Key considerations for incorporating in the US
While the US remains a popular market for companies looking to expand their businesses, the increasing size and scale of regulatory demands present significant challenges.
Legal requirements vary on both federal and state levels, and maintaining good governance in the wake of new requirements can be challenging for organisations operating in the US, as well for those entering the market for the first time.
Entity governance procedures can be tough to manage in many cases, but registering an entity in multiple states – a typical requirement for large institutions – creates an additional layer of complexity.
The US is a federal republic, consisting of 50 states, a federal district, and 14 territories. As a federal republic, each state has sovereignty relating to business formation procedures, taxes and laws. Foreign investors commonly use the following types of business representation in the US:
Limited Liability Company (LLC)
An LLC can be formed under the laws of any US state or territory. LLCs are either member-managed or manager-managed. Depending on the initial choice of structure, an LLC may be taxed as a disregarded entity, a partnership or a corporation. LLCs have one or more individual owners who hold units.
A corporation can also be incorporated under the laws of any US state or territory. The management structure of a corporation includes at least one director and officers. Shareholders of a corporation are liable for the obligations of the corporation to the extent of their capital contribution. A corporation is taxed as a separate legal entity and can be incorporated in any state, federal district or territory, irrespective of the place from where it is managed or where its operations are conducted. There are no jurisdictional requirements for the directors or officers of a US corporation. For a corporation to be eligible for ‘S-corp’ status, it must remain within the maximum of 100 shareholders. There are no minimum capital requirements for corporations.
Partnerships are formed by way of a partnership agreement between two or more partners, who may be domestic or foreign persons or entities.
Types of partnerships include:
A branch of a foreign company is not a separate legal entity. The parent company is liable for all the obligations of a branch. Branches must be registered with the Commercial Registry of the Chamber of Commerce and local tax authorities. Branches are also required to have a local representative who acts on behalf of the company in transactions with third parties.
A limited partnership must have at least one general partner, who is responsible for operations and has unlimited liability for the obligations of the partnership. In addition, a limited partnership should have at least one limited partner whose liability is limited to their amount of capital contribution.
Limited Liability Partnership (LLP)
An LLP is similar to a General Partnership, but the partners of an LLP are not liable to third parties. This form of partnership is generally used by organisations of professionals such as lawyers and accountants.
A branch is an extension of a foreign company that carries out business directly in the US without a separate subsidiary corporation. Although no specific legal registration at the Secretary of State level is required for a branch, tax and state/local permits may be required. The head office is liable for all the obligations of the branch.
The steps for creating a new entity in the US vary by state and entity type. Each state has its own laws and guidelines, and each also has its own corporate entity rules and regulations around annual reporting requirements and franchise tax submissions. The timings for filings can vary and it could take up to several days to obtain the necessary filing evidence.
A company is said to be conducting business activities in a state when:
- the business has a physical presence in the state
- the company’s revenue from the state exceeds a threshold dollar amount
- at least some employees work in the state.
Here are some key considerations for starting a company in the US:
- The first step to creating a new entity is choosing an entity type and deciding on the jurisdictions in which to register.
- Once these have been decided, you will need to enlist counsel to draft your organisational documents (for a corporation, bylaws; for an LLC, an LLC agreement and so on).
- Every foreign invested company formed in a US state must apply for a federal identification number. The steps involved in establishing a wholly foreign-owned subsidiary vary from state to state.
- Corporations are governed by a board of directors. The minimum number of directors required on the board varies from state to state, but many states allow a minimum of one director.
- There is no restriction on the nationality or residence of the directors, but they are generally required to be individuals.
- The directors are elected annually by the shareholders and the executive officers, including the CEO, are appointed by the board.
- Corporations can also appoint officers, such as president, treasurer and secretary, who are responsible for the day-to-day operations.
- LLCs are governed by members and managers, but can also have an officer.
We have the local expertise to help you set up and maintain a company or entity in any location in the US.
Our experts offer services across the three core business lines of accounting and tax, global entity management, and human resources and payroll. In addition to assisting with incorporation procedures, we can also help you streamline your operations and remain compliant across all states.
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