Doing business in United States
How quickly can I set up a business?
A business organizes or incorporates under the laws of one or more states in the U.S. The administrative time period for such filings varies under state law, but generally there is no waiting period. A law firm familiar with business creation and organization within the desired state should be retained to assist with these procedures.
What is the minimum investment needed?
There are generally no minimum investment requirements under state law, and the size of the investment is dependent on the scope of the project. Different rules may apply if an individual is seeking U.S. residency as part of the investment. A law firm familiar with business creation and organization within the desired state should be retained to assist with this determination.
How can I raise finance?
Depending on the entity structure the investor may be required to fund the entire venture or may be permitted to seek additional United States or foreign investors. Generally, there is no restriction on the ability to use cash or property to fund the investment, although there may be different tax consequences between these alternatives. A law firm familiar with business creation and organization within the desired state should be retained to assist with this determination.
What are the legal requirements for setting up my business?
The legal requirements for setting up a business are dependent on state law and vary from state to state. Generally, there are not any unique requirements placed on foreign investors. Some states may require a written document outlining the details of the proposed ownership structure and bylaws in a private writing. A business generally does not have to file any formation documents with the federal government in the United States. There may be federal requirements after the business if formed, however, including obtaining a federal tax employer identification number (EIN) and making any requisite elections. A law firm familiar with business creation and organization within the desired state should be retained to assist with these procedures.
What structure should I consider?
There are various legal structures to consider, with advantages and disadvantages to each. A law firm familiar with business creation and organization within the desired state should be retained to assist with this determination. A brief overview of the main legal structures is below:
Establishment (a branch of your overseas business):
- Not a separate legal entity but an extension of the overseas parent company.
- No limited liability (occasionally referred to as “ring-fencing” in some countries) of the US operations.
- If you have a permanent establishment (PE) in the US, then profits from this PE are subject to US Corporation tax.
- Parent must file income tax returns with:
- The Internal Revenue Service to report and pay US Corporation tax on the taxable profits of the branch if there is a PE, or to claim treaty protection if there is no PE.
- Each of the states where the branch is doing business if there is sufficient presence or “nexus” (this may be required in some cases even if there is no PE).
- Certain local jurisdiction (e.g., cities) where the branch is doing business if the local jurisdiction imposes an income tax and if there is sufficient presence within the jurisdiction.
- Provides limited liability and “ring-fencing” to US operations.
- Gives a perception of a local business, with longevity.
- Corporation tax to be paid on company profits unless company qualifies for “pass-through” treatment (however, elective pass-through status for an “S” Corporation is not typically available for foreign investment in the US).
- Owners of Corporations (except S Corporations) are not taxed on business income.
- Returns must be filed with the Internal Revenue Service and each of the states/local jurisdictions where there is nexus.
Limited Liability Company:
- Members have limited liability.
- By default, a company with a single member is treated as an entity that is disregarded from its member, and a company with more than one member is treated as a Partnership; an election is available to instead treat the entity as a Corporation, if desired.
- For “disregarded entity” and Partnership (pass-through) treatment, the company is not taxed on business income; instead, profits or losses are allocated to members, who are then individually subject to US income tax and filing requirements for these allocations.
- For “disregarded entity” and Partnership (pass-through) treatment, the tax residence of the member, as well as the source of the LLC’s business activity, will determine the state/local jurisdictions in which income tax on these allocations also applies.
- Partners have limited liability.
- The Partnership is not taxed on business income; instead, pass-through treatment is required such that profits or losses are allocated to partners, who are then individually subject to US income tax on these allocations.
- The tax residence of the partner, as well as the source of the Partnership’s business activity, will determine the state/local jurisdictions in which income tax on these allocations also applies.
What advice can you give me in regards to payroll and taxation requirements?
Employers are required to withhold payroll taxes from the wages paid to each employee. These taxes include Social Security taxes and Medicare taxes. Employers are also subject to their own share of Social Security taxes and Medicare taxes on the wages paid to each employee. Additionally, employers generally are subject to unemployment taxes on the wages paid to each employee as well.
The US has a very comprehensive range of compensation and benefit options available for companies to offer their employees. These options include pensions, private medical insurance, life insurance, and disability benefits.
Flexible benefit packages are also popular, giving employees options on how they wish to “spend” their benefits allowance, which can range from “purchasing” additional holiday entitlement to obtaining full family medical insurance.
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