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Company Formation in the USA: Your Pathway to Business Success

The USA is a land of opportunity, and for aspiring entrepreneurs, it’s a prime location to launch a business. Here at [Trivup], we help you navigate the exciting yet sometimes complex world of company formation in the US.

What is company formation?

Company formation is the process of incorporating (registering) a business in the form of a limited company. When a company is registered, it becomes a separate legal entity; a ‘person’ that is completely distinct from its owners and responsible for its own finances, assets, and liabilities.

Why Choose the USA for Your Business?

Company Formation and Registration in USA

The United States of America (USA), known commonly as the United States (US) or simply America, is one of the most developed countries in the world, both economically and industrially. It is the world’s largest economy by nominal gross domestic product (GDP). Having the largest share of wealth in a single country, the USA is ranked highly on human development index and per capita GDP. The country is a founding member of the World Bank, the United Nations (UN) and the International Monetary Fund (IMF), besides being a part of most of the major international organizations.

The USA harbours a population from various ethnicities and cultures, because of extensive and sustained immigration, as the country has a reputation of welcoming diversity and ambition. Since the 21st century, the country has transitioned from a manufacturing to a service-based economy. However, the manufacturing industry continues to hold strong, with the US being the second-largest exporter of goods, and the largest importer. The US is also the largest producer of electricity and nuclear energy in the world. It is also known for being the home of Hollywood. All in all, the US is a country that abounds in opportunities and resources, attracting the largest horde of people every year that see the nation as a place to fulfil their dreams.

How Do You Start a Company?

To start a company you need an idea. From there, you should conduct market research to determine if there is demand for the product or service and if there are any competitive advantages that you can provide. From there, you should create a business plan, outlining the structure, foundation, mission, goals, and all aspects of your business.

The next step is to fund your business, whether from your personal savings or money raised from friends and family. From there, it is best to decide what kind of business structure you would like to create (e.g., a sole proprietorship or a limited liability company [LLC]). Depending on the business structure, you will have to register the business with your local and state authorities and obtain an employer identification number (EIN) from the IRS.

This guide provides a roadmap to get your business up and running smoothly:

Choose Your Business Structure

Sole Proprietorship

A sole proprietorship in the USA is a company that is owned by 1 person, and is not separate from its owner in terms of legal representation. The owner, also called a sole proprietor, bears unlimited liability for the business, that is, he/she is responsible, in personal capacity, for any debts or obligations of the company. He/she also enjoys the totality of profit derived from the company, with all the income from the business being added on the owner’s personal tax returns (pass-through taxation).

Limited Liability Company (LLC)

A limited liability company (LLC) in the USA is a company that can have multiple owners, called members. The LLC is a separate legal entity from its members. The document governing the administration of an LLC is known as the ‘operating agreement’, and is similar to the Articles of Association in purpose. This document delineates the rules as to how the LLC would be operated, and can be modified as the business grows or changes. An LLC is the most flexible business structure under the US corporate law, providing for easy management and pass-through taxation.

C-corporation

A C-Corporation, also known as a regular corporation, in the USA is a legal entity separate from its owners. It can raise money through the listing of shares. The shareholders, who need not necessarily be American residents, own the stock of the company and elect its Board of Directors. The tax by C-Corporations is paid at the corporate level, and shareholders are taxed on their dividend income. A C-Corporation is ideal for medium to large businesses looking to procure outside venture funding through share instruments, there being no limit to share ownership or transfer for such a business structure.

S-Corporation

A corporation in the USA may choose to file for S-Corporation status by submitting a form to the Internal Revenue Service (IRS). Once this filing is complete, the corporation is taxed on a pass-through basis, i.e., the income from the business is passed through to the shareholders for purposes of tax computation. The rationale behind this is that the profits and losses can be added to the shareholders’ personal tax returns so that they have to pay taxes on profits only once, and not again when the profits are given back to the shareholders as dividend. The advantage of an S-Corporation over a C-Corporation is that it does away with double taxation. By the US corporate law, an S-Corporation cannot have over 100 shareholders, all of whom are required to be US citizens or residents.

Partnership

A partnership in the USA is similar to a sole proprietorship, with the only difference that the former has more than 1 owner.
Business types are set by states in the US, through the state business division or corporations office. Some states may allow certain types of businesses, and many have different regulations and limitations on the company type that can be established there, and who can form each business type. You may check with the respective state secretary and business division to ascertain if the legal entity you are wishing to establish is allowed in that particular state. All states allow LLCs, partnerships and corporations but certain variations on these basic business types may or may not be available.

Select Your State of Incorporation

Each state has its own regulations and fees. Consider factors like business taxes, desired legal framework, and proximity to your target market. Popular choices include Delaware, Nevada, and Wyoming.

Pick a Catchy Business Name

Ensure your chosen name is available and complies with state naming regulations. Conduct a business name search through your chosen state's business filing office.

Obtain an Employer Identification Number (EIN)

An EIN is an IRS-issued tax identification number for your business. It's essential for opening a business bank account, filing taxes, and hiring employees.

Register Your Business with the State

File the necessary paperwork with your chosen state's Secretary of State or corporation commission. Fees vary by state.

Open a Business Bank Account

Separate your business finances from personal finances. This helps establish a clear financial record and simplifies tax filing.

Obtain Business Licenses and Permits

Depending on your industry and location, you might need additional licenses and permits to operate legally. Check with your state and local authorities for specific requirements.

Comply with Tax Regulations

Consult an accountant to understand federal and state tax filing requirements for your chosen business structure.

How much does it cost to register a company in the US?

The cost of registering a company in the USA varies from state to state. You can generally expect to pay anything from $250 to $1,500. You’ll need to consult your local authorities to determine the exact costs of incorporating your business and filing all of the necessary paperwork.

How can a foreigner start a business in the US?

If a foreigner wants to register a business in the US, the process is identical to the one an American citizen would follow. Depending on your visa conditions, it may be beneficial to open a corporation or an LLC in order for the company to be a separate entity that can carry on business even when you’re not in the country.

How do I register as an LLC in the US?

The steps for registering an LLC in the US are similar to other types of businesses. To form this type of company, you’ll need to draw up Articles of Organization and have an operating agreement that’s signed by the LLC’s members.

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