How do you establish a US corporate entity?
When and why incorporate a US entity?
If a non-US company is generating revenue and profit in the US it will be required by law to pay the applicable Federal, State and City taxes. If you’re hiring US employees, you should consider establishing a US corporate entity.
What is the best legal structure for your business?
The most common options for high growth small businesses are C-Corporation, S-Corporation, or a Limited Liability Company. For many startups the foreign ownership restrictions will eliminate the option of setting up an S-Corp and the desire to have robust ownership principles and division into stocks or shares will eliminate the option of an LLC. C-Corp is the most popular structure.
For a summary table on the differences between a C Corp, S Corp and LLC, download the Question the Questions report below and check out pages 60-61.
In which state should you incorporate?
The vast majority of Fortune 500 companies are incorporated either in Delaware or Nevada. Delaware is the most favored within the venture community for a number of reasons:
• Has a well-established set of case law and precedent;
• The new entity can base itself anywhere in the US since advisors US-wide will give Delaware corporate advice;
• Has a dedicated Court of Chancery focusing on resolving corporate disputes;
• Does not tax income earned from intangible assets such as trademarks and leases;
• Offers flexibility in the organization of a corporation and the rights and duties of board members and shareholders; and
• Provides greater privacy for director and shareholder identities.
The basic requirements for incorporating in Delaware include:
• Completion of an annual report submitted online;
• Payment of franchise tax: the range is between $175 – $180,000 and is linked to the number of authorized shares; and
• Maintaining a “registered agent.” If a company incorporates in a State but does not have permanent operations there (for example no employees), it will need to appoint a “registered agent.” This is an additional cost, typically under $200 per year. Service providers such as NRAI or BizFilings will fulfill this requirement and will forward mail sent to the registered address as required.
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How do you incorporate a company in the US?
The process is set out in five steps below. Although this looks straightforward, it is sensible to ask the company’s lawyers to handle this process as the cost of a mistake or remedial action may be significant. The typical cost to incorporate a C-Corp in Delaware is $2-5,000
Steps to incorporate
1. Apply to incorporate in specific state
2. Establish a registered agent in that state
3. Submit formation documents
4. Maintain registered agent
5. Maintain state specific taxation and reporting requirements
Specialists in the field
Daniel Glazer – Wilson Sonsini
Ed Zimmerman – Lowenstein Sandler
Victor Boyajian – Dentons
Ted Rosen – Akerman