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Incorporation

Setting up a company in United States

When setting up a company you may want to consider these factors:

  1. Business factors

    • The industry and type of business
    • Nationality of the headquarters/individual(s) and
    • Presence of existing trade agreements or relationships
  2. License and Product Approval

    You will need to ensure your products can be lawfully imported into the US, that all legal requirements of US customs and import laws are met, that you have all required licenses and permits to import and sell the products, and that your export and import documentation complies with US law. Also, there is US legislation relating to particular types of products, what they can and cannot contain, labeling, etc. Failure to comply can, in some instances, subject the manufacturer, seller and possibly others to fines and penalties. It can also be ammunition for product liability lawsuits for persons harmed by the products.

  3. Business names, brands and Trademarks

    If you intend to sell goods or services to the USA under a particular trademark, brand name, promotional slogan etc., have your USA lawyer search before you start business, whether the use of the mark, name, slogan, etc. might infringe any existing, third party trademark. If it does not, consider applying for USA trademark protection covering that mark, name, slogan, etc. The same points apply to other types of intellectual property you may have and should protect (e.g., patents, copyrights and designs), though the search and application procedures for each type, and the nature of the rights conferred are different. A company name is not the same thing as a trademark. According to a guide from the UK Government, A registered US federal trademark will provide protection throughout the entire US for the particular goods or services for which it is registered. The name of your US Corporation will give you (weak) protection within the state in which the corporation is formed, and in those other states in which the corporation is registered to do business. The protection offered by a corporate name is different, and much weaker, than the protection accorded by a US federal trademark.

  4. In some countries copyright protection is automatic and doesn’t need to be filed, or indeed isn’t possible to register. However, a guide from the UK Government reports that in the US, if you own items that are or may be protected by copyright, you need to protect them in the US. That is done principally by filing an application for registration with the US Copyright Office. Doing this in a proper and timely way is a must; failure to do so can result in serious problems for the copyright owner.

  5. No single ‘Corporation’ type

    There is no such thing as a “US corporation” per se, although the essential set up steps are consistent among the states. Each of the 50 states has its own laws governing the creation of legal entities, corporations included. The limited liability company (LLC), while offering the limited liability feature, is, for legal, tax, and cost reasons, usually not the appropriate vehicle for UK parties, according to the guide from the UK Government.

  6. Which State to Incorporate In

    A. Which State

    Which state’s laws shall to form a corporation under will vary depending on the particular company’s needs. In most cases, the choice, will come down to: (1) A Delaware corporation; or (2) A corporation formed under the laws of the US state in which the corporation will have its centre of operations (e.g., main office).

    B. Foreign entities

    Because the laws are state-based, a US firm formed in one state can be considered a ‘foreign company’ to another US state, such as in Texas. Sometimes foreign entities are also called “out-of-state entities” to clarify that entities formed in other U.S. states are foreign entities, as well as entities formed outside of the United States.

    C. Multi-state Registration

    If you form a corporation in one US state, doing business in other states means you have to register the corporation to do business in those other states. For example, if you incorporated your business in Delaware for the tax benefits but actually live and work in California, then you will need to register the business in California too. Certain other activities that your corporation performs in US states other than the one in which it is formed may also require its registration to do business there.

    That registration process is generally not difficult, time consuming or expensive. Registering in other states is also much easier than incorporating in each, as you only need one set of bylaws, board of directors, officers, etc. and only need one annual meeting each year and one set of meeting minutes.

    However, what counts as ‘doing business’ in another state? Generally, however, the mere act of selling goods from one American state to a customer in another American state does not normally require the corporation to register to do business in the customer’s state.

    An article on Entrepreneuer.com does provide a useful list of broad guidelines:

    • Does your LLC or corporation have a physical presence in the state (i.e. office, restaurant, or retail store)?
    • Do you hold property in the state?
    • Do you have any W2 employees in the state?
    • Does your company have a bank account in the state?
    • Are you required to hold any special licensing in the state?
    • Will you be shipping products from within the state? (i.e. do you have a warehouse in the state)
    • Did you incorporate your business in a state other than where you live/are physically located?

    Of course, this still depends on the state and can vary. In some states it is based on whether the business has a ‘nexus’ in that state, however what constitutes a nexus is not explicitly defined at law.

    A further challenge is then when registering in multiple states, many businesses are confused about what obligations it brings and factors such as whether sales tax applies in cross-state sales. Some states will require that you have a certificate of good standing from your home state. In most, once you register for interstate business with them, you will be required to file annual reports, fees, and taxes for the state of qualification (in addition to your state of incorporation). This can lead to a lot of administrative overhead, complexity and uncertainty – which means business and legal risks for businesses. Proper tax, legal and business advice is essential.

    Which state you choose will depend on why you are forming the company. Some US states are more “business-friendly” or “international-friendly” than others, especially Delaware, Nevada and Wyoming. For detailed information on these states and picking a state, please visit “Which State to Incorporate or Form an LLC“.

    Mynewcompany.com provides some scenarios:

    1. If you simply want to form a US company because you need to open a US bank account and/or merchant account (to accept credit cards) and will not be opening a US branch or have a physical presence, then you might choose Wyoming which has lower annual state fees (Corporation/LLC:$50) than Delaware (Corporation:$125; LLC:$250), or Nevada (Corporation/LLC:$325). Also Delaware, Nevada and Wyoming banks are more familiar with dealing with international clients without a local office than are many other states. This can make opening a bank account much easier.
    2. If you will be opening a US branch with a physical office (or home-based employee), you may want to choose the state where you will be opening the office. Note that if your office will be operating in, for example, Florida, then you may still choose to form the company in another state like Delaware, however, the state where you are opening the office will want you to “re-register” that Delaware company in Florida. This process is called “foreign qualification” which means you are qualifying the Delaware entity to open a physical business in Florida.
    3. If you want to form a company for the purpose of obtaining US investment or venture capital, you may consider a Delaware Corporation as this is the entity that is required by the vast majority of US investors and venture capitalists. Related Article attorney that specializes in startups recommends setting up a Delaware Corporation.

Your Options

When setting up a company in the US, you have the following options:

  • Corporation (C)
  • Limited Liability Company
  • Branch Office

This article provides a general guideline for foreign businesses on entering the United States for business purposes. In particular it looks at common pathways to establishing a business presence in the United States, generally through a corporation, limited liability company or branch office. In addition various economic, tax and regulatory facts are provided throughout as a source of useful information to assist those who will enter the American economy. The guide also looks at some immigration requirements such as obtaining the appropriate visa status.

Data is based on the time of writing this article, June 2015, or closest available dates.

The United States of America is a federal republic comprised of 50 states, plus the federal district of Washington D.C.

Population: 320,000,000
Capital: Washington D.C
National language: English
Time zone: (UTC−5 to −10) – Summer (DST) (UTC−4 to −10)
Calling code: +1
Currency: US dollar (USD)
Nominal GDP: $17 trillion ($54,596 per capita)
Domain: .us; .com

Due to its British colonial roots, it has a common law influence, although the hundreds of years of independence have led to an evolution away from English law. Most distinctly, while it is a federal republic, the 50 states maintain a high degree of individual law making power, which means the rules and regulations for things such as incorporation, tax rates, employment law and the like can vary state to state. This compounds the complexity of doing business in the US by the fact that a company formed in one state will be technically viewed as “foreign” in another state. Operating in more than one state can require multiple registrations and procedures, and simply offering and accepting orders to customers in other states will count as operating in that state. Nonetheless, setting up a business in the US is not generally difficult, although additional fees such as lawyers, accountants and insurance agents may increase costs significantly.

Example State: Delaware

Many businesses choose Delaware as their domestic state in order to take advantage of its strong corporate law structure—more than 50% of publicly-traded companies in the U.S. and 64% of Fortune 500 companies have incorporated in the state of Delaware.

We have selected Delaware as the ‘case study’ state and for each step where relevant, an example of the procedure in Delaware is cited.

Corporation (C-Corporation)

Companies often form subsidiaries in order to exploit new business opportunities in the hopes of enhancing the position of the parent company, while not exposing the parent company to risk. In the US there are various types of company structures, beyond just ‘company’. Generally a Corporation (also called a “C-Corporation”, “C-Corp” or “Regular Corporation”) or a Limited Liability Company (“LLC”) are the most common, as owners/shareholders are not required to be US residents, these are the most likely form of subsidiary for a foreign company. There is another entity type called an “S-Corporation” but that entity requires all shareholders to be US Citizens.

Owners of the company are called “Shareholders” for Corporations and “Members” for LLC’s.

Requirements/restrictions

A subsidiary corporation must draft bylaws and articles of incorporation.

Neither C-corporations nor LLCs have restrictions on the number of owners the business can have or who can be an owner (in terms of residency). However many states require directors to be natural persons rather than legal entities (e.g. other companies).

For example, in Delaware, directors must be natural persons as per its General Corporation Law.

 Advantages/disadvantages

According to bizfilings.com, C-corps are often the preferred for developing businesses because owners can hold and offer different types of stock interests (such as preferred and common stock), which allow for different levels of dividends. This is one reason why venture capitalists favour C-corporations.

C-corps are subject to higher administrative and reporting requirements. Corporations are also subject to “double taxation” if corporate profits are distributed to owners or shareholders as dividends. C-corporations pay tax on their profits at the entity level and then owners will pay taxes at the individual level on profits received as dividends, resulting in the double tax.

Registration Steps

1. Register an Office or Agent

When forming a company in a state, many will require either a physical presence or a Registered Agent for the purpose of receiving and signing business documents.

If a physical office is required or will be used rather than an agent, a company will require a physical US address for receiving business documents. Virtual office services can also often be used. If you use one of these, you need to submit a notarized form 1583 from USPS to authorize Virtual Post mail to open mails on your (and your company’s behalf).

If a registered agent is required, it can usually be a person or company with a physical address in the state in question that will be available during business hours to accept and sign official legal and state documents for the company. The Registered Agent has a statutory responsibility to accept official state documents and legal documents.

For example, in Delaware, a corporation or LLC requires the appointment of a registered office or agent. If an agent will be appointed it does not have to be an employee of the company, and there are many registered agent services in Delaware that can fulfil the role for a fee.

Time:

Office: n/a

Agent: if using an agent service, 1-14 days depending on agent service

Cost:

Office: no known registration charges (leasing and agent fees will apply)

Agent: prices for registered agent service firms can range from $50-$300 per year

2. Name Search and Reservation (optional)

Although it is not generally required to reserve or register a company name prior to incorporating, it is advisable to check that the company name is not already taken to ensure there are no problems when registering it. Many states have a DBA (Doing Business As) registration requirement to identify the stakeholders and owners of a company. Note that, as stated on the US Small Business Administration, even if a similar name exists, you may still be able to use it if your business and the existing business offer sufficiently different goods or services or are located in different regions.

Luckily, names can be searched at the federal level, so a search can be done from one source. The US Securities and Exchange Commission has a name search at https://www.sec.gov/edgar/searchedgar/companysearch.html. It should also be possible to contact the local state filing office to check if a company name is taken.

You might also want to search for any similar or conflicting trademarks. A business name is not automatically registered or protected as a trademark and the processes are separate, therefore it is possible even if the name doesn’t exist as a company name it may still be a registered trademark that could cause legal problems later down the track. The US Patent and Trademark Office’s (USTPO) has a trademark search tool where you can check to see if there is a similar name or term trademarked.

Finally, it is always good idea to find out if the planned business name has been claimed online, by doing a simple web search to see if anyone is already using that name. You can check whether a specific domain is registered already using the WHOIS database of domain names.

Some states may also allow the reservation of a company name prior to incorporation. For example, in Delaware, reservations can be made online for a fee of $75 per name, and will be held for 120 days. You can go here to check name availability and reserve a name.

Time: Instant (online)

Cost: No charges for search ($75 for name reservation in Delaware)

3. File incorporation papers

The main step of incorporating is the filing of incorporation papers with the local state department that handles the registration of new businesses. Naturally, company documents such as articles of association and constitution, and listing of shareholders will need to be created, usually by an attorney. You may have to pay a fee ranging up to $1,000, depending on the particular state’s fee structure.

In the US, there are also many websites that provide online DIY incorporation services, such as http://www.incorporate.com and http://www.legalzoom.com

In the example state of Delaware, the process is as follows:

Sample forms with instructions and fees are available on the Division of Corporation’s website at http://corp.delaware.gov/newentit09.shtml. A cover sheet with the company name, return address and phone number is required and an example can be downloaded on the website also, at http://corp.delaware.gov/cvrmemo.shtml. Once completed the forms can either be mailed or faxed to the Division of Corporations office.

The mailing address is:

Division of Corporations, John G. Townsend Building, 401 Federal Street, Suite 4, Dover, DE 19901.

All filing fees must be paid upon submission of the request.

Time: 1-14 days (can vary depending on state)

Cost: Depends on the state, but in Delaware, it is $89

4. Obtain a Tax ID/Federal Employer Identification Number (FEIN)

All US corporations will require a Federal Employer Identification Number (FEIN or EIN) for tax purposes even if the corporation will have no employees, and it is also said to be required to open a commercial bank account. It is a nine digit number issued by the IRS.

The quickest and easiest way to obtain an EIN is online, however for this method the corporation’s principal officer must have a US social security number (SSN).

If the principal is a foreign national, then they probably do not have an SSN (or Taxpayer Identification Number), and the process is more difficult. In this situation, according to the IRS itself, it involves filling in form SS04 Application for Employer Identification Number and contacting the IRS.

International applicants may call +1 267-941-1099 (not a toll-free number) 6:00 a.m. to 11:00 p.m. (Eastern Time) Monday through Friday. While they will take the application over the phone, a blog by a US attorney confirms that the IRS will still require the sign and fax the forms afterward before the number will be officially granted.

Apparently, the IRS Philadelphia center (+1 267-941-6800) is apparently the main office in the US that processes EINs for US business that are incorporated from foreign countries. According to small business website Chron, fax applications are sent to +1 267-941-1040, and all mail applications to:

Attn: EIN Operation, Philadelphia, PA 19255-0525.

In either case it is generally necessary to retain a lawyer or qualified person to act as a representative for the corporation and help prepare:

  • Form SS-4 (Application for Employer Identification Number)
  • Form 8821 (Tax Information Authorization)
  • a copy of the Articles of Organization

Once approved, the IRS should fax an EIN confirmation letter to the representative.

Time: 1 week (if done by phone then faxing – otherwise 4-5 weeks)

Cost: no known charge (not including any lawyer/representative fees)

5. Open Commercial Bank Account

Opening a commercial bank account if you are not a US citizen has reportedly become more difficult in recent years due to various US anti-terrorism laws. It may take research and time to find and establish an account. In some states, a registered agent is not allowed to open a bank account for a foreign company directly. This creates another potential major hurdle for non-U.S. businesses, as typically US banks will want to work with their potential clients directly, but dropping everything to appear at the US bank in person may not be an option.

It will of course depend on the state and bank; one account of starting a business mentioned that if you are not in the US at the time of wanting to set up an account, certain banks can accommodate this. Silicon Valley Bank was one example, allowing the person to open an account direct from India. As part of this however, they were asked to submit their business plan to the bank.

In either case, if you select a bank that has both a presence in your US state of formation and your home country, it can help make the process easier. Generally, a bank may require a certified copy of company formation documents, a “Banking Resolution”, and proof of a physical address, which has become a strict requirement and decreases the use of virtual mailboxes. The bank may also require the Employer Identification Number.

Even within Delaware, “no two U.S. banks are exactly the same, and their specific policies and procedures for opening a business bank account for a Delaware corporation can be drastically different”. However, typical requirements for Delaware banks include copies of:

  • Proper identification, such as a passport
  • Certificate of Incorporation, stamped by the Delaware secretary of state
  • Articles of Incorporation (included on the Certificate of Incorporation)
  • Federal Employer Identification Number (EIN)https://www.delawareinc.com/ourservices/tax-id-ein/
  • Banking resolution with corporate seal (often provided by the bank)

In Delaware, registered agents are prohibited from opening up bank accounts for companies they form.

Time: 1 day – 2 weeks (estimates)

Cost: Generally no charge (may require minimum deposit)

6. Register for Payroll Tax

A US company must register for payroll tax in its state of formation. As with most other things, payroll tax is state-based, so the exact procedure will depend upon the state. However, most withholdings from payroll are federal income tax, Social Security and Medicare, so there are IRS rules to comply with as well.

Most states should have similar systems, but of course will need to be checked prior to incorporating.

In Delaware, a company can also register as an employer online, by filing Form CRA (Combined Registration Application for Business License and/or Withholding Agent) at: https://onestop.delaware.gov/osbrlpublic/Home.jsp.

In Delaware the ‘One Stop Business Registration and Licensing System’ allows a company to cover registration with the Division of Revenue, the Division of Unemployment Insurance and the Office of Workers Compensation and also link the IRS. It also can link to the Division of Corporations to access incorporation forms and reserve a legal entity name.

Time: 1-3 days

Cost: no known charges

7. Workers Compensation Insurance

Workers compensation insurance is mandatory for all US companies. It insures the employer from its employee’s claims for job related injury and illness.

In general there is no statutory insurance package; instead you must arrange an appropriate insurance policy through lawyer, insurance broker, etc. and the package offered must meet certain statutory requirements. However, depending on the state it may still be required to formally register the company with a state workers compensation department.

In Delaware, the ‘One Stop Business Registration and Licensing System’ covers registration with the Office of Workers Compensation.

Time: Instant (online)

Cost: No charges

8. Unemployment Insurance

Some states may require the company to also register and contribute to an unemployment insurance fund. Each State administers a separate unemployment insurance program within guidelines established by Federal law.

Generally a form must be submitted to the state’s Department of Labor, after which the employer is assigned an employer account number by the Department of Labor.

For example the ‘One Stop Business Registration and Licensing System’ in Delaware covers registration with the Office of Workers Compensation.

Time: instant (online)

Cost: no charges

9. Publish a notice in local papers

In some states it is required to publish a notice in local papers indicating you have formed a company. The state may designate specific newspapers for these notices. You will generally have to pay to a fee charged by the paper to publish the notice, and in some localities this can cost more than the filing fee.

For example, in Georgia, according to Northwest Registered Agent Inc., corporations must publish a notice of intent to incorporate in a newspaper of the county where the initial registered office of the corporation is to be located. The notice should be published once a week for two consecutive weeks and it should contain the name of the corporation, the name of the registered agent and the address of the registered office in Georgia.

It is not required in all states. In Delaware, for example, it does not appear to be a requirement and is not mentioned on the Companies Division website.

Time: 1-2 weeks (depends on the state)

Cost: publication fee charged by the papers – varies

10. Register Trading Names (optional)

If the company wants to do business under a name other than the existing corporation name, it will need to register a trading name, usually known as a “Doing Business As” name (DBA). Registering a DBA is generally done with the state government, depending on where the business is located. There are a few states that do not require the registering of DBA business names.

In our example state of Delaware, DBAs are registered in the Prothonotary’s office in the county in which you are doing business. You can download the required form from the Delaware Courts website at http://courts.delaware.gov/forms/.

Time: 1-7 days (estimate)

Cost: No known charges

11. Register to Do Business in Other States (optional)

Generally, if formed and operating within one state but performing business transactions in other states, it is a requirement to register with that state’s government for permission to do business there. What counts as doing business in another state varies and can be complicated, and is discussed in detail in the “Things to Consider” section at the beginning of the report. As a summary, simply selling goods to other states does not usually require registration, but activities such as setting up an office or warehouse in other states will.

Registering to do business in other states is known under various terms, such as registering as a foreign entity, foreign qualification, a certificate of registration, or certificate of authority. Every state has its own registration requirements, fees and timelines.

For example, in Delaware, its Department of State specifies that Delaware law requires every corporation that is “doing business” in that state but is formed in another state to submit a completed “Foreign Qualification” form to the Delaware Department of State, along with a copy of the Certificate of Existence (e.g. certificate of incorporation) issued by the state it was formed in with the Delaware Division of Corporations.

Time: varies (estimate: 1-2 weeks)

Cost: varies (Delaware: $245)

Limited Liability Company (LLC)

A limited liability company (LLC) shares many features with corporations but it is rather considered an “unincorporated business entity”, with a flexible management structure. Like a corporation, a limited liability company subsidiary is a separate legal business entity that generates its own revenue and debt, and can be wholly owned by a foreign parent company. In the US, a LLC has become a popular business form, in particular for smaller businesses and partnerships for both US and foreign operations, due to less administrative requirements and more flexible management and tax options.

Requirements/restrictions

By default LLCs have a flexible management structure, aiming to combine the benefits of sole proprietorships and partnerships. It is free to establish any organizational structure agreed upon by company owners in its articles of organization. If a corporate-like structure is desired for the LLC, an LLC operating agreement with special provisions to make the LLC operate like a corporation must be drafted.

In addition, if the subsidiary is to be owned by a foreign parent, the website US Branch Office says the LLC should file a an election to be taxed as a corporation in the U.S. Failure to do so eliminates the tax benefits of having a U.S. subsidiary and means the subsidiary would legally be treated as a branch office.

There is no requirement to have a local director. However many states require directors to be natural persons rather than legal entities (e.g. other companies). For example, in Delaware (General Corporation Law Section 141(b)).

Advantages/disadvantages

LLCs face fewer state-imposed annual requirements and ongoing formalities than S corporations and C corporations, and have a flexible management structure, free to establish any organizational structure agreed upon by the company owners.

An entry on Diffen points out that LLCs limited liability protection is often superior to that of corporations because it is harder to “pierce the corporate veil”.

In addition, an LLC has many advantages as a form of business entity:

  • members (and parent company) are protected from liability for acts and debts of the LLC
  • an LLC has the option to be taxed as a sole proprietor, partnership, S-corp or corporation, providing flexibility
  • if electing to be taxed as a sole proprietor, for example, taxes are calculated and charged at the member level to avoid double-taxation (“Pass-through taxation”)
  • less administrative paperwork and recordkeeping than other company forms.
  • Membership interests of LLCs can be assigned, and the economic benefits of those interests can be separated and assigned, providing the assignee with the economic benefits of distributions of profits/losses (like a partnership), without transferring the title to the membership interest (e.g., see Virginia and Delaware LLC Acts).

Some good examples of the drawbacks to selecting an LLC over another entity are listed on this BizFilings article:

  • If not electing to tax as a corporation, earnings of most members of an LLC are subject to self-employment tax. This is not as good an S-corporation, whereby after paying a “reasonable salary” to shareholders working in the business, the remainder can be passed through as distributions of profits and are not subject to self-employment taxes. Unfortunately as mentioned earlier, S-Corporations can only be formed by US citizens.
  • If not taxing as a corporation, an LLC is considered a partnership for Federal income tax purposes, which means if 50% or more of the capital and profit interests are sold or exchanged within a 12-month period, the LLC will terminate for federal tax purposes.
  • Ownership in an LLC is often harder to transfer than with a corporation. With corporations, shares of stock can be sold to increase ownership. Typically with LLCs, all owners must approve adding new owners or altering the ownership percentages of existing owners.

Registration steps

1. Name Search and Reservation (optional)

Although it is not generally required to reserve or register a company name prior to incorporating, it is advisable to check that the company name is not already taken to ensure there are no problems when registering it. Note that, as stated on the US Small Business Administration, even if a similar name exists, you may still be able to use it if your business and the existing business offer sufficiently different goods or services or are located in different regions.

Luckily, names can be searched at the federal level, so a search can be done from one source. The US Securities and Exchange Commission has a name search at https://www.sec.gov/edgar/searchedgar/companysearch.html. It should also be possible to contact the local state filing office to check if a company name is taken.

You might also want to search for any similar or conflicting trademarks. A business name is not automatically registered or protected as a trademark and the processes are separate, therefore it is possible even if the name doesn’t exist as a company name it may still be a registered trademark that could cause legal problems later down the track. The US Patent and Trademark Office’s (USTPO) has a trademark search tool where you can check to see if there is a similar name or term trademarked.

Finally, it is always good idea to find out if the planned business name has been claimed online, by doing a simple web search to see if anyone is already using that name. You can check whether a specific domain is registered already using the WHOIS database of domain names.

Some states may also allow the reservation of a company name prior to incorporation. For example, in Delaware, reservations can be made online for a fee of $75 per name, and will be held for 120 days. You can go here to check name availability and reserve a name.

Time: Instant (online)

Cost: No charges for search ($75 for name reservation in Delaware)

2. File incorporation papers

After drafting and preparing the appropriate incorporation papers, you can file your LLC papers with your applicable state department that handles the registration of new businesses. You may have to pay a fee ranging up to $1,000, depending on your particular state’s fee structure.

In the US, there are many websites that provide online incorporation services, such as http://www.incorporate.com and http://www.legalzoom.com

Time: 1-14 days (estimation)

Cost: : Depends on the state, but in Delaware, it is $89

3. Obtain a Tax ID/Federal Employer Identification Number (FEIN)

All US corporations will require a Federal Employer Identification Number (FEIN or EIN) for tax purposes even if the corporation will have no employees, and it is also said to be required to open a commercial bank account. It is a nine digit number issued by the IRS.

The quickest and easiest way to obtain an EIN is online, however for this method the corporation’s principal officer must have a US social security number (SSN).

If the principal is a foreign national, then they probably do not have an SSN (or Taxpayer Identification Number), and the process is more difficult. In this situation, according to the IRS itself, it involves filling in form SS04 Application for Employer Identification Number and contacting the IRS.

International applicants may call +1 267-941-1099 (not a toll-free number) 6:00 a.m. to 11:00 p.m. (Eastern Time) Monday through Friday. While they will take the application over the phone, a blog by a US attorney confirms that the IRS will still require the sign and fax the forms afterward before the number will be officially granted.

Apparently, the IRS Philadelphia center (+1 267-941-6800) is apparently the main office in the US that processes EINs for US business that are incorporated from foreign countries. According to small business website Chron, fax applications are sent to +1 267-941-1040, and all mail applications to:

Attn: EIN Operation, Philadelphia, PA 19255-0525.

In either case it is generally necessary to retain a lawyer or qualified person to act as a representative for the corporation and help prepare:

  • Form SS-4 (Application for Employer Identification Number)
  • Form 8821 (Tax Information Authorization)
  • a copy of the Articles of Organisation

Once approved, the IRS should fax an EIN confirmation letter to the representative.

Time: 1 week (if done by phone then faxing – otherwise 4-5 weeks)

Cost: no known charge (not including any lawyer/representative fees)

4. Open Commercial Bank Account

Opening a commercial bank account if you are not a US citizen has reportedly become more difficult in recent years due to various US anti-terrorism laws. It may take research and time to find and establish an account. In some states, a registered agent is not allowed to open a bank account for a foreign company directly. This creates another potential major hurdle for non-U.S. businesses, as typically US banks will want to work with their potential clients directly, but dropping everything to appear at the US bank in person may not be an option.

It will of course depend on the state and bank; one account of starting a business mentioned that if you are not in the US at the time of wanting to set up an account, certain banks can accommodate this. Silicon Valley Bank was one example, allowing the person to open an account direct from India. As part of this however, they were asked to submit their business plan to the bank.

In either case, if you select a bank that has both a presence in your US state of formation and your home country, it can help make the process easier. Generally, a bank may require a certified copy of company formation documents, a “Banking Resolution”, proof of a physical address, etc. The bank may also require the Employer Identification Number.

Even within Delaware, “no two U.S. banks are exactly the same, and their specific policies and procedures for opening a business bank account for a Delaware corporation can be drastically different”. However, typical requirements for Delaware banks include copies of:

  • Proper identification, such as a passport
  • Certificate of Incorporation, stamped by the Delaware secretary of state
  • Articles of Incorporation (included on the Certificate of Incorporation)
  • Federal Employer Identification Number (EIN)https://www.delawareinc.com/ourservices/tax-id-ein/
  • Banking resolution with corporate seal (often provided by the bank)

In Delaware, registered agents are prohibited from opening up bank accounts for companies they form.

Time: 1 day – 2 weeks (estimates)

Cost: Generally no charge (may require minimum deposit)

5. Register for Payroll Tax

A US company must register for payroll tax in its state of formation. As with most other things, payroll tax is state-based, so the exact procedure will depend upon the state.

Most states should have similar systems, but of course will need to be checked prior to incorporating.

In Delaware, a company can also register as an employer online, by filing Form CRA (Combined Registration Application for Business License and/or Withholding Agent) at: https://onestop.delaware.gov/osbrlpublic/Home.jsp. In Delaware the ‘One Stop Business Registration and Licensing System’ allows a company to cover registration with the Division of Revenue, the Division of Unemployment Insurance and the Office of Workers Compensation and also link the IRS. It also can link to the Division of Corporations to access incorporation forms and reserve a legal entity name.

Time: 1-3 days

Cost: no known charges

6. Workers Compensation Insurance

Workers compensation insurance is mandatory for all US companies. It insures the employer from its employee’s claims for job related injury and illness.

In general there is no statutory insurance package, instead you must arrange an appropriate insurance policy through lawyer, insurance broker, etc. and the package offered must meet certain statutory requirements. However, depending on the state it may still be required to formally register the company with a state workers compensation department.

In Delaware, the ‘One Stop Business Registration and Licensing System’ in covers registration with the Office of Workers Compensation.

Time: Instant (online)

Cost: No charges

7. Unemployment Insurance

Some states may require the company to also register and contribute to an unemployment insurance fund. Each State administers a separate unemployment insurance program within guidelines established by Federal law.

Generally a form must be submitted to the state’s Department of Labour, after which the employer is assigned an employer account number by the Department of Labor.

For example the ‘One Stop Business Registration and Licensing System’ in Delaware covers registration with the Office of Workers Compensation.

Time: instant (online)

Cost: no charges

8. Publish a notice in local papers

In some states it is required to publish a notice in local papers indicating you have formed a company. The state may designate specific newspapers for these notices. You will generally have to pay to a fee charged by the paper to publish the notice, and in some localities this can cost more than the filing fee.

For example, in Georgia, according to Northwest Registered Agent Inc., corporations must publish a notice of intent to incorporate in a newspaper of the county where the initial registered office of the corporation is to be located. The notice should be published once a week for two consecutive weeks and it should contain the name of the corporation, the name of the registered agent and the address of the registered office in Georgia.

It is not required in all states. In Delaware, for example, it does not appear to be a requirement and is not mentioned on the Companies Division website.

Time: 1-2 weeks (depends on the state)

Cost: publication fee charged by the papers – varies

9. Register Trading Names (optional)

If the company wants to do business under a name other than the existing corporation name, it will need to register a trading name, usually known as a “Doing Business As” name (DBA). Registering a DBA is generally done with the with the state government, depending on where the business is located. There are a few states that do not require the registering of DBA business names.

In our example state of Delaware, DBAs are registered in the Prothonotary’s office in the county in which you are doing business. You can download the required form from the Delaware Courts website at http://courts.delaware.gov/forms/.

Time: 1-7 days (estimate)

Cost: No known charges

10. Register to Do Business in Other States (optional)

Generally, if formed and operating within one state but performing business transactions in other states, it is a requirement to register with that state’s government for permission to do business there. What counts as doing business in another state varies and can be complicated, and is discussed in detail in the “Things to Consider” section at the beginning of the report. As a summary, simply selling goods to other states does not usually require registration, but activities such as setting up an office or warehouse in other states will.

Registering to do business in other states is known under various terms, such as registering as a foreign entity, foreign qualification, a certificate of registration, or certificate of authority. Every state has its own registration requirements, fees and timelines.

For example, in Delaware, its Department of State specifies that Delaware law requires every corporation that is “doing business” in that state but is formed in another state to submit a completed “Foreign Qualification” form to the Delaware Department of State, along with a copy of the Certificate of Existence (e.g. certificate of incorporation) issued by the state it was formed in with the Delaware Division of Corporations.

Time: varies (Delaware: $245)

Cost: varies, (estimate: 1-2 weeks

Branch Office

A foreign parent corporation operating in the U.S. without incorporating a subsidiary can operate as a branch office. This makes it possible for an overseas company to do business through an intermediary such as a sales representative or distributor.

Requirements/restrictions

The UK Trade and Investment trade services report states that registration requirements of a branch office varies per the laws of the particular US state. The level of activity required to register can vary from establishing a sales office in that state, to having an employee there or simply having a stock of goods there, and others

Even within the US, companies formed in one US state must still register to do business in another US state. In other words, as explained on the Texas Department of State, a branch office of a company formed outside of the United States can be viewed the same as a branch office of a US company formed in another US state. Both are foreign entities.

Advantages/Disadvantages

A branch office is not a separate legal entity of the parent corporation, thus, the foreign parent is responsible for any debts and liabilities of the branch. As reported on PLC legal guide, this can expose the overseas parent company to lawsuits and claims in the US against its assets, liability for US taxes, or possible full audit by the US Internal Revenue Service.

Registration Steps

1. Register to Do Business in Selected State

Registering to do business in other states is known under various terms, depending on the state, such as registering as a foreign entity, foreign qualification, a certificate of registration, or certificate of authority. Every state has its own registration requirements, fees and timelines.

For example, in Delaware, its Department of State specifies that Delaware law requires every corporation that is “doing business” in that state but is formed in another state (including overseas) to submit a completed “Foreign Qualification” form to the Delaware Department of State, along with a copy of the Certificate of Existence (e.g. certificate of incorporation) issued by the state it was formed in with the Delaware Division of Corporations.

Time: varies (Delaware: $245)

Cost: varies, (estimate: 1-2 weeks)

2. Obtain a Tax ID/Federal Employer Identification Number (FEIN)

All US corporations will require a Federal Employer Identification Number (FEIN or EIN) for tax purposes even if the corporation will have no employees, and it is also said to be required to open a commercial bank account. It is a nine digit number issued by the IRS.

The quickest and easiest way to obtain an EIN is online, however for this method the corporation’s principal officer must have a US social security number (SSN).

If the principal is a foreign national, then they probably do not have an SSN (or Taxpayer Identification Number), and the process is more difficult. In this situation, according to the IRS itself, it involves filling in form SS04 Application for Employer Identification Number and contacting the IRS. International applicants may call +1 267-941-1099 (not a toll-free number) 6:00 a.m. to 11:00 p.m. (Eastern Time) Monday through Friday. While they will take the application over the phone, a blog by a US attorney confirms that the IRS will still require the sign and fax the forms afterward before the number will be officially granted.

Apparently, the IRS Philadelphia center (+1 267-941-6800) is apparently the main office in the US that processes EINs for US business that are incorporated from foreign countries. According to small business website Chron, fax applications are sent to +1 267-941-1040, and all mail applications to:

Attn: EIN Operation, Philadelphia, PA 19255-0525.

In either case it is generally necessary to retain a lawyer or qualified person to act as a representative for the corporation and help prepare:

  • Form SS-4 (Application for Employer Identification Number)
  • Form 8821 (Tax Information Authorization)
  • a copy of the Articles of Organisation

 

Once approved, the IRS should fax an EIN confirmation letter to the representative.

Time: 1 week (if done by phone then faxing – otherwise 4-5 weeks)

Cost: no known charge (not including any lawyer/representative fees)

3. Open Commercial Bank Account

Opening a commercial bank account if you are not a US citizen has reportedly become more difficult in recent years due to various US anti-terrorism laws. It may take research and time to find and establish an account. In some states, a registered agent is not allowed to open a bank account for a foreign company directly. This creates another potential major hurdle for non-U.S. businesses, as typically US banks will want to work with their potential clients directly, but dropping everything to appear at the US bank in person may not be an option.

It will of course depend on the state and bank; one account of starting a business mentioned that if you are not in the US at the time of wanting to set up an account, certain banks can accommodate this. Silicon Valley Bank was one example, allowing the person to open an account direct from India. As part of this however, they were asked to submit their business plan to the bank.

In either case, if you select a bank that has both a presence in your US state of formation and your home country, it can help make the process easier. Generally, a bank may require a certified copy of company formation documents, a “Banking Resolution”, proof of a physical address, etc. The bank may also require the Employer Identification Number.

Even within Delaware, “no two U.S. banks are exactly the same, and their specific policies and procedures for opening a business bank account for a Delaware corporation can be drastically different”, reports DelawareInc.com. However, typical requirements for Delaware banks include copies of:

  • Proper identification, such as a passport
  • Certificate of Incorporation, stamped by the Delaware secretary of state
  • Articles of Incorporation (included on the Certificate of Incorporation)
  • Federal Employer Identification Number (EIN)https://www.delawareinc.com/ourservices/tax-id-ein/
  • Banking resolution with corporate seal (often provided by the bank)

In Delaware, registered agents are prohibited from opening up bank accounts for companies they form.

Time: 1 day – 2 weeks (estimate)

Cost: Generally no charge (may require minimum deposit)

4. Register for Payroll Tax

A US company must register for payroll tax in its state of formation. As with most other things, payroll tax is state-based, so the exact procedure will depend upon the state.

Most states should have similar systems, but of course will need to be checked prior to incorporating.

In Delaware, a company can also register as an employer online, by filing Form CRA (Combined Registration Application for Business License and/or Withholding Agent) at: https://onestop.delaware.gov/osbrlpublic/Home.jsp.

In Delaware the ‘One Stop Business Registration and Licensing System’ allows a company to cover registration with the Division of Revenue, the Division of Unemployment Insurance and the Office of Workers Compensation and also link the IRS. It also can link to the Division of Corporations to access incorporation forms and reserve a legal entity name.

Time: 1-3 days

Cost: no known charges

5. Workers Compensation Insurance

Workers compensation insurance is mandatory for all US companies. It insures the employer from its employee’s claims for job related injury and illness.

In general there is no statutory insurance package, instead you must arrange an appropriate insurance policy through lawyer, insurance broker, etc. and the package offered must meet certain statutory requirements. However, depending on the state it may still be required to formally register the company with a state workers compensation department.

In Delaware, the ‘One Stop Business Registration and Licensing System’ in covers registration with the Office of Workers Compensation.

Time: Instant (online)

Cost: No charges

6. Unemployment Insurance

Some states may require the company to also register and contribute to an unemployment insurance fund. Each State administers a separate unemployment insurance program within guidelines established by Federal law.

Generally a form must be submitted to the state’s Department of Labour, after which the employer is assigned an employer account number by the Department of Labor.

For example the ‘One Stop Business Registration and Licensing System’ in Delaware covers registration with the Office of Workers Compensation.

Time: instant (online)

Cost: no charges

7. Publish a notice in local papers

In some states it is required to publish a notice in local papers indicating you have formed a company. The state may designate specific newspapers for these notices. You will generally have to pay to a fee charged by the paper to publish the notice, and in some localities this can cost more than the filing fee.

For example, in Georgia, according to Northwest Registered Agent Inc., corporations must publish a notice of intent to incorporate in a newspaper of the county where the initial registered office of the corporation is to be located. The notice should be published once a week for two consecutive weeks and it should contain the name of the corporation, the name of the registered agent and the address of the registered office in Georgia.

It is not required in all states. In Delaware, for example, it does not appear to be a requirement and is not mentioned on the Companies Division website.

Time: 1-2 weeks (depends on the state)

Cost: publication fee charged by the papers – varies

8. Register Trading Names (optional)

If the company wants to do business under a name other than the existing corporation name, it will need to register a trading name, usually known as a “Doing Business As” name (DBA). Registering a DBA is generally done with the state government, depending on where the business is located. There are a few states that do not require the registering of DBA business names.

In our example state of Delaware, DBAs are registered in the Prothonotary’s office in the county in which you are doing business. You can download the required form from the Delaware Courts website at http://courts.delaware.gov/forms/.

Time: 1-7 days (estimate)

Cost: No known charges

9. Register to Do Business in Other States (optional)

Generally, if formed and operating within one state but performing business transactions in other states, it is a requirement to register with that state’s government for permission to do business there. What counts as doing business in another state varies and can be complicated, and is discussed in detail in the “Things to Consider” section at the beginning of the report. As a summary, simply selling goods to other states does not usually require registration, but activities such as setting up an office or warehouse in other states will.

Registering to do business in other states is known under various terms, such as registering as a foreign entity, foreign qualification, a certificate of registration, or certificate of authority. Every state has its own registration requirements, fees and timelines.

For example, in Delaware, its Department of State specifies that Delaware law requires every corporation that is “doing business” in that state but is formed in another state to submit a completed “Foreign Qualification” form to the Delaware Department of State, along with a copy of the Certificate of Existence (e.g. certificate of incorporation) issued by the state it was formed in with the Delaware Division of Corporations.

Time: varies (Delaware: $245)

Cost: varies, (estimate: 1-2 weeks)

Outsourcing Employment Through a GEO Employer of Record Service

Whether to incorporate in the USA, and what sort of entity to setup are just two of the many choices companies must make when expanding into a new market.

If the company intends to have staff in the USA they must also decide whether they will administer that employment internally or use a Global Employment Organization to handle payroll and Employer of Record responsibilities.  A GEO Employer of Record solution is an attractive alternative where

  • the company is looking to setup an office quickly
  • the company wants to work within a defined budget
  • the company wants to limit its initial commitment in the USA
  • the company needs help with tax, employment, immigration and payroll compliance in the USA

The complexity of employment regulations in USA makes the use of a GEO advisable coupled with local legal counsel to ensure full compliance with employment laws, for example the drafting of local contracts for workers.

Shield GEO provides a comprehensive service in the USA allowing companies to deploy their staff quickly with reasonable, clearly stated costs and timeframes. The company contracts directly with Shield to employ and payroll their staff on their behalf in the USA.

Shield GEO then becomes the Employer of Record. Shield GEO assumes the legal responsibility for these employees, sponsoring them on work permits, complying with local employment law and running their monthly payroll. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into the USA. Read more about outsourced employment through Shield GEO.

 

 

 

Summary of Set Up Steps

C-Corp LLC Branch Time Cost (USD)
Registered Office or Agent Yes 0-14 days 0-300
Check and Reserve Name Optional Optional Instant 0-75
File Incorporation Papers Yes Yes 2-3 days 89
Tax/Employer ID number (EIN) Yes Yes Yes 1 week 0
Open Commercial Bank Account Yes Yes Yes 1-14 days 0
Register for Payroll Tax Yes Yes Yes 1-3 days 0
Register for Workers Compensation Insurance Yes Yes Yes instant 0
Register for Unemployment Insurance Yes Yes Yes instant 0
Publish Notice in Local Papers Yes Yes Yes 1-14 days Varies
Register Trading Names Optional Optional Yes 1-7 days 0
Register Business in Other States Optional Optional Yes 1-2 weeks 245
TOTALS:*applications and processing times, not including internal document preparation, lawyer fees, etc. C-Corp.20-76 days-

$89-709

LLC20-62 days-

$89-409

Branch18-59 days-

$245

 

Add an additional 2-4 months if registering trademarks. However, the business can register and commence without waiting for the trade marks.

Conclusion

Both a corporation and an LLC seem to be largely popular forms of doing business in the US. A comment from an attorney on free legal advice site Avvo notes the U.S. legal system is well-known for a “high incidence of litigation”. This certainly enhances the option of subsidiary, so that foreign companies can have a “legal firewall” between their U.S. operations and the foreign parent company.

Of course, the exact requirements and thus preference can depend upon the state. If most of the business activities of the U.S. entity will be cantered in one state, it is often desirable to just establish the U.S. business entity in that state.

However, it should also be confirmed that selling or advertising or receiving orders from any state counts as ‘operating’ in that state.

If the company will operate in many states, it is worth mentioning that Delaware is a popular state of formation. The website US Branch Office notes that Delaware offers favourable tax treatment (there is a privilege tax — known as a franchise tax — assessed each year based on a notion known as par value; these taxes are quite manageable and for small subsidiaries with insubstantial assets is usually $100- $200 per year), and its corporate income tax is based solely on taxable income derived from business activities in the state of Delaware, thus, most corporations do not attract Delaware state income tax because few to none of their operations will involve Delaware-based activities.

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