What You Should Know Before Forming Your US Company (LLC & Corporation)


The United States is a one of the best countries to start a business. The excellent image it has, its international attractiveness, its taxation policies or even its dynamism, represents assets for any entrepreneur who wants to create his company in the USA.

What Types of Companies to Choose when You Create a Company in The United States?

There are many types of companies in the United States, but some are not allowed to non-residents. For the sake of simplicity, we will explain the two most common types of corporations available to non-US residents.

The Limited Liability Company ( LLC)

For SMEs, the USA’s most common legal form is the Limited Liability Company or more commonly known as an LLC. Suppose this form of company is so prevalent in the United States. In that case, it is because it has many advantages, particularly in terms of taxation or the partners’ liability.

Here Are the Main Advantages of An Llc:

  • The personal liability of the partners is minimal. This means that in the event of significant financial problems, the partners’ assets and the company are protected. The liability of the members is limited to the amount of the down payment.
  • In the event of significant losses, it allows the partners to obtain substantial tax benefits. This will enable them to pay a tax on their LLC income (Form 1040R to be completed later).
  • LLCs are not subject to tax and are fiscally transparent. The only tax to be paid will be the one delivered directly by the partners.
  • It is possible to choose one’s tax regime (C Corporation regime for non-residents strongly advised).
  • Income tax rates are set between 10% and 39.6% with the possibility for a foreign partner to pay tax in the same way as the U.S. taxpayer (rates vary between 15% and 39%).
  • LLCs’ structural stability generally reassures creditors who are then more inclined to grant credit for example.
  • The LLC allows for an unlimited number of members (from 1 person in some states) and allows good flexibility in profit distribution.
  • The operating agreement allows for excellent flexibility in terms of organization and reduces specific administrative tasks.

The C Corporation (C Corp)

The C Corporation is a less common legal status but much more suitable for larger companies wishing to raise funds, such as institutional investors. This status is similar to that of the Société Anonyme in France.

C Corp Offers Multiple Advantages:

  • This status distinguishes between shareholders and the company;
  • It makes it possible to raise funds through the sale of shares;
  • Taxation will be made on the company’s profits and losses and the shareholders’ dividends (double taxation). What seems at first sight to be a disadvantage is not necessarily a disadvantage because it allows non-residents to have no tax presence in the USA;
  • It offers an excellent facility in terms of share transfer.

Why Create a Company in The United States?

Import/Export

Thanks to your company in the USA, you will be able to sell directly on the American market. This is a significant advantage to sell your products on Amazon USA in particular. Also, your company will act as an intermediary between your customers and your suppliers and will be able to invoice both individuals and companies in the USA and abroad.

Consulting

You can entirely open your company in the United States to provide services or even consulting. The sectors are numerous, and some of them are incredibly buoyant.

Commerce/E-commerce

Whatever your reasons for starting a business in the USA, it will be essential to conduct a good market study beforehand to ensure that the business model is viable. It is not because your business is doing very well in France to be as successful in the United States.

With very different mentalities, cultures and consumer habits, make sure that your offer will find a demand in the American market. To develop your business in the U.S., you will also need to adapt the way you communicate and distribute your products.

How to Create Your Company in The Usa?

Formation is very important for the activity of a company. Indeed, having a real address in the USA can play on many factors:

  • The possibility of opening a bank account with an American bank (American banks can refuse to open an account for you).
  • Your credibility with your suppliers and customers. Having a real address in the USA and not just a P.O. Box can play on the trust they will have in your company.
  • Being able to benefit from certain tax treaties
  • Get a better local SEO on Google (P.O. boxes are not allowed by Google).

Create an LLC

Advantages of an LLC

An “LLC” is a hybrid structure between the Partnership (Partnership) and the Corporation (S.A.).

The advantage of the “LLC” is the following: just as in a corporation, its shareholders will not be held responsible for the debts, obligations and liabilities of the Corporation, concerning third parties. Furthermore, like a Partnership, the “LLC” is managed directly by its partners, unless the partners agree to centralized management.

In other words, the “LLCs” do not have to be managed by a board of directors or an equivalent administrative body, although centralized management is an alternative. As a result, the management and ownership structure is much simpler than in the case of the Corporation.

However, unlike the limited partners of the Limited Partnership, the partners of the “LLC” do not lose the benefit of limited liability when they take an active part in the management of the Corporation.

For the “LLC”, the equivalents of by-laws/decisions and shareholder agreements are rules and operating contracts.

Taxation

For federal income tax purposes, “LLCs” can be classified as either a Partnership, a Corporation or “Disregarded entities” (i.e. a hybrid entity in the case of an “LLC” with a single partner – “EURL”).

According to the rules governing the classification of partnership structures, for tax purposes, a domestic LLC is automatically classified as a Partnership (unless it is a single-member LLC, in which case it is a hybrid entity). Still, the LLC may also choose to be classified as a Corporation.

The difference in taxation between an “LLC” and a Corporation may be interesting for the foreign shareholder. Whereas the Corporation, held by foreign shareholders, will be subject to double taxation: the Corporation is taxed as a corporation and the shareholders are then taxed when they receive their dividends; the LLC (if it has more than one partner) will allow its foreign shareholders to avoid this double taxation.

This means that there will be no federal taxation for the Corporation; it will be the partners who will be taxed individually. It should also be noted that a single-partner LLC is treated as a hybrid entity, which is why the Tax Department considers the LLC and its sole partner as one person for tax purposes, which may have adverse consequences for the only partner.

Disadvantages of An LLC

If the “LLC” is an exciting alternative and offers some flexibility for foreign investors or businessmen, it also has some disadvantages.

First of all, the LLC is a relatively new structure and, as a result, there is little case law on LLCs, despite the growing popularity of this structure in recent years. On the other hand, there is an abundance of case law concerning the operation of Corporations.

Also, the LLC structure is not well suited for companies considering the use of foreign investors, for companies considering the issuance of shares with or without a public offering, and for companies contemplating mergers or acquisitions in the future, as third parties will be more reluctant to deal with an LLC than with a Corporation.

Finally, legal and tax counsel may not be familiar with the structure of an “LLC”, and the use of this form of Corporation may increase its cost and complexity. On the other hand, competent international legal and tax advisors can guide foreign investors or business people concerning LLCs’ standard and tax formalities.

Create a Corporation

Definition of A “corporation

A “Corporation” is a legal entity that exists separately and independently of its owners or shareholders.

Unlike a sole proprietorship or Partnership, a corporation can continue to exist indefinitely despite the death or withdrawal of a shareholder.

To create a Florida corporation, it is necessary to submit the articles of incorporation to the Florida Department of State and pay the registration fee.

One of the main differences between the “Corporation” and the Partnership is that the partners who manage the Partnership may be jointly and severally liable for the obligations and debts of the Partnership, whereas the “Corporation” is a structure that limits the liability of all its partners, from its officers to its most passive investors.

The shareholders of the “Corporation” are in principle only liable for claims against the “Corporation” to the extent of their investment in the “Corporation”.

However, in practice, the shareholders of a small or newly created “Corporation” may be required to co-sign credit instruments, resulting in personal liability for that “Corporation” transactions.

Moreover, limited liability may not apply to a corporation that fails to comply with the administrative formalities to which it is subject, such as holding regular shareholders’ meetings and board of directors’ meetings, preparing minutes of such meetings, or submitting an annual report to the Florida Department of State.

Failure to comply with these obligations could result in an allegation that the directors or officers have acted outside the scope of their authority. A third party creditor could then personally sue the directors, officers and shareholders of the Corporation.

Shares of A Corporation

Applications for shares of a Florida “Corporation” must be made in writing. A “Corporation” may issue shares in exchange for past or future services and tangible or intangible items.

While the transfer of the rights attached to the shares in a Partnership is not free of charge, the shareholders of a “Corporation” may generally transfer their interests (options) free of charge, unless a legislative provision, regulation, or shareholders’ agreement provides otherwise.

Running a Corporation

In addition to the articles of the Corporation, corporate by-laws must be adopted by the “Corporation”. These by-laws are adopted by a “Corporation” for the management of its business.

A “Corporation” is expected to hold annual meetings (unless formally waived by the shareholders) as well as special meetings from time to time.

Resolutions passed at regular meetings of the “Corporation” must be recorded in the minutes of the session (once registered in the form of a deed by the appropriate officers or directors) and then become binding on the officers, directors and shareholders of the “Corporation”.

In Florida, a “Corporation” is generally managed by a board of directors (except for small “Corporations”, which may be managed directly by their shareholders and officers with the written consent of the shareholders).

The shareholders of the Florida “Corporation” elect the directors. The directors are then appointed by the board of directors and remain in office until they are removed by the board of directors (with or without cause).

Taxation

In the absence of a personalized status, the Tax Administration (Internal Revenue Service) classifies “Corporations” in the sub-chapter “c-corporations”, which means that “Corporations” are taxed on their distributions (this is the famous “double taxation”).

This double taxation can be avoided if the “Corporation” opts for a sub-chapter “s-corporation”; the federal tax is then levied at the level of the shareholder and not of the “Corporation”. However, the choice of the sub-chapter “s-corporation” is in principle not available to “Corporations” whose shareholders are not residents of Florida.

Votes per Share at Meetings

Generally, each share of a “Corporation” is entitled to one vote at each meeting, unless otherwise provided in the articles of the Corporation or a written shareholder agreement.

This is particularly important in the event of a tie or when a majority cannot be reached. In such cases, a shareholders’ agreement is recommended.

The company’s association articles may provide for one or more votes per share, regardless of the claim and class (with different voting rights). Instead of annual or special meetings, a Florida “Corporation” may authorize a shareholder’s vote by written consent, dated and signed by the shareholder.

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