Setting up a business in the US is fairly complex and involves a lot of planning and decision making. Coming into the US as a non-resident makes this process even more difficult. However, once you get past the most difficult step of obtaining a visa, you will follow the same general steps a resident follows. Following the steps below will help you to accelerate the setup of your business in the United States.
A. Choose a business or headquarter location
Choosing a business or headquarter location is one of the most important decisions you will have to make. It requires planning and research. The following is a non-exhaustive list of factors you should consider when making your decision: the demographics, your target customer(s), your brand image, your supply chain, your competition, the local labor market, state minimum wages, your budget, your plans for future growth, and state laws and taxes. Another very important factor to consider is whether the location is business friendly.
B. Determine the appropriate legal structure for your business
There are many legal structures available for you to choose from when setting up your business. Each type of legal entity has its own advantages and disadvantages, which will generally depend on your specific business. In general, the type of business you choose to form will determine your federal, state, and local tax obligations. Business structures in the US include:
C. Sole proprietorship: A sole proprietorship is an unincorporated business that is owned and run by one individual. With a sole proprietorship, there is essentially no distinction between the business and the owner, meaning the owner is entitled to all profits, but is also responsible for all business debts, losses, and liabilities.
There is no formal action required to form a sole proprietorship, in fact, many people form a sole proprietorship without knowing it. If you want to do business under a name other than your own, you will likely be required to file a “doing business as” (DBA) name. A sole proprietorship is not taxed itself, but rather the owner must report income, losses, and expenses on her tax returns.
D. Partnership: A partnership is a business where two or more people share ownership. Each partner also shares in the profits and losses of the business. To form a partnership, you must register your business with your state. You will need to choose a business name, and if it is different than your legal name (or last name), you will most likely have to file a DBA name.
For federal tax purposes, a partnership must file an “annual information return” to report the business’ income, deductions, gains, and losses, but the partnership itself does not pay income tax. The partners include their respective share of the partnership’s income or loss on their personal tax returns.
E. Corporation: A corporation is an independent legal entity that is owned by shareholders. The corporation itself, not the shareholders, is held legally liable for actions and debts of the corporation. Corporations are more complex than other business structures. They often have costly administrative fees and complex tax and legal requirements. A corporation can be private or public.
Corporations are formed under the laws of the state in which they are registered. To form a corporation you will need to establish a business name and register your legal name with your state. Generally corporations must include a corporation designations (e.g., Corporations, Incorporated, Limited) at the end of the business name. To register your business as a corporation, you must file certain documents, typically Articles of Incorporation, with your state. Requirements vary by state, so you should contact your state business entity registration office to find out specific filing requirements in your state.
Corporations are required to pay federal, state, and in some cases, local taxes because they are separate tax-paying entities. Most corporations must register with the IRS and state and local revenue agencies, through which they receive a tax ID number or permit.
F. Limited Liability Company: A limited liability Company (LLC) is a hybrid (between a corporation and a partnership) type of legal structure that provides the limited liability benefits of a corporation and the tax efficiencies and operational flexibility of a partnership. Owners of an LLC are referred to as “members” and, depending on the state, there can be one member, two or more individuals, corporations, or other LLCs. For federal tax purposes, an LLC is not a separate entity, so the business itself is not taxed. All federal income taxes are passed on to the LLC’s member to be paid through their personal income tax. Although the federal government does not tax income on an LLC, some state do, so you should check with your state’s income tax agency.
- Register your business name
If you choose a business name that is anything other than your own personal name, you will need to register it with the appropriate agencies. This process is known as registering your “doing business as” name. A DBA name is a business name that is different than your personal name, your partners’ name. It is the officially registered name of your LLC, corporation, or other entity. When you form a business, the legal name of your business will default to the name of the person or entity that owns the business, unless you choose to rename it and register it as a DBA name.
Not all states require you to register a DBA name. Check with your state or local agencies to learn more about state and local requirements.
Before registering your name, you should conduct a thorough search to see whether your desired business name is already being used by another business. If you choose a name that is similar to or identical to an existing business, especially if it is a competitor, you could face a lawsuit that will disrupt your business.
- Register for federal, state, and local taxes
An Employer Identification Number (EIN), also known as a Federal Tax Identification Number, is used to identify your business entity. Most businesses will need an EIN. There are a number of ways to apply for an EIN, including online. Some states also require that you apply for a state number. State and locality tax laws vary, so you should make sure you understand your tax obligations in your state.
- Obtain any necessary business licenses and permits
To operate your business legally, there are certain licenses and permits you will need to obtain that vary by industry, state, and locality. Virtually every business needs some form of license or permit to operate legally. If your business is involved in activities supervised and regulated by a federal agency, you may need to obtain a federal license or permit. See your State Business License Agency online to find more information about state and local license and permit requirements.
- Set up a business bank account
Opening a business bank account is an important step in setting up your business. Keeping personal and business accounts separate is critically important for a number of reasons, including tax purposes, such as business expense tax deductions and potential auditing, and to help you limit your personal liability. For most types of businesses, you will be able to choose to set up your business bank account(s) either online or in person.
Keep in mind, it may be more difficult for a non-resident to open a US bank account. You will be required to present two types of identification, one of which must be issued by a government, for most this will be a passport. You may be eligible to apply for a driver’s license in your state, which would suffice as one type of identification. Furthermore, you will be required to present original or certified copies of your government issued business entity documents. The required documents will vary depending on the type of entity you have.
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