How to Incorporate in the USA
This article takes you through the different milestones of the onboarding process. You will learn what information is needed to start the process, what terms to familiarize yourself with, what type of entity to choose, where to incorporate, how to open your corporate bank account, and how to plan your taxes.
STATUS OF INCORPORATION
The best advice may be to form a corporation in the state where you plan to do business. It will be much less complicated and more profitable in the long run. Listed below are some of the reasons Delaware attracts both large and small businesses:
Delaware maintains an independent judicial system for businesses, called the “Court of Chancery.” If legal issues arise related to a lawsuit in Delaware, there is an established record of business decisions. There is no minimum capital required to organize the corporation and it is not necessary to have a bank account in Delaware. A single person can occupy all the positions of the corporation: president, vice president, secretary and treasurer. There is no state business income tax for Delaware businesses that do not operate within the state. Shares owned by people outside of Delaware are not subject to Delaware personal income tax. There is no inheritance tax in Delaware on shares held by nonresidents.
ENTITY TYPE
Corporations
The most important benefit of a Corporation is that it is legally a separate entity from the people who own or operate it and therefore limits your personal liability. If a court judgment is entered against the Corporation, you may lose only the money that you have invested in the Corporation. Generally, as long as you have acted in your corporate capacity (as an employee, officer, or director) and without the intention of defrauding creditors, your assets cannot be used as a creditor to satisfy a judgment against your Corporation.
Since the Corporation is separate from its owners, the Corporation pays taxes on any net income (profits) that remains after all business expenses have been paid or increased. Corporations file IRS Form 1120 to report their income, expenses, and taxes.
Corporate income tax rates – 2008
Taxable income
over Not over Tax rate
$ 0 $ 50,000 15%
50,000 75,000 25%
75,000 100,000 34%
100,000 335,000 39%
35,000 10,000,000 34%
10,000,000 15,000,000 35%
15,000,000 18,333,333 38%
18,333,333 .......... 35%
Also, if income is distributed to shareholders in the form of dividends, shareholders pay taxes on the dividends they receive, currently 15%.
Limited liability company (LLC)
LLC is the newest form of business entity. As with a corporation, LLC owners benefit from limited liability. This means that being a member of an LLC does not normally expose you to legal liability for business debts and court judgments against the company. Typically, if you become a member of an LLC, you only risk your share of the capital invested in the business. A member of the LLC can be an individual or a separate entity such as a Partnership or Corporation that has invested in the LLC. An operating agreement must be created (when forming the LLC) to detail how the business will operate. If the LLC has one member, it is treated as a sole proprietor or for tax purposes; otherwise, it is treated as a partnership and each member reports and pays income taxes on their share of the income.
Sole Taxpayers-2008
Taxable income: Tax:
Over But not over Tax +% On amount over
$ 0 $ 8,025 $ 0.00 10 $ 0
8,025 32,550 802.50 15 8,025
32,550 78,850 4,481.25 25 32,550
78,850 164,550 16,056.25 28 78,850
164,550 357,700 40,052.25 33 164,550
357,700 ....... 103,791.75 35 357,700
Non-Profits
The main benefit of forming a Non-Profit Corporation is to get a tax-exempt status under the IRC (Internal Revenue Code), usually Section 501(c)(3). If a Non-Profit is tax-exempt, not only is it exempt from paying income tax on its income, but donors who contribute to the Non-Profit can take a tax deduction for their contributions. To apply for 501(c)(3) status, the Non-Profit must file IRS Form 1023. The legal standard for tax-exempt status is that the Corporation has been formed for religious, charitable, literary, scientific or educational purposes. Non-Profits are usually managed by a board of directors or trustees who are involved in the operation of the Non-Profit. Officers and employees are in charge of the day-to-day business of the Non-Profit.
ENTITY NAME
Your entity name must contain a valid corporate indicator for the state in which it is incorporated (most states accept one of the following identifiers or an appropriate abbreviation: Incorporated, Corporation, Company, or Limited), and must not match or be too similar to the name of an existing business registered in the desired state.
OFFICIALS
The officer is appointed by the board of directors and is responsible for the day-to-day running of the corporation. The titles and duties of each officer are generally listed in the company’s bylaws. The titles of common officers are president, vice president, secretary, and treasurer. An officer can be one of the entity’s shareholders, owners, or employees. The officer is part of the administration of the entity. SHAREHOLDERS / MEMBERS Shareholders: Owners of the issued shares of a corporation. The shareholders do not own specific corporate properties; they simply own an interest in the corporation. The shareholders appoint the board of directors of the entity that oversees the management of the entity (officers) Members: The owners of an LLC. A member can be active in the management of the LLC and will be a member-manager or simply an owner and then a member.
TAX IDENTIFICATION NUMBER
Tax identification number: for the entity
The Federal Tax Identification Number, also known as the Employer Identification Number (EIN), is a number that the federal government gives to your entity for tax purposes. You cannot hire employees or open a bank account in your business name without obtaining an Employer Identification Number.
Tax identification number: for owners
By the IRS
What is an ITIN? A Personal Taxpayer Identification Number (ITIN) is a tax processing number issued by the Internal Revenue Service. It is a nine-digit number that always begins with the number 9 and has a 7 or 8 in the fourth digit, for example, 9XX-7X-XXXX. The IRS issues ITINs to people who are required to have a US taxpayer identification number but do not have one and are not eligible to obtain a Social Security Number (SSN) from the Social Security Administration (SSA). ITINs are issued regardless of immigration status because both resident and non-resident aliens may have US tax reporting and payment responsibilities under the Internal Revenue Code. Individuals must have a filing requirement and submit a valid federal income tax return to receive an ITIN, unless they meet an exception.
What is an ITIN used for? ITINs are for federal tax reporting only and are not intended for any other purpose. An ITIN does not authorize work in the US nor does it provide eligibility for Social Security benefits or the Earned Income Tax Credit. ITINs are not valid identification outside of the tax system. The IRS issues ITINs to help people comply with US tax laws and to provide a means to efficiently process and account for tax returns and payments for those who are not eligible for insurance numbers. Social. Who needs an ITIN? The IRS issues ITINs to foreign nationals and others who have federal tax filing or filing requirements and do not qualify for SSNs. A non-resident foreign natural person who is not eligible for an SSN, who must file a US tax return.Just to claim a tax refund under the provisions of a US tax treaty, they need an ITIN. Examples of people who need an ITIN include: Non-resident alien filing a U.S. tax return and not eligible for a U.S. Resident Alien SSN (based on days of presence in the United States) filing a US tax return AND you are not eligible for a SSN Dependent or spouse of a US citizen / resident alien Dependent or spouse of a non-resident alien visa holder.
BANK ACCOUNT
Once the incorporation process is complete, the entity can open a bank account. There are two types of bank accounts in the US: Checking Account – This is a working account that allows you to deposit funds and then distribute them via checks and wire transfers. In most cases, checking accounts do not earn interest. Some checking accounts can be designated for a special purpose, such as payroll. Savings account: in this account the entity deposits excessive funds from the checking account. This account usually has interest.
Information it needs to collect from you as part of the federal government’s anti-money laundering effort includes:
Own name of the company and the name of the person who opens the account. Physical address of the company: PO boxes are not accepted. Taxpayer identification number of the company or Social Security number of the person who opens the account. As for business information, a copy of your business articles of incorporation, articles of association, or comparable documents from your state government will establish the legitimacy of your business.
Finally, the documents obtained for the company must include the name of the person who opens the account. If they don’t, the business must provide a resolution that gives the person opening the account the authority to conduct business transactions on behalf of the business.
The following is a sample list of documents that may be requested when opening a bank account:
– Corporate papers (Certificate of incorporation or incorporation). – Copy of the EIN (SS-4) and the number. – Minutes from the most recent board meeting showing the identities of the board members (must be on letterhead). – Copies of official identification such as passport or driver’s license. The passport must be certified (notarized) by the US consulate Bank reference letter for the company (if possible) and all persons (required). – Copy of the bank statement of the people that shows the postal address (it must be from the bank that makes the reference). – Copy of the individual utility bill at the same address. – A letter on company letterhead requesting the opening of the account and specifying the authorized signatories. – A letter from the company’s attorney confirming the status of incorporation and authorized persons who can act on behalf of the corporation (must indicate ownership of the company and list anyone who owns 25% or more).
COMMERCIAL ACCOUNT
A business account is simply a relationship between a retailer and a business bank that allows retailers to accept web-based credit card payments from their customers. This is the account to which a business account provider deposits payments to your business checking account for transactions made online. To qualify for a merchant account, retailers must meet the bank’s requirements.
TAXES
Once the incorporation process is complete, your company is ready to begin doing business in the US An important step in strategizing for your business is planning to minimize your US and international taxes. To achieve this goal, you must structure the transfer pricing between your US and international entities, establish an income and expense budget, and maximize tax deductions and benefits. To comply with federal and state laws, the entity must file quarterly reports, pay estimated taxes, and file annual tax returns to report the entity’s income, expenses, profits, and taxes, as well as the income of the owners from the earnings of the entity.