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How to Start a Business in the US (2020)

Keys in a pair of hands
Starting a business doesn’t have to be difficult

US citizen or not, everyone has the right to start a business legally in the US. After the financial crisis of 2007/8 and more uncertainty around the corner, many people are looking for extra income and greater financial independence. A business can seem like a great option.

Whether you want to get into home rental, Uber driving, or starting a small business, the possibilities are endless — as long as you handle your financial and legal responsibilities.

Before you jump head-first into a new venture, it’s important to think the business model through and decide it’s the right path for you. Below, we discuss the steps you should follow to start your own business in the correct way:

  • Choosing a business structure
  • Getting everything you need to register a business
  • Deciding where to register your business
  • Creating a US business bank account
  • Considering potential business ideas

However, it’s always best to seek out professional advice on financial issues to give yourself the peace of mind you’re not accidentally breaking any laws. Here at Defensa Fiscal Profesional, we provide professional legal and accounting advice to help you reach your goals. To get in touch, contact us, call us on +1 (704) 243-6333, or visit our office 4801 E Independence Blvd, Charlotte, NC 28212.

How to register your business in the US

Stickman rolling a startup ball up a slope
You’ll have to overcome a few hurdles to register

When people talk about starting a business in the US, they could be talking about various things. There are multiple business structures available and all of them have very different implications for how your business runs and files taxes.

The most popular types are LLCs, S corps, C corps, and sole proprietorships.

LLC

For most potential entrepreneurs, the most viable business structure is the limited liability company, or LLC. As the name implies, owning an LLC means you don’t need to assume full legal responsibility for any issues your business encounters. If your company goes bankrupt, you won’t lose your house or savings.

This isn’t the only benefit. LLCs are extremely simple to set up and operate, offer you more privacy, and carry tax benefits. Companies earning less than $80,000 a year almost always become LLCs.

Non-residents can set up LLCs too.

However, if you expect your business to be larger, more complex, or higher-earning, you might need to consider registering as a corporation instead.

C corps and S corps

In special cases, it makes sense to create a C corporation. If you want to publicly list your company (so people can buy shares) to attract investors, a C corp is your only option. 

However, corporations face a double taxation issue. This means your company will pay corporate tax on its profits, then you’ll pay income tax on the dividends you pay yourself with.

An S corporation makes more sense for anyone who wants to avoid double taxation. S corps are pass-through entities, which means the earnings of the business pass through to income taxes, so you won’t need to pay corporation tax.

But, unlike C corps, they’re not publicly traded. 

For companies earning more than $80,000 annually who don’t need to attract investment, S corps are a great option. They also help you save on self-employment tax (15.3% of income). Unfortunately, non-residents can’t register S corps.

So, what’s the difference between LLC and S corps? You can actually be both at the same time. LLCs bring administration and legal benefits, whereas S corps dictate how you actually pay taxes. 

Sole proprietorships

Another common business structure is the sole proprietorship. It’s the quickest and easiest way to set up your business and requires minimal liaison with authorities. Yet there’s a big downside — sole proprietors assume personal responsibility for their trading activities. Think of it like being married to your business!

In the worst-case scenario, a past client could file a lawsuit against you, resulting in you losing all your assets and facing bankruptcy. This wouldn’t happen to an owner of an LLC, C corp, or S corp.

Although sole proprietorships are risky, they sometimes make sense, especially as a temporary solution for new businesses.

For a more detailed breakdown of the different business structures, check out our article about work independence.

Infographic showing different business structures
Make sure you know the difference between business structures

Where to register your US business

A natural follow-up question is where you should register your business, whichever structure you opt for. 

Deciding on the location of your business might sound like a minor decision, but it’s actually very important. Each state has different laws and choosing the right one depends on your personal circumstances. A professional advisor can help you to make the right decision.

Operating in one state

If you’re a resident of the United States, you must register your company in whichever state you live in. This should also be wherever you’re conducting your commercial activities. 

Traditionally, this is wherever your business has a physical presence — where you work, where your employees work, and where you earn the greatest percentage of your earnings. 

Of course, online businesses with clients and employees or freelancers across the globe have made this model more complicated. If you’re unsure, you should register your business wherever you, the owner, physically are. 

If your business doesn’t have a physical presence anywhere, register it in your home state. 

Operating in multiple states

You may need to register in two states — your home state and where you actually operate. This means paying the annual fees in both places. 

If you operate in several states, it’s best to obtain a “Foreign Qualification” so you can obtain permission to operate in the simplest way.

For example, if your company is registered in Nevada, but you also want to operate California, your corporation is considered as a foreign corporation in California. You must register as a foreign corporation to carry out business in the golden state.

Non-residents or travelers

If you’re a non-resident or US a resident physically based outside of the US, you should register your company in Wyoming. This might sound strange, but there are various factors to consider:

  1. You don’t need to be a citizen to register an LLC in Wyoming
  2. It’s the state with the lowest annual registration rate — $50, compared to $300 in Delaware
  3. More privacy — managers and employees aren’t placed on a public database
  4. No state taxes, personal taxes, corporate taxes, or capital gains taxes
  5. More favorable laws for immigrants 

For globetrotters or non-residents, registering in Wyoming allows you to travel around the world without worrying about your immigration status or physical location. There’s also no obligation to have a physical presence in the state. 

Infographic showing where to register your business
Figuring out where to register can be tough

What you need to register a business in the US

So, you know what type of business you want to register and where you want to do it. Now, it’s time to cut to the chase and actually register.

It can take between one business day and four weeks to register a business depending on your state. To ensure the process is as smooth as possible, it helps to have everything you need beforehand.

Employer Identification Number

One key requirement is an Employer Identification Number (EIN). The IRS issues EINs to identify your organization for tax purposes and the number is essential for opening a bank account, applying for permits and licenses, hiring employees, filing taxes, and more.

If you’re a US citizen and already have an SSN, you can apply for your EIN from the IRS website. Undocumented immigrants may use their ITIN instead.

Without an SSN or ITIN, the process is slightly more complicated. Your only option is to file a Form SS-4 with the IRS by phone, fax, or mail — it’s not possible to apply online.

Address

You can’t register a business without a postal address. If you have a business address in the US, this step is easy enough.

If not, there are various companies who will give you use of their address for a monthly fee. For instance, PhysicalAddress have services from $8 a month, iPostal1 from $10 a month, and TravelingMailBox from $15 dollars a month. Not bad!

To use these services, you must send a Form 1583 to the United States Postal Service (USPS) for authorization. The USPS will authorize the service to open mail in your name, but not to forward it on.

If you want to forward mail to your personal or residential address, you’ll have to update your address with the USPS.

Using a registered agent

If you have an LLC or corporation, you also need a registered agent registered at a physical address in your business’ state of registration. The agent should be available during standard business hours.

This person is responsible for receiving official and legal documents on behalf of the company, like lawsuits or state renewal notices. Ideally, they should also manage the legal paperwork for your company so you don’t lose any important documents or dates.

The annual fee for a registered agent is usually between $50 to $100. But bear in mind that you can’t use your agent’s address as your company postal address — the agent isn’t a postal service for sending and forwarding mail. 

You can be your own registered agent if you prefer, and companies with fewer than 10 employees generally opt for this. Others prefer to pay a small fee to outsource the responsibility elsewhere.

Business insurance

Finally, it’s a good idea to take out an insurance plan. Part of the attraction of starting a business is achieving financial stability and being able to support your family — you can’t afford to throw that out of the window because you were too cheap to protect your firm.

Although registering your company as an LLC or S Corp gives you some legal protection, there are serious limitations. You may not have to declare personal bankruptcy if your firm goes bankrupt — but, at the end of the day, you’ll still be losing your livelihood.

As well as lawsuits, commercial insurance will protect you from unexpected costs that arise like accidents and natural disasters. There are various types of insurance for small businesses, including:

  • Professional liability insurance
  • Worker’s compensation
  • Directors and officers insurance
  • Data breach insurance
  • General liability insurance
  • Property insurance
  • Business owner’s policy
  • Commercial auto insurance.

In some industries, commercial insurance is mandatory. Companies with employees are also required to have worker’s compensation, unemployment insurance, and disability insurance. Some states ask for even more policies.

Infographic showing the requirements to open a busines sin the US
Don’t start operating until you have all of the above

How to create a business bank account in the US

All firms need a business bank account — running operations from your personal account can land you in serious trouble with the IRS. 

Previously, you could open an account remotely, but now you must visit the bank in person. To make sure it only takes one visit, double-check you have all the requirements before making your important. You’ll need your SSN or ITIN, a passport, an EIN, and articles of incorporation.

Also, be aware that fraud attempts associated with business bank accounts are common. If a company offers to open an account on your behalf, don’t be fooled — it’s probably a scam. 

Hands inputting a PIN on at ATM
Don’t forget to set up a business bank account

How non-residents can set up bank accounts in the US

If you already have a personal bank account in your country of residence, you could ask them how to open a commercial current account. For instance, Wells Fargo and Bank of America have branches across the world.

Of course, you’ll need to open a dollar account to use it n the United States.

First, the bank will need you to identify yourself in person. The US bank may let the branch in your country carry out the identification. If so, you can simply visit the closest bank to you, show your driver’s license or ID, and explain why you want to open the account.

Alternative options for non-residents

If you can’t open a bank account as a non-resident, there are some further options to explore. 

A popular option is Payoneer, an online payment service that lets you open a bank account virtually and receive payments from US companies. You’ll also get a prepaid MasterCard and the chance to receive ACH transfers from US companies. Signing up is easy.

Similar services you might want to explore are:

Infographic about opening a business bank account in the US
There are plenty of options out there

Business areas to explore

In case you’re not sure what type of business you want to set up, let’s take a brief look at some popular options.

Real estate

Renting out a room or home is increasingly popular thanks to apps like Airbnb that make the process easier than ever. It might just sound like a way to get some extra pocket money, but these apps can actually be used to get financial independence.

They’re also more accessible than using capital to put down a down payment for a house and renting it out as a traditional landlord. 

64.8% of the US population owned a home in 2018 — well below the 2005 rate of 70%. Incomes are increasing, yet fewer want to use their money to buy homes. This may be because of the economic climate, or it could just be personal preference. According to The National Association of Realtors (NAR), millennials prefer to settle in a home for ten years rather than the rest of their lives.

Whether you think this is good or bad for society, it poses an interesting opportunity for business. Even better, you don’t need a degree or any particular experience to pull it off.

Gig economy

Another less traditional but equally promising area is the gig economy. For anyone who likes the idea of traveling or working from the comfort of their home, freelancing and other similar opportunities are the perfect way to live the life of your dreams.

Common freelancing jobs include voiceover work, writing and editing, graphic design, programming and web development, and consultancy. Yet there’s no limit to the opportunities. If you can do a job virtually from your laptop, you can probably create a freelancing business around it.

Infographic showing the pros and cons of the gig economy
The gig economy is a great option but it isn’t for everyone

Start your US business now

Knowing how to start a US business is only the first step — there are still many hurdles ahead of you. To give them the best possible start, many people prefer to seek out professional advice before taking the plunge.

At Defensa Fiscal Profesional, we can guide you through the legal and financial pros and cons of various business structures. We also provide extra support for immigrants who are struggling to navigate the IRS and government rules in the US.

To get in touch, fill out our contact form, call us on +1 (704) 243-6333, or visit us. Our office address is 4801 E Independence Blvd, Charlotte, NC 28212. We also have more resources on our website, like our guides to taxes and labor independence.

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