How to Start a U.S. Business As a Non-U.S. Foreign Resident
Can you start a U.S. business as a non-U.S. foreign resident from outside of United States?
You certainly can.
Non-U.S. residents can register and start a company in United States in any state.
It is not necessary to be a U.S. citizen or to have a green card to own and operate an LLC or Corporation formed in the U.S.
Accessing the U.S. marketplace is the key to success for many businesses around the world. The most effective way to reach this “land of opportunity” is with a U.S. company.
With a U.S. company, it’s easier to:
- Sell in the U.S. market
- Enhance the reputation of your company, both to U.S. customers and overseas, and
- Access the capital markets in the U.S. for venture capital, angel investors, and public markets
Starting your own business is an exciting and rewarding experience.
However, starting a business in United States as a non-U.S. resident comes with a lot of challenges.
This is Sam Mollaei, Esq., and I’m a business lawyer for non-US resident entrepreneurs and businesses.
Combining the most common challenges faced by non-U.S. entrepreneurs with the best practical advice from a business lawyer’s perspective, this comprehensive guide is a series of necessary steps you need to take to start your business in United States.
Be sure to stay patient and follow all of the steps that I will go through in detail.
I wish you the best with your business and hope you find this guide beneficial.
With that being said...
Here are the necessary steps to legally start a business in United States as a non-U.S. resident…
1. Get a Registered Agent
Cost: $45/year to $100/year
The first thing to do to register your business in the U.S. is to get a Registered Agent.
Registered Agent is an individual or organization who resides in your state of formation who is authorized to receive legal documents on behalf of your business. These documents include documents related to lawsuits and renewal notices from the state.
The Registered Agent must be located in the state where your LLC or Corporation is registered and must have a physical address. Note that a P.O. box is not accepted for a Registered Agent’s address.
Keep in mind that a Registered Agent is not a mail forwarding service and you cannot use the Registered Agent address as your business’ legal address, or even the mailing address of your company. The legal address of your company has to be the real one — your home or office in your country or a mail forwarding service that authorizes you to use their address as yours.
Think of the Registered Agent as a service to ensure you don’t miss any important documents related to lawsuits or state taxes.
- Registered Agent must be physically located in your state of formation,
- Registered Agent must be present at that address continuously during business hours,
- Registered Agent’s name and address must always be kept current with the state, and
- Registered Agent’s information will become publicly and can easily be searchable.
To reiterate, you do not need a U.S. address to incorporate a business in United States. Having a Registered Agent is the only requirement related to physical address. Having a Registered Agent will allow you to form an LLC or Corporation in the U.S..
However, in order to obtain an Employer Identification Number (more on this later) or open up a bank account, you are going to need a U.S. mailing address (not necessarily in the state of formation). In this case we recommend you to look for a “mail forwarding” service provider (see Step #10 under “Other Useful Tools”)
You can always shop around online for the best and cheapest Registered Agent service in your desired state of formation — prices will vary from $45 to $100 per year. Please note that this is a recurring fee which you’ll have to pay for every year.
You can find the cheapest Registered Agent service for Delaware for $45 per year here: https://www.delawareregisteredagent.com/1-year-registered-agent-signup
2. Form a Limited Liability Company (LLC) or Corporation
Cost: $400 to $1,200
The first thing to realize about registering your business in the U.S. is that you will have to register your business in one of the 50 states.
Company formation in United States is administered at the state level — not the federal level — for both foreign non-U.S. citizens or U.S. citizens.
In the U.S., there are two main business types: a Limited Liability Company (LLC) or Corporation. The business entity you choose affects the taxes you pay, the amount of paperwork you deal with, the employee benefits you can offer and more.
You can either have a company, or a business lawyer register your company or you can do it on your own.
Doing it yourself is complicated and unless you have a lot of time and patience, we would not recommend it. Having a business formation service, such as a business lawyer form your business is more beneficial and dependable.
Decide on Your Business Structure: LLC or Corporation?
You first will need to decide on which business structure is right for you…
The decision to choosing the correct business structure is important because the type of business you create determines the type of applications and forms you will need to file. There’s also very important personal liability and tax implications for each business type.
There are generally 2 main types of business structures you can choose from: a Limited Liability Company (LLC) or Corporation.
It’s important to understand each business type and select one that is best suited for your situation and objectives.
Certain business structures limit whether non-U.S. citizens can be owners of a business incorporated in the United States. With LLCs, there are no limitations on the number of owners who can own interests in the business and no restriction on non-U.S. citizens assuming roles as owners.
By contrast, if the corporation distributes profits to the shareholders in the form of dividends, shareholders pay income tax on those distributions; thus, regular Corporations are often criticized for imposing “double taxation.”
To receive pass-through profit distributions, a foreign citizen may form an LLC. In contrast, all profit distributions (called dividends) made by a C-Corporation are subject to double taxation.
Under U.S. tax law, a non-U.S. resident may own shares in a C-Corporation, but may NOT own any shares in an S-Corporation. S-Corporation is exclusive to U.S. citizens or U.S. residents only. For this reason, many foreign citizens form a Limited Liability Company (LLC) instead of a Corporation.
Many non-residents make the mistake of following the advice for U.S. residents without paying particular attention to the unique circumstances of being a non-U.S. resident starting a U.S. business.
Make sure you have fully evaluated your needs for ownership, funding over time, transfer of ownership, paperwork and exit options before deciding on which business structure works best for your personal situation.
A business lawyer can help you choose the right business structure by raising all the necessary considerations, and also by relieving the burden of organizing, drafting, and filing the proper documentation with the Secretary of State.
Why Should You Form a Limited Liability Company (LLC)?
Slowly becoming more as a standard for businesses in the U.S., a Limited Liability Company (commonly known as an “LLC”) is a business structure which offers personal liability protection with a straight-forward tax treatment.
LLC is United State’s most popular form of business.
The owners of an LLC are referred to as "members." Depending on the state, the members can consist of one owner, two or more individuals, corporations, other LLCs, and even other entities.
LLC offers liability protection of your personal assets by establishing your business as a separate legal entity — meaning members are not personally responsible for business debts and liabilities. In other words, your personal assets remain untouchable to cover business debts, claims or lawsuits to the extent than what you invested in the company.
This means that if something happens to your LLC, the owner’s personal possessions, such as car or home, can’t be touched by creditors. So the members of an LLC have no personal liability for the obligations of the LLC.
Also, unlike corporations, LLCs enjoy pass-through taxation — meaning all the profits and losses are “passed through” the business to each members of the LLC. Members report their share of the LLC’s profits and losses on their individual tax returns, and any tax due is paid at the individual level.
Why Should You Form a Corporation?
Corporation is also an independent legal entity, separate from the people who own, control, and manage it.
A Corporation can enter into contracts, incur debts, and pay taxes apart from its owners.
In other words, the Corporation itself, not the shareholders who own it, is held legally liability for the actions and debs the business incurs.
Unlike LLCs, C-Corporations pays taxes on any profits from the corporate level, and from an individual level.
Each business type has its own advantages and disadvantages.
Please note: S-Corporations may NOT include non-U.S. resident shareholders (this could be you). So forget about registering as an S-Corporation.
For more information on comparison between an LLC and Corporation, you can check this useful guide.
We also recommend talking to a business lawyer to help you determine which business structure would be best suited for your business.
Where Should You Register Your Business?
When it comes to deciding which state to register your business in, there are a few things to keep in mind…
This answer depends on whether your company has an actual presence in the United States. If you will have any kind physical presence or office in the US, then you should incorporate in that state.
For example, if your company has an office in California you may wish to incorporate your business in California.
On the other hand, if you are a non-U.S. resident and do not plan to have a physical presence in United States (operating solely from overseas), then you can form your LLC or Corporation in any state, preferably in Delaware.
Why is Delaware the Best State to Form an LLC or Corporation?
Delaware is considered to be the most business-friendly state for incorporating.
In fact, Delaware is America’s most popular state to form an LLC or Corporation. More than half a million business entities have their legal home in Delaware including more than 50% of all U.S. publicly-traded companies and 60% of the Fortune 500 companies.
For foreigners, the best incorporate state is Delaware because it is foreigner-friendly. More specifically, there is no need to have a physical address in Delaware — what this means is that you can have your business address in your country. Also, there is no need to have a bank account in Delaware.
Further, if you have a Corporation, there is no state corporate income tax on Delaware Corporations that do not operate within Delaware.
Overall, forming your company in Delaware is generally the easiest and most efficient for non-U.S. residents.
Top 3 Reasons to Register Your Business in Delaware
- Flexible favorable laws - Delaware’s General Corporation Law is the most advanced and flexible business formation law in United States. Also, if you end up going to court to settle a dispute, Delaware’s Court of Chancery uses judges instead of juries — this is favorable because it places your business’ legal fate in the hands of a well-trained expert than regular people.
- Privacy - Delaware does not require members, director or officer names to be listed in the formation documents. Limited information collected by Delaware makes it an ideal jurisdiction for clients who are concerned about protecting their identity. For people who prefer not to be publicly identified, forming a company in Delaware is the way to go.
- Cheaper filing fee - Currently, Delaware’s filing fee is $90 which is cheaper than California ($100 — but they charge you $800 every year for Franchise Tax fees), New York ($125), and a lot cheaper than Texas ($300).
What About Forming Your Business in California?
California certainly could be a good place to form your LLC or Corporation.
However, California is not very foreigner-friendly and has higher taxes than other states. Also, in order to register your company in California, you need to have a physical address there, which implies opening an office with its own zip code (P.O. Box does not count).
What if Your Company Operates in More than One State?
If your non-U.S. company operates in more than one U.S. state, you may incorporate in any of these states, but you must also register to do business in the other states through a process called Foreign Qualification.
An LLC or Corporation conducting business in one state when incorporated in another is considered a foreign corporation and must qualify as a foreign corporation to legally do business in that state.
For example, a business incorporated in Nevada that wants to do business in California would be considered a foreign corporation in California, and as a result, the Nevada corporation must qualify (or register) as a foreign corporation to do business in California.
You can seek the help of a business lawyer to help you process Foreign Qualification.
How Long Does the Incorporation Process Take?
Processing times for incorporating a company vary among the different states and change constantly depending on the workload at the state office. You can check your state’s processing times to have an estimation of how long is going to take your business incorporation.
Do I Need to Submit Any Documents to Incorporate Your Business in the U.S.?
No, you do not need to submit any documents to incorporate your business in United States.
Insider Tip! In most cases, your type of business may dictate the choice of your business type, so it is vital to consult with a business lawyer familiar with U.S. law to make an informed decision to which business structure is best for your business.
3. Apply for an Employer Identification Number (EIN)
Every business in the U.S. needs an Employer Identification Number (EIN) (also known as Tax Identification Number or Tax ID number).
EIN is a number issued by the U.S Internal Revenue Service (IRS) to identify a business.
Think of an EIN as the social security number for your business. Just as a social security number is important for U.S. citizens to have, an EIN is necessary for an LLC or corporation to lawfully conduct business activities, especially if you're operating a business in the United States.
EIN is used for a number of business needs including:
- Opening a U.S. bank account
- Conducting business in the U.S.
- Hiring employees
- Filing taxes
- When an LLC or Corporation if formed
- Filing taxes
- Obtaining loans
If you are a U.S. citizen and have a U.S. Social Security (SSN), you may apply for your EIN using IRS’s online website here: https://sa.www4.irs.gov/modiein/individual/index.jsp
However, as a non-U.S. citizen, you most likely do not have a Social Security Number (SSN).
If you do not have a U.S. Social Security Number (SSN), the following process should be followed:
- Get a business lawyer to act as a third-party designee for you
- The business lawyer will prepare your EIN application and contact the IRS
- The business lawyer will receive your EIN on your behalf
To guarantee completion of the EIN application process, it is highly recommended to have a business lawyer act as your third-party designee apply for your EIN on your behalf.
4. Get a U.S. Mailing Address
You will also need a U.S. mailing address for receiving business mail.
As a non-U.S. resident, you mostly likely do not have a physical address in United States.
There are several mail service forwarding providers.
We recommend Virtualpostmail.com – Virtual Post Mail provides a U.S. mailing address for your business.
They scan your mails and send you an email. You can either view your mails online or forward those mails to any other international address no matter where you live.
Please note, before you can operate your account, you need to submit a notarized Form 1583 from the United States Postal Service (USPS) to authorize Virtual Post Mail to open your mails on your behalf.
5. Open Up a U.S. Business Bank Account
Most non-U.S. residents find this step the most challenging when it comes to setting up a business in United States.
In response to the 9/11 attacks, The Patriot Act has made it difficult for foreigners to open a U.S. bank account.
The Patriot Act requires that banks verify the identity of any person opening an account, and that these persons pass all mandatory anti-money laundering and anti-terrorism checks.
The Patriot Act also makes it nearly impossible if you are from Iran, Iraq, Afghanistan, Pakistan, North Korea, Sudan, Western Balkans, Burma, Liberia, Zimbabwe, or if your name appears on the OFAC (Office of Foreign Assets Control) list of blocked persons or companies.
The requirements for opening a business bank account vary from bank to bank, but typically you will need your incorporation documents (Articles of Organization for an LLC or Articles of Incorporation for a Corporation), your Employer Identification Number (EIN), and 2 pieces of photo identification (such as a Passport or ID card).
When it comes to opening up a U.S. business bank account, you have 4 solutions…
Your best option is to find a U.S. bank (such as Well Fargo, Citibank, or Bank of America) that also has a location locally in your country that will allow you to open up a U.S. bank account. It’s always a good idea to have your bank close to you. You can open up a business bank account in dollars in your home country, if possible, in a bank where they already know you.
First, talk to the bank in the U.S. They will tell you that they need to identify you in person to open your bank account. You can tell them that their local branch in your home country could do that identification on their behalf — then ask if that would work for them. If this is the case, ask for their contact information and ask them to call the local branch you are going to visit.
Then go to that local branch in your country. Tell them you are opening a bank account in the U.S. and that you just need them to identify you with your driver’s license or passport, and tell them that they’ll get a phone call from their headquarters in the U.S. asking for your identification.
The point here is to make the U.S. bank branch in your country provide the identification check in person procedure required by the Patriot Act by meeting them in person with the proper identification.
If for some reason, you can’t or don’t want to open up your bank account in your country, continue reading…
Your next best option is to book a trip to United States to open a bank account. For instance, you could travel to the U.S. with a visitor visa, go to your favorite bank and open up a bank account right away.
You typically will need your incorporation documents, your Employer Identification Number (EIN), and photo identification to open up a bank account in United States.
You don’t necessarily need to travel to the same state in which you are going to setup your company, so it’s best to talk to the bank before you book your ticket.
If you can’t visit the U.S. to open up a bank account yourself, your next option is to have a company which will help people like you open corporate bank accounts in the U.S.
Here are just a few of these options:
- ACME Filings: New Bank Account for US and International Clients
- Futuramax: US Corporate Bank Account Opening
- Inc Plan: US Bank Account
- Global Corporate Services: Open a US Bank Account
- Valis International: US Corporate Bank Account
As a practical matter, that company or individual may need to be either an officer of the company or show a bank-specified resolution documenting his or her authority to open the account.
You can tell a company is real when they warn you that they reserve the right to reject you as a customer. Otherwise, they would be going against the Patriot Act itself.
Also, the Silicon Valley Bank is known for helping foreign entrepreneurs open bank accounts in the U.S. However, this is only possible if you meet certain conditions. SVB works with technology companies from inception through late/public stage that have raised or are raising venture capital funding.
Typically, these companies have proprietary IP in the sectors of software, hardware, life science/biotech, and clean tech, as well as some level of institutional backing. The requirement of having a startup that is investor backingis especially important. Unfortunately, SVB is not able to provide banking services to companies that fall out of scope on these requirements.
Be careful! If you find a company offering this service, be aware that you could be victim of fraud. We don’t recommend this action as this could cause some unforeseeable problems in the future.
As your last resort, if opening up a U.S. bank account is important for you and if you run into difficulties as a foreign company, you can form a U.S. subsidiary, which will like make it much easier to open up an account. Once you create a U.S. subsidiary, you can then take those papers to a bank and open up a U.S. bank account.
Note: If you intend to open a bank account in your home country or if a local company or government office will require proof of the formation of your LLC or Corporation, you may need to have the company formation documents certified with a “Certificate of Authentication” or “Apostille.” An Apostille is an agreement between countries to accept each other’s documents which is only available if your country is a member of the Apostille Convention.
6. Open up a Merchant Account
Ideally, you will want to get a bank account with offices in both your home country and the U.S. This will be the best way to understand the tax implications for both countries.
If you are a non-U.S. resident, you are taxed in the United States only on U.S. source income.
If you are a U.S. resident, you are taxed on your worldwide income.
Non-U.S. businesses that do not operate in the United States (for example, do not have any income from U.S. sources), do not owe any federal income taxes; however, there may be annual state charges or fees for maintaining the LLC or Corporation.
Non-U.S. companies that do not want to form a business here but merely wish to import their products to the United States should explore import rules by reviewing the Commercial Importing Procedures and Requirements.
As a non-U.S. resident, your LLC will only be taxed in the U.S. on income from U.S. sources, meaning that income from other countries will not be taxed by the U.S.
If you choose to form an LLC, any profits U.S.-sourced income will be taxed by 30%. This 30% goes to the IRS. At the end of the year, you will file your U.S. taxes on Form 1040-NR with the actual amount due. If the amount due is less than the 30% initially taxed, the IRS will issue a refund in the amount overpaid.
To make sure the LLC is sending the proper amount to the IRS, the LLC must designate a tax withholding agent to calculate the proper amount that must be sent to the IRS before any of the money is released.
Because of these difficulties, many non-U.S. residents choose to form Corporations, unless they are forming the LLC to do business strictly outside of the U.S., in which case, the LLC would not owe any U.S. taxes.
If you form a Corporation, your Corporation will be taxed as like any other U.S. corporation. The corporation will pay the same taxes that any other U.S. Corporation would on all U.S.-sourced income and your Delaware Corporation would also be taxed on all foreign earnings, in accordance with U.S. Treasury regulations. Since the corporation was formed in the United States, it is taxed as a domestic corporation and you will file Form 1120.
If you form an LLC, you will need to file annual tax returns Form 1065.
If you form a Corporation, your Corporation will have to file an annual tax return (Form 1120). Your State of Incorporation will also probably request that you renew your incorporation via a form which updates the address of the corporation, its officers and directors, and its registered agent for service of process.
Also, annual tax returns Form 1040 Schedule C are filed by sole proprietorships and IRS Form 1065 for General Partnerships.
If you have any other questions regarding your tax responsibilities as a non-U.S. international resident, visit IRS's website of Taxation of Nonresident Aliens and IRS's International Taxpayers portal.
Again, we highly recommend talking to an accountant regarding your tax responsibilities as tax laws are very complicated in United States.
9. What Do You Have to Do on an Annual Basis? Annual Compliance Needs
Keeping your LLC or Corporation compliant is essential, and continues long after you filed your initial application.
If you do not maintain your LLC or Corporation according to U.S. law, your corporate protection will be pierced, putting your personal assets at risk.
For a non-U.S. residents, compliance with the law is absolutely essential to avoid visa, immigration and tax problems.
To keep your LLC or Corporation in compliance, you need to:
- Keep your personal and business expenses separate (this is particularly important if
- you form a Corporation)
- Comply to the ever-changing tax rules both domestically and internationally
- Purchase necessary business insurance for general business liability workers compensation insurance, and other business specific insurances, as required by law.
- Send in your Annual Statement / Annual Report on time, as required by your state of incorporation
- File for Foreign Qualification if you’re operating in any state other than your state of incorporation
- Send in your Articles of Amendment for any key changes to your business
It is always worth keeping copies of all original documents and filings.
If you do not have the services of a business attorney or accountant, it’s solely your responsibility to know the rules, as the Internal Revenue Service (IRS) does not accept ignorance.
10. Other Useful Tools
Here are a list of other useful tools that you may find useful when starting your business...
★ HelloFax.com provides you with a fax number and allows you to fax out documents easily. Post incorporation will require you to fax in & receive a fax back from the Secretary of State or the IRS easily.
★ HelloSign.com makes it easy to important documents and sign those documents online. There will be plenty of PDF documents during and after the business incorporation process that will need to be signed.
Know of a useful tool that's not included in this list? Email me and let me know!
This is pretty much all you need to get your U.S. business up and running.
The biggest mistake a business owner can make is never forming an LLC or Corporation in the first place. This puts key personal assets (such as savings, retirement fund, property, etc.) at risk.
When an owner does incorporate a business, they are protected from personal liability for company debts and obligations. Also, setting up a company is attractive because it has unlimited life and the ownership can be transferred.
While the process may seem complicated, non-U.S. residents can legally form U.S. companies. If this is a route you plan to undertake, it pays to know your options and the possible obstacles you would have to hurdle before taking a major step forward.
Whether you’re starting operations in the U.S., selling to the all-consuming U.S. market or gaining the prestige of owning a U.S. company, there’s a company formation that will work for you.
Make the wrong choices, however, and you could find yourself losing control of your
company, unable to raise finance or even permanently deported from the USA.
There’s no simple answer to every non-U.S. company’s needs when it comes to selling in the United States. The steps to take depend on careful assessment of the business plans, legal rules in the United States and abroad, financing issues and more.
But the main goal for both foreign nationals and U.S. citizens is to be able to operate their businesses without risking their personal assets through incorporation.
Many non-U.S. residents mistakenly think they can “go it alone” without seeking advice from a
U.S. based business lawyer.
That’s why we definitely recommend talking to a business help to help you start your business in United States.
Mollaei Law is a law firm specializing in business law serving businesses and entrepreneurs. We provide legal expertise in all stages of business development by drafting and reviewing contracts and agreements, assisting transactions and negotiating, forming LLC’s and Corporations, registering trademarks and copyrights, business planning, and answering any legal questions you may have about your business.