Incorporation” with the Secretary of State. The required filing fee differs from one state to another. In California, for instance, a fee of $100 must be paid to the Secretary of State for the filing process. In Delaware, the fee is set at $89.
It’s important to note that if you wish to expedite your filing request, additional fees will be imposed accordingly.
2. Incorporation Service Fees
Several incorporation services are available to handle your corporation’s necessary paperwork and filing, including Business Rocket, ZenBusiness, LegalZoom, MyCorporation, and CorpNet. These companies offer various service packages with prices ranging from $200 to $1,000 (excluding state filing fees).
Preparing board of directors resolutions, charter documents, and bylaws are typically included in these fees.
3. Attorney’s Fees
If you’re dealing with intricate incorporations involving multiple founders, investors, or complex intellectual property and contract matters, it would be wise to enlist the services of a seasoned startup attorney.
These professionals usually charge an hourly rate ranging from $250 to $600 per hour. Alternatively, certain law firms may provide a fixed fee package for essential services like drafting the charter and other corporate formation documents. With the guidance of experienced startup lawyers, you can avoid common mistakes often encountered by new ventures.
4. Registered Agent Fees
When establishing your company, it’s essential to designate a “registered agent,” also referred to as an “agent for service of process.” This individual or business entity must be authorized to conduct business within the state where your corporation is incorporated.
Their primary responsibility is receiving official legal and tax correspondence on behalf of the company. The registered agent can hold various roles such as an officer, shareholder, director, resident in the state, or even a dedicated registered agent service provider.
Many online incorporation services like ZenBusiness, CorpNet, and MyCompanyWorks offer the best registered agent services alongside their incorporation packages. These services come with an annual fee ranging from $100 to $300. Opting for an external registered agent can safeguard your privacy since their address appears in public records rather than your physical address.
5. Tax ID Fee (None)
In most cases, obtaining a tax ID for your business from the IRS is necessary. This identification number, also called an “Employer Identification Number” (EIN), is a counterpart to individuals’ Social Security numbers but specifically for companies.
When opening a bank account for your business, banks will request your EIN, and it’s required when filing tax returns. Obtaining an EIN can be completed online through the IRS website without any associated fees.
6. Minimum Franchise Tax
Several states require corporations to pay a minimum annual franchise tax, although they may waive it for the first year of operation. For instance, in California, companies are subject to a minimum annual franchise tax of $800.
7. DBA Filing Fee
If you plan to conduct business using a name that differs from the one officially registered with the Secretary of State, submit a certificate known as a “DBA” or “doing business as.” The cost of this certificate is usually relatively low, ranging from $25 to $50. This fee only needs to be paid once.
8. Permit, License, or Registration Fees
Depending on the type of business you have, there may be certain permits, business licenses, or regulations that you need to comply with. These requirements can increase the expenses involved in starting up your business.
- Permits needed for regulated businesses (aviation, agriculture, marijuana dispensaries, bars, etc.)
- Sales tax license or permit
- Home-based business permits
- City and county business permits or licenses
- Zoning permit
- Seller’s Permit
- Health department permits (such as for a restaurant)
- Federal and state tax/employer IDs
Visit the CalGold website, a helpful resource for California businesses seeking permit information and contact details of relevant agencies in the state. Depending on your specific business, it may be necessary to obtain permits or licenses at the federal level.
For guidance on federal permits and licenses, refer to the SBA site mentioned here. Remember that permit and license fees can vary based on factors such as the type of permit/license needed and the state you’re operating in.
9. Annual Filing With the Secretary of State
Certain states, like California, mandate that corporations file an initial and annual report. These reports must include fundamental details about the company such as its address, names of officers, registered agent, and more. In California specifically, this report is referred to as a “Statement of Information,” which incurs a filing fee of $25 for corporations.
10. Stock Sales Exemption Filing
When issuing stock in your company, comply with the registration regulations set by federal and state securities laws. Fortunately, there are exemptions available for many startups that can help them avoid these requirements.
However, remember that certain states may still require you to submit an exemption request and pay a fee ranging from $25 to $50.
Types of Business Entities You Can Open in the US as Non-Resident
Individuals outside the United States can establish a Limited Liability Company (LLC) or C-Corp in any state within the country. The process for registering a business is generally similar for US and non-US residents, although some additional requirements are specifically applicable to non-US residents.
The following are examples of business entities that can be registered by individuals who aren’t US residents:
Limited Liability Company (LLC)
A Limited Liability Company (LLC) is a flexible business organization that merges the liability safeguard of a corporation with the partnership’s tax benefits. This distinct structure ensures that the personal assets of LLC members are safeguarded from any financial obligations or legal liabilities faced by the company, thus offering security to its members.
The adaptability of an LLC is a noteworthy characteristic, as it allows for different tax classifications such as partnership, S corporation, or C corporation. Depending on the business’s specific requirements, this flexibility can lead to substantial tax advantages for members of the LLC.
When foreign individuals aim to establish a business in the United States, opting for an LLC formation often proves highly beneficial. This choice is based on many advantageous factors:
- Limited Liability Protection: As mentioned before, an LLC protects the personal assets of its owners in case of legal action or financial obligations.
- Flexibility: LLCs offer the option to choose the tax treatment that best suits the business’s goals, whether a partnership, S corporation, or C corporation.
- Ease of Formation: Creating an LLC is a simple process often done online through state websites, making it convenient and efficient.
- No Requirements for Citizenship or Residency: Individuals who aren’t U.S. residents can establish an LLC in any state without any restrictions based on citizenship or residency. This enables international business ventures to thrive.
- Lower Costs and Reduced Administrative Burden: LLCs generally have lower fees and involve less paperwork than traditional corporations. This makes them an appealing choice for entrepreneurs engaging in international endeavors.
Cost of Registering Limited Liability Company (LLC)
To commence the process of registering your company as either an LLC or C Corp in the United States, you can adhere to these crucial measures:
- Opt for a Distinctive Business Name: Commence by selecting an exclusive and remarkable name for your LLC or C Corp. This initial phase usually doesn’t involve any direct expenses ($0).
- Seek Assistance from a Professional Company Registration Service: Consider availing the services of a well-known provider specializing in company registration, such as Business Rocket, ZenBusiness or Swyft Filing. The expenses associated with this service generally range from $500 to $1,500. This comprehensive package typically encompasses the following aspects:
- Incorporation Filing: Our service will handle all the necessary paperwork to formally establish your business entity with the state.
- Fees for First-Year Registered Agent: This covers the cost of hiring a registered agent, which is a critical requirement for official correspondence and legal matters.
- Employer Identification Number (EIN): We will assist you in obtaining an EIN, which is an important identifier for tax purposes and compliance.
- Acquiring a Physical U.S. Mailing Address: It’s crucial to have a physical U.S. mailing address to ensure effective communication and compliance with legal obligations.
- Setting Up a U.S. Bank Account: As part of our package, we simplify financial transactions within the country by helping you set up a U.S. bank account.
Read more: How Much Does it Cost to Start an LLC
A C-Corporation, commonly known as a C-Corp, is a unique legal framework for businesses in the United States that’s independent from its owners. It functions as its own separate entity with the ability to enter into contracts, initiate legal actions, pay taxes, and face legal proceedings.
C-corporations are the preferred choice for larger companies and serve as the standard corporate structure. Foreign entrepreneurs who choose to register their businesses as C-Corporations can enjoy several notable benefits:
- Limited Liability Protection: The responsibility for a C-Corporation’s debts and legal obligations does not fall on the owners personally, providing them with valuable limited liability protection.
- Access to US Markets: Entering the profitable US market and expanding operations can be achieved by foreign companies through the establishment of a C-Corporation in the United States. This allows for increased revenue and business growth opportunities.
- Investor Attraction: C-Corporations possess the capability to offer shares, which is an appealing characteristic for attracting investors and obtaining funds for business endeavors.
- Tax Planning Flexibility: C-Corporations have the advantage of being able to utilize different tax deductions and credits, giving them significant flexibility in tax planning.
- Professional Image: C-Corporations can project a highly professional and well-established image, setting them apart from other types of businesses. This can play a crucial role in attracting customers, investors, and strategic partners.
- Transferability: Business owners can easily transfer ownership in a C-Corporation by selling shares, which makes it a flexible option.
Cost of Registering C-Corp
The expenses linked to registering a C-Corporation in the United States as an individual who isn’t a U.S. resident can vary significantly. These variations primarily depend on the specific state chosen for incorporation and the associated fees imposed by that state.
The cost can change depending on whether one utilizes a professional formation service or seeks legal guidance from an attorney with regards to streamlining the process.
In more general terms, establishing a C-Corporation in the U.S. for non-U.S. residents typically involves spending between $500 and $1,500. This range covers various essential components within this cost bracket:
- Incorporation Filing: This part of the expense covers the submission of necessary paperwork and documentation to formally register the C-Corporation with the relevant state authorities.
- Employer Identification Number (EIN): The EIN is an important requirement for tax purposes and is included in the total cost. It plays a critical role in ensuring proper functioning and taxation of the corporation.
- Acquiring a Physical U.S. Mailing Address: A physical mailing address in the United States is often crucial to comply with legal requirements and facilitate effective communication.
- Establishing a U.S. Bank Account: Many individuals who aren’t residents of the United States choose to include the cost of setting up a bank account in their overall budget, making it easier to conduct financial transactions within the country.
Cost of Registering a Business – FAQs
Should I Form a C or S Corporation?
Although types of business structures offer limited liability protection, they’re handled differently regarding taxation. C corporations are subject to taxes at the corporate level when profits are generated and at the individual level when they’re distributed to shareholders. In contrast, S corporations don’t have the option to list their stock shares on a public stock exchange.
In Which U.S. State Should I Form a Corporation?
To minimize the effort and expenses associated with registering as a foreign entity, conducting most of your business activities in one state is advisable.
If your business operations extend across multiple states, consider selecting a location known for its business-friendly environment, like Delaware. This state’s advantageous tax policies make it a popular choice among entrepreneurs.
What Documents Do I Need to Register for a U.S. Corporation?
To establish your company, you’re required to submit articles of incorporation to the secretary of state. This process costs between $100 and $800, depending on the state where your business will operate.
If you’re forming an LLC, it’s essential to draft an operating agreement. To obtain a federal tax ID number (EIN), you can complete the necessary registration with the Internal Revenue Service.
What Type of Business Insurance Will I Need?
Having general liability insurance is crucial for your business, depending on its nature and other factors. This coverage provides protection against costs associated with property damage, injuries, and accidents.
Professional liability insurance is essential to shield yourself from legal actions related to your work. If your company is involved in the sale of manufactured goods, it becomes imperative to have product liability insurance. While the specific requirements for each type of insurance may vary, ensuring sufficient coverage is vital for any business endeavor.
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.