In the United States, any Indian or foreign national may form a C-Corporation (Company) or an LLC (Limited Liability Company) (similar to an LLP). Another form of organization is an S-Corporation, which requires all members to be citizens of the United States. A US Corporation or LLC may have as many shareholders as it wants, regardless of where they are from or whether they are individuals or other businesses.
Important considerations for Indian entrepreneurs when forming a corporation or limited liability company (LLC) in the United States
Choosing an entity
Indian entrepreneurs need to make the following decisions before setting up a business in USA:
- Whether the business would be set up in USA, but the major operations would take place in India.
- Whether the business would be set up in USA for marketing and brand building exercise but rest of the major operations would take place in India.
- Whether the business would be a subsidiary of an Indian business firm, but its full-fledged operations would take place in USA.
In the first two scenarios, you can choose between an LLC and a C-Corporation. Both organizations provide significant benefits to your business. By forming a company, you can build reputation and professionalism. It also offers a restricted level of liability insurance.
Choosing a state
You may create a corporation or a limited liability company (LLC) in each of the 50 states of the United States. Some states in the United States are more "business-friendly" or "international-friendly" than others. Banks in these states have more experience than banks in other states while dealing with foreign clients that do not have a local office. This will make it much easier to open a bank account. Furthermore, if you want to operate from other states in the US after establishing your business in these states, you can do so through an international certification scheme.
Differences between Corporation and LLC
There are distinctions between a corporation and a limited liability company (LLC). Both, however, have only a minimal level of liability insurance. In the same way that Company and LLP operate in India, Corporation and LLC work in the United States. Many factors influence which company you choose, including the market structure, scalability, turnover, and the need to open a physical office in the United States. The following are some of the most important factors to consider when deciding on an entity:
- Taxes
Corporations are responsible for paying taxes on their income as well as dividends paid to shareholders. Dividends are charged twice because they are not deductible. Double taxation is the term for this situation. Although double taxation is seen as a drawback for companies who choose to register as a corporation, federal deductions that are only available to corporations, such as advertising costs, administrative expenses, and employee fringe benefits such as medical and retirement plans, can also mitigate this responsibility of extra tax.
By law, an LLC is taxed as a pass-through entity. This ensures that the company's earnings are "passed on" to the owners (called members). Profits and expenses are listed on the shareholders' private tax returns rather than the company's. As a result, filing taxes for LLC owners is often easier. Personal tax reports may be used to subtract certain business losses or operating expenses, which may also cover other profits. Although it is an unusual option, an LLC may elect to be taxed as a corporation. This could make financial sense for certain companies.
- Compliances
Every year, corporations must hold an annual shareholder meeting, with the proceedings and discussions being registered and prepared as corporate minutes. An annual report is usually expected of a company. Any company decisions or improvements would include a corporate resolution to be voted on by the board of directors at a meeting.
A limited liability company (LLC) does not need to maintain minutes, hold annual meetings, or have a board of directors. Some states continue to require LLCs to file annual reports, while others do not.
Process to incorporate a Corporation or LLC in the USA from India
- Appoint a Registered Agent
To form a business in the United States, you must first designate a "Registered Agent," who must have a physical address in the state of incorporation, be available during business hours, and accept and sign official legal and state documents on behalf of the company. The Registered Agent serves as a conduit between you and the US government. They will accept documents, scan them, and email them to you; if appropriate, they will send documents that cannot be scanned or require a physical signature via International Mail.
- Choose a Company Name
The Registered Agent will check to see if the name is available in your chosen state, just as in India.
- Provide Names and Addresses of the Directors, Members
You must have information about the proposed Company/Directors LLC's and Members, as well as KYC documentation such as a passport, address proof, and ID proof. Your corporation or LLC may be formed in 1-2 days after effective paperwork and form filing.
- Federal Employer Identification Number
The Federal Employer Identification Number (FEIN), also known as an "EIN" or simply "Tax ID Number," is a number provided by the Internal Revenue Service (IRS) of the United States that functions as a company's identification number. Registered Agent will assist you in obtaining this number from the IRS once your business has been established. To open a bank account in the United States, you'll need your EIN.
- Apostille or Certificate of Authentication (Optional)
If you want to open a bank account in India or if a local company or government office needs proof of your US Corporation or LLC's formation, you will need to get the documents certified with an "Apostille." You may have an apostille certificate of creation sent to you via an international courier by your registered agent.
- Open a US Bank Account
US Bank Account is compulsory for the following:
- To open a US merchant account;
- To open a physical branch office in the US.
Most banks will demand that you have a physical address in the United States that is not the same as your Registered Agent's. Some banks will consider your Registered Agent address when opening a bank account, but you'll have to arrange for your bank statements and other mail to be routed via a mail forwarding service or sent electronically.
You can open an account with a bank that has branches in both the United States and India, such as City Bank
- Open a Bank Account in India
If you need to open a bank account in your home country (India), the bank would almost certainly require the "Apostille" certificate of creation described above. For more information on what is needed to open a bank account in your country, contact your local bank.
- Get a US Phone Number, Website etc.
Getting a US phone number and setting up a website gives you digital space in the United States. People nowadays prefer to visit a website rather than visit the physical location of the business. As a result, build a professional-looking website and secure a local phone number in the United States. Many phone number providers in the United States provide routing to forward your calls to any Indian number you specify, as well as VOIP (Voice over Internet Protocol) services that allow calls to be routed over the internet rather than traditional voice lines.
Annual Compliances
- Appoint and Maintain a Registered Agent To comply with the rules, you must have a Registered Agent in the United States. The Registered Agent serves as a liaison between you and the US government.
- File an Annual Report The "Annual Report" is essentially a paper that keeps track of your company's owners, addresses, and Registered Agent. It is possible to file it online in several jurisdictions. Before the deadline, your Registered Agent will obtain and forward the appropriate report to you. If you fail to file this report, your business will become inactive, incur late fees, and ultimately be administratively dissolved.
- Pay Taxes in USA Any profits earned in the United States can be subject to taxation by your corporation or the individual owners. There are two types of taxes: state-level taxes and federal-level taxes. Furthermore, several states levy a franchise fee. For tax enforcement, you can contact your registered agent.
- Pay Franchise tax A state charges a franchise fee to companies for the privilege of incorporating or doing business in that state. Franchise taxes, including payroll taxes, are typically levied once a year. Failure to pay franchise taxes will result in a company being barred from operating in that state. The rates vary from state to state. You must follow the rules accordingly.
- Business Income Taxes Taxes on wages must be paid by all companies. These income taxes are calculated based on the corporation's earnings. If a state has an income tax, corporations will be required to pay both federal and state income taxes. Businesses in some states are required to pay both income tax and franchise tax.
Conclusion
The United States has the world's largest economy. It has straightforward policies and legislation in place to encourage startups, as well as an attractive taxation scheme. Private individuals and companies make the majority of decisions in their market-oriented economy, and the federal and state governments purchase much of their products and services in the private marketplace. In decisions to increase capital plant, lay off surplus staff, and produce new goods, US businesses have more versatility than their counterparts in Western Europe, Asia, and Africa. Any businessman who wishes to operate in the global market should thus consider establishing a company in the United States.
Copyright 2023 – Helpline Law
