Doing business in the USA as a foreigner - What you need to know

The advantages of doing business in the USA are pretty clear – even if you don’t live there. Such a huge potential market is a mouthwatering proposition for many business owners or budding entrepreneurs, including those who are doing well north of the border in Canada.

To make the most of what the USA can offer, it’s worth setting up shop there. You don’t have to be a US citizen to do this – you don’t even have to live there, in fact. For a Canadian, doing business in the USA is surprisingly straightforward. It’s the same for citizens of other countries, too.

This guide will tell you how to get started as a Canadian looking to set up a business in the USA.

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Decide on your company structure

The first decision you’ll need to make regards what sort of company you decide to form. As a non-resident, you’ll find that a few options – for example, an S corporation – are not available to you. But there are 2 main business types that you can consider:¹

• Limited liability company (LLC)
• C corporation

Here’s some information on each, to help you choose between them.

C corporation

A “C-corp” is a corporation whose owners or shareholders are taxed separately from the business. That means it may not initially sound like the perfect option, because it can leave you having to pay tax on its profits twice: there’s tax at corporate level, and then again on shareholder dividends.

However, there are advantages too. C corporations are easier to scale, and can offer unlimited stock. They can also eventually be made public. They’re therefore attractive to potential investors.²

Limited liability company

An LLC is an entity that’s legally separate from you as an individual: your personal assets are protected in the event that the business fails. That’s what the phrase “limited liability” means.

The same is true in the case of a C corp: a C corp’s owners can’t be held personally liable either. One key difference is that with an LLC you don’t have to pay corporate taxes, and you have to file less information than a corporation does in the tax return. You will still have to pay some taxes, of course, if not in the USA then back home.

LLC regulations vary between states, but the key disadvantage compared to a corporation is that they’re more dependent on the individuals involved. If you’re hoping to eventually go public, an LLC isn’t the best route to take.³

Choose the state to register your company in

The next step is to decide which state to register in. This could be a very easy decision, if there’s a particular state in which you actually want to do business. Of course, in that situation, you should register your business in the relevant state.

But there are plenty of businesses for which this is not such an obvious decision – for example if you operate mainly online, with the aim of appealing to the US as a whole. If you have no particular ties to one part of the country, then it might be worth registering in a state that’s known for being business-friendly. The 2 famous examples are Nevada and – most of all – Delaware.

State law about businesses can vary considerably, and so can the fees you have to pay. Delaware aims to make things particularly easy, and boasts of having “the most advanced and flexible business formation statute in the nation.”⁴

All other factors being equal, then, Delaware is a good choice, and Nevada a good alternative.

Register your business

So, how do you get your business registered? As you’d expect, the answer varies widely. You’ll need to check exactly how it works in the state you choose, for the business type you choose. But here’s an overview of the main steps along the way.

1. Choose a unique name for your business, and decide on the business entity type (LLC or C corp).
2. Get a registered agent in the state: that’s someone with a physical address in the state you’ve chosen, who can receive official documents for you.
3. Reserve your business’s name – there may be a fee for this.
4. Fill out the forms: a Certificate of Incorporation or a Limited Liability Company Formation form. A fee is likely at this stage too.

Tip: When setting up a company you might need to know industry's SIC and NAICS codes.

Once you’re set up, there will be plenty of reports to file, taxes to pay, and so on. And there’s one more thing you’ll have to do too – read on to find out.

Get an Employer Identification Number

Because of the name, you might think you only need an Employer Identification Number (EIN) if you’re planning to employ people. But that’s not correct. You’ll need one to open a bank account and possibly even to get a business license. You’ll need it to pay taxes too.

You should apply for your EIN with the IRS – it’s free to do so. You can only apply online if you have a Taxpayer Identification Number. If you don’t, you should apply for an EIN by fax, mail or phone.⁶

Resources

Here are some of the most helpful places to look for more information on doing business in the USA from Canada or elsewhere around the world. Wise doesn’t endorse opinions or information you may find on external sites.

• Sites with information on starting a business as a foreign citizen include Investopedia, Business.com and USA Corporate Services.
• The US Small Business Administration has great resources on how to start a business in general.
• For how to form a business entity in specific states, check out the official pages for Delaware and Nevada.
• The IRS has a page explaining the application process for an EIN.

For a foreign individual or a foreign company, doing business in the USA is potentially a great opportunity, and overall the country is pretty business-friendly. Not being an American citizen or resident will change many aspects of the process, but it absolutely doesn’t disqualify you. And with a multi-currency business account such as the one offered from Wise, things just might get easier as well. Good luck!

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Sources:

1.USA Corporate Services Inc - Introduction to types of business entities

2.Investopedia - C Corporation

3.Investopedia - Limited Liability Company (LLC)

4.Delaware Division of Corporations - FAQ

5.IRS - Apply for an Employer Identification Number (EIN) Online

6.IRS - How to apply for an EIN

All sources checked 17 August 2019