The United States is considered one of the best countries in the world for enterprise. Hundreds of thousands of new companies are registered here every year, and it is not only US citizens who can start a business of their own — foreign nationals can too. Approached the right way, an entrepreneur gets access to a large market, a modern financial system and wide scope for growing a business.
Registering a company is only the first step, though. Before starting a business of your own it is important to understand the legal requirements, choose a suitable form of business, prepare the documents and weigh up the costs to come. The better an entrepreneur understands the American system, the easier it will be to avoid mistakes at the start.
Can a foreign national start a business in the United States
Many people believe that only US citizens can register a company of their own. In practice that is not so. The law allows foreign nationals to own businesses and register legal entities in almost every state.
Having a business does not in itself give any right to live or work in the country, though. Registering a company is not a substitute for a visa or an immigration status. If an entrepreneur plans to run the company in person, they have to settle the question of a lawful basis for being in the United States in advance.
Foreign owners quite often set up companies remotely and run them from another country. That arrangement is also entirely permitted under American law. Before registering it is best to decide the aims of the business in advance: whether the company will work only in the American market or whether international activity is planned.
Choosing a legal form
One of the most important decisions is the choice of legal form for the business. It determines taxation, the owners' liability and how the business is run from there on.
The commonest options are:
- LLC (Limited Liability Company) — the most popular form among small businesses, thanks to simple management and limited liability for the owners.
- Corporation (C-Corp or S-Corp) — more often used by large companies, start-ups and businesses that plan to attract investors.
- Sole Proprietorship — sole trading, which is far from suitable for every foreign national.
- Partnership — a form of business run by several partners.
For most new entrepreneurs it is the LLC that is considered the most convenient option, thanks to its flexibility and a relatively simple system of management.
Which state to register the company in
In the United States every company is registered at the level of an individual state. So the rules can differ considerably. Some entrepreneurs choose the state they live in, since that is where the main activity will take place. Others register the company in states known for business-friendly legislation.
The most popular are considered to be:
- Delaware;
- Wyoming;
- Nevada;
- Florida;
- Texas.
There is no universal answer, though. The choice depends on the type of activity, the tax burden, the requirements of the law and where the company actually works. Before registering it is best to study the rules of the particular state or consult a specialist.
How registration works
Once the legal form has been chosen, setting up the company begins. The procedure usually has several stages. First you have to choose a unique company name. It must meet the requirements of the particular state and must not coincide with the name of an organisation that is already registered.
Registration documents are then filed with the government bodies of the state chosen. Once they have been reviewed, the company is officially considered to exist.
The next stage is obtaining the federal tax number, the EIN, which is used to open a bank account, pay taxes and hire staff. After that the entrepreneur can open a corporate bank account and start operating properly.
Obtaining an EIN
An Employer Identification Number is a federal taxpayer identification number for a business. Almost every company needs an EIN.
The number is used:
- to open a bank account;
- to file tax returns;
- to pay wages to staff;
- to deal with government bodies;
- to obtain licences.
Even if a company does not plan to hire staff straight after registration, obtaining an EIN is usually a compulsory stage.
A bank account
Once the company is registered, the next important step is opening a corporate bank account. Keeping personal and corporate finances separate is considered one of the basic principles of doing business in the United States. To open an account the bank usually asks for the company's registration documents, the EIN, the owners' documents and information about what the organisation does.
Some banks require the owner to be there in person, while others let part of the procedure be completed remotely. The choice of bank depends on the region, the size of the business and the financial services needed.
Taxes
The American tax system is considered one of the most complex in the world. Companies may pay federal taxes, state taxes and local charges. What exactly applies depends on the legal form, the type of activity and the region of registration.
Besides tax on profit, there may be:
- sales tax;
- payroll tax;
- local charges;
- special licensing payments.
So most entrepreneurs work with an accountant or a tax adviser from their first months of trading.
Licences and permits
Not every company can start work as soon as it is registered. Some kinds of activity require additional licences or permits.
That applies particularly to:
- restaurants;
- medical services;
- construction;
- financial services;
- transport;
- trade in certain categories of goods.
The requirements are set by federal, state and local authorities.Before launching a business you have to make sure every necessary permit has been obtained.
How much money you will need
The size of the start-up costs depends on the type of business.
The minimum outlay usually includes:
- registering the company;
- obtaining the necessary documents;
- opening a bank account;
- paying for licences;
- accountancy services;
- building a website and marketing.
If the business involves renting premises, equipment or hiring staff, the start-up budget rises considerably. So it is advisable to draw up a detailed financial plan even before registration. Typical mistakes made by new entrepreneurs
Many mistakes arise at the preparation stage. The commonest are considered to be:
- choosing the wrong legal form;
- having no business plan;
- underestimating the tax burden;
- having no reserve budget;
- registering a company without understanding the requirements of the particular state;
- mixing personal and corporate finances.
Studying the law beforehand and consulting specialists helps avoid problems of this kind.
Is it worth going to specialists
The law does not require a lawyer to be involved in registering a business. But professional help often makes the process considerably simpler. A lawyer will help you register the company properly, prepare the documents and avoid mistakes in the corporate structure.
An accountant can find the best tax model and organise your reporting in good time. For entrepreneurs opening a company in the United States for the first time, support of this kind often turns out to be an investment that pays for itself.
Starting a business of your own in the United States is open not only to American citizens but to foreign entrepreneurs. The main things are choosing the right legal form, meeting the requirements of the law and thinking through the financial model of the future company in advance.
Sound preparation, an understanding of the tax system and obtaining the necessary documents in good time reduce the risks considerably and let you concentrate on growing the business. That is exactly why a successful launch begins long before the registration documents arrive — with careful planning of every stage.
End of the article.
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