Incorporation is a process where a business owner decides to separate a business as a legal entity. This post will explore the definition of incorporation, the safest states to incorporate in, company types, and steps to incorporate in the United States.
Incorporating your business as a separate legal entity in the United States is one of the most important steps you will be taking. At first, forming a company overseas may sound challenging. Yet, incorporating in the state of Delaware as a non-resident will grant you a more time-saving and simple incorporation process compared to the other US states, thanks to the start-up-friendly legal system of Delaware.
Some sources are skeptical about Delaware as a starting point for your new incorporation. However, more than half of U.S. publicly-traded companies and fully 64 percent of the Fortune 500 were among that number, according to the state’s Division of Corporations. Facebook and Yelp are just some of these Fortune 500 companies that finalized their IPO from Delaware.
Considering you have decided to form a company in Delaware, there are still a few important steps to consider.
You should decide on the type of company that will fit your business needs. Despite the numerous company types in US legal system, as a non-resident, you have to choose whether to form an LLC or C-Corporation.
A limited liability company (LLC) is a business structure in the United States whereby the owners are not personally liable for the company's debts or liabilities. Limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship.
LLC will offer you a simple process in terms of formation, costs, and taxation during the whole business cycle.
A C corporation (or C-corp) is a legal structure for a corporation in which the owners, or shareholders, are taxed separately from the entity. C corporations, the most prevalent of corporations, are also subject to corporate income taxation. The taxing of profits from the business is at both corporate and personal levels, creating a double taxation situation.
C-Corporation, however, will offer you a more complex but non-rigid structure, including taxation, investment, distribution of shares, and venture capital procedures.
After you determine your company type, the next step is to choose your company name and check its availability. The business title you choose will stick to your corporation’s business identity in transactions with people and entities.
Then, you will have to find and designate a registered agent for your prospective company relating to your formation procedure.
What is a Registered Agent? And Do I Need One?
A registered agent is an individual who is a Delaware resident or a business entity authorized to do business in Delaware.
One crucial point is that this registered agent must have a physical street address in Delaware to accept legal papers on behalf of your new corporation. Your registered agent agrees to exchange legal documents, such as; annual reports, tax forms, etc., that the State of Delaware may require. You may think of the registered agent as an online post office conducting business on your behalf in Delaware.
Numerous service providers offer registered agent services. In short, your registered agent will be your mandatory representative before the state and IRS officers.
As a non-resident, assuming you do not have a U.S. Social Security Number (SSN), you will need an identifying number (ID). This ID number will be required during formation and business operations.
Employer Identification Number (‘EIN’) will grant you the capacity to carry out several business and legal operations, including having a bank account in the US.
The next step on your incorporation journey is opening a bank account in the States as a non-resident, which may be a little tricky. Under the U.S. Patriot Act, banks and credit unions must follow strict guidelines verifying the identity of an account applicant who is a non-resident.
That means even if you are able to begin opening your bank account online, you will probably be required to appear in person to complete your application. This unreasonable step in the process came along with the fear of terror-related money laundering issues. Terror-related fears are the main reason why US Patriot Act came into force in the first place.
There are several entities claiming that they can open a bank account without your presence in the US – it will be in your best interest to verify this beforehand.
Depending on the general workload of the IRS and with the successful completion of the required steps, you will be provided with a Certificate of Incorporation.
This certificate will ensure that you are now officially incorporated. Yet, you will still have a post-incorporation process to cope with.