Accounting & Finance
Checklist For Starting A Business In USA
There were 30.2 million small business start-ups in the USA in 2018. The US has proven to be a good place to start up a business and grow it to any extent you want, its level of success is up to you. When you consider the volume of startups every year, the US is definitely ‘open for business’.
However, in the USA, starting a business is not as easy to do as it is in many countries. In some countries you just need to go online and register a business name and provide ownership details, including listing directors and shareholders, a process that can be achieved in minutes.
In the US, setting up a legal trading entity is more complex and requires more ticks and balances. That said almost anyone can get a company legally recognized including citizens, non-citizens (with or without a green card) residents and non-residents.
So what are the steps to setting up a business in the US? In this blog article, we have compiled a list of things to check and do before starting a shop in the USA, including the business entity structure.
1. Business Structure
Once you’re ready to get a legal business entity for liability and tax purposes you need to choose the right business structure. This is an important step as the entity structure defines assets at risk and who can be a part of the shareholding, plus your tax liability.
The most popular form of business structure in the US is a Limited Liability Corporation or LLC. This type of company was created as a hybrid of a partnership and a corporation. Meaning it gives you the simplicity of a partnership but has the protection of a corporation.
Specifically, an LLC has few restrictions, it is inexpensive to incorporate, and very fast to set up. It protects you in the case of lawsuits and debts. LLCs can have lower tax burdens and no double taxation. If you are looking for a structure that has good protection for you and your shareholders, but none of the in-depth accounting requirements, like millions of other US businesses, an LLC might be your best choice at least in the fledging stages of your company.
C-Corporations are more complicated structures, and they are not usually recommended for startups.
A C-Corporation is the default business structure for larger companies, and they are double-taxed. So there are pros and cons for this structure.
There are many advantages for this setup, including shareholders provided with the maximum amount of protection. Also, there is flexibility in how shares are allocated and provision for issuing many different classes of shares under a C-Corporation.
Another advantage is your company shareholders also do not need to be US citizens, and there is no limit to the number of business shareholders.
This structure is the easiest to operate if your business has a complex capital raising agreement with many stages of investment and new shareholders.
Additionally, the best business accounting firms know how to work with this type of structure to do effective tax planning and accomplish the corporate’s goals.
The downside to a C-Corporation is that there is double taxation, i.e. as the business owner, you will pay both corporate and personal taxes on earnings. Another negative is the accountant’s fees for this type of business structure will likely be the most expensive due to the flexibility of shareholding, which needs accounting every year.
S-Corporations are cheaper to operate than the C Corporation as they have more restrictions. One standout difference with this structure is the limited number of shareholders. With an S Corporation, a maximum of 100 people can be shareholders, but they must be US citizens. On the plus side, fewer shareholders result in less annual accounting records.
If you have foreign investors, use the C Corporation structure, plus all owners of an S-Corporation must be an individual.
Many people like to use their businesses as a proxy to purchase or own shares in a corporation. This is done to add an additional layer of protection for individuals. You cannot do this with an S-Corporation. Finally, an S-Corporation can only issue one type of stock.
Sole Proprietorship or Partnership
You can also run your business as a sole proprietorship or a partnership, but all the risks and liabilities are transferred to you and your partners personally.
2. Business Location
As a U.S resident, it is advised that you situate your business where you reside and get your LLC or Corporation there. If you are not a resident in the U.S., use Wyoming because it is best suited for non-residents.
3. Register Your LLC or Corporation
You might need the services of a business lawyer or agent who will make the work easier or you can choose to do it yourself.
4. Get your Employer Identification Number (EIN)
The EIN is provided by the U.S. IRS and it is used to identify a business. It also helps secure your business.
As a US citizen, you are also expected to have basic documents like your birth certificate. Most of us don’t have a copy of this document, and that’s why it’s a service that’s provided online.
The US is a big country so you will need to apply for your birth certificate under the area you were born in. For example, if you were born in New Jersey, you can use the online service and obtain a copy of your birth certificate from the New Jersey section on the website. You will need your Social Security Number.
For non-US citizens without an SSN or ITIN it’s recommended to get advice and assistance from an agent, rather than attempt to get through the process successfully online.
5. Get A Mailing Address In The US
A mailing address at a minimum is required for opening a bank account and ideally you will also a physical address, which provides more authenticity.
6. Get A US Bank Account and A Merchant Account
Business is for exchange and your merchant account can be with your bank or eCommerce providers including:
There are many different types of business insurance including building, indemnity, professional and public liability.
For non-US citizens that are without SSN, you will need to obtain your Individual Tax Identification Number (ITIN) and pay your tax. It is also important that you have separate accounts for your business and personal use.
Who is needed in your business and are they payrolled or self employed or a mix of both?