Opening a business in the United States and being able to sell your products and services in the North American giant can be a life-changer for many international entrepreneurs. Limited Liability Companies (LLC) are one of the most popular setups for both domestic and foreign business owners. This structure offers many advantages and unique benefits that can help you thrive in your sector. Now, let’s see how to start an LLC in the United States; it’s not as hard as it might sound.
You can do the entire process online, and for non-US citizens, it is not necessary to travel to the country. Keep on reading and find the ultimate guide for you to set up an LLC in the United States, 100% from home and saving money.
But first, let’s dive a little bit into what is a Limited Liability Company in the United States.
What is an LLC?
Opening your business under the Limited Liability Company setup will allow you to establish some key management aspects autonomously. Ownership percentage depends on initial capital investment or equity and the profits can be distributed however and whenever you establish in the company’s internal protocol documents.
LLC owners are called members and they can decide whether they form a board of directors to run the company or if they hire an external, non-member manager.
One of the most appealing aspects for entrepreneurs is that LLCs do not pay federal or state corporate income taxes. The profits pass through directly to the members whenever they’re distributed. Income taxes are levied on an individual basis only.
How do LLCs work?
If you’re trying to see how to start an LLC for protection purposes, here’s what you need to know. In the US, there’s a concept called the corporate veil: LLCs and Corporations are legally separated from their owners. This means that if a creditor were to collect a debt or seize property from the company, your personal assets would still be protected (unless you’ve committed any wrongdoing or fraud).
This statute is also known as liability protection, which can be strengthened by establishing clear responsibilities for each LLC member on an internal document called the Operating Agreement.
In this document, you can also establish how the company will be run and the roles of each member. The submission of an LLC Operating Agreement is not mandatory in most US states, although it is recommended to do so. The Agreement is one of the elements that gives LLC members more control over their business, as it attributes more flexibility to the company setup.
How does an LLC protect you?
The corporate veil is a good legal protection device as long as you enhance it and shield your personal assets from corporate claims. As mentioned above, establishing roles, responsibilities, and ownership percentages on an LLC Operating Agreement is key to strength liability protection.
Before seeing how to start an LLC, make sure you know what liabilities your business might have to comply with to operate. Liabilities are responsibilities, debts, and obligations such as payroll, equity liquidation, taxes, loan payments, and service payables.
The LLC setup will protect you from having to pay these liabilities with your personal assets as long as you don’t incur any fraudulent activities or put up your own properties as a guarantee for a loan.
What is the difference between an LLC and Corp?
Contrary to LLCs, Corporations are a more rigid structure in which owners (shareholders or stockholders) have responsibilities and limitations dictated by law.
Raising capital and getting investment is also very different for Corps than it is for LLCs. Corporations are able to issue stocks or shares and participate in stock exchanges to get external investments. Public stock trading is very appealing to venture capitalists and investors, for which raising capital can be less challenging for Corps than for LLCs. On the other hand, LLCs can offer equity or debt to collect funds from external sources.
Taxes also vary between each business setup, LLCs and S Corporations are considered pass-through entities, while C Corporations are subjected to double taxation.
Although, even if LLCs don’t pay income taxes, members have to pay them on an individual level. The rates vary by state and this is one of the main factors you should check before seeing how to start an LLC.
What’s the best state to form an LLC?
New Mexico, Wyoming, Delaware, Florida, and Texas have the best tax rates for LLC members and are the most friendly states to foreign-owned businesses in the US.
With an LLC in the United States, you won’t have to worry about corporate income taxes, however, you will have to pay them, or at least make a report, on an individual basis. Florida, Texas, and Wyoming do not levy state income taxes on LLC members while in Delaware, you won’t have to pay them if you don’t reside in the state.
Another tax to keep in mind is the state annual registration fee, known either as annual report or franchise tax. Texas and New Mexico LLCs are exempt from this, while Florida and Wyoming have very low rates.
Many international entrepreneurs see California as the main hub for IT, while in fact most California-based companies are actually registered somewhere else. This is because the Golden State has some of the highest franchise tax and individual income tax rates in the country; US$800 and from 1% to 6%, respectively.
Another important factor while choosing the US state to form your LLC is privacy, some states make business records public while others can keep your company anonymous. Let’s see all the data from the different states so you can see how to start an LLC in the best conditions.
Florida | Delaware | Texas | New Mexico | Wyoming | |
LLC state formation fee | US$125 | US$90 | US$300 | US$50 | US$100 |
Individual state income tax | None | None for out-of-state residents | None | Between 1.7% and 5.9%. | None |
Annual report or franchise tax | Between US$138.75 and US$150 | Minimum of US$225 | None | None | Minimum of US$62 |
Privacy | All records are public | Total privacy | All records are public | Total privacy | Total privacy |
Globalfy’s all-in-one business formation plan cost | US$599 + state formation fee | US$599 + state formation fee | US$599 + state formation fee | US$599 + state formation fee | US$599 + state formation fee |
How long does it take to register an LLC in the US?
Time is crucial for everybody but especially for entrepreneurs. That’s why Globalfy gives you the opportunity to open your own American LLC without talking to any rep, or going to any public office, and 100% online.
Now, let’s check out how long would it take for every state to register your LLC.
Florida | Delaware | Texas | New Mexico | Wyoming | |
Online | 1 week. | 4–12 weeks. Expedited processing (extra US$100): 2–3 weeks | 5–7 business days. | 1–3 business days. | Immediate. |
In-person | 3 weeks. | 4–12 weeks. Expedited processing (extra US$100): 2–3 weeks | 7 weeks. | Not available. | 15 business days. |
As you can see, these states offer better timeframes for online fillings, therefore benefiting non-US resident entrepreneurs. With Globalfy you only have to fill out a 5-minute online form and let us do the heavy lifting for you. Open your LLC in the United States now and let us take care of the paperwork for you.
How are LLCs taxed in the US?
All profits generated by the LLC pass directly to the members without being taxed on a corporate level, however, you still must report your gains.
If you open a single-member LLC you must fill out and submit Form 1040, Schedule C to the IRS and pay for the company’s income on an individual level. In case the LLC yields losses during a fiscal year, those losses may be deducted from your income tax or carried forward to the next year.
If you open a multiple-member LLC, the company must file a 1065 U.S. Return of Partnership Income form to the IRS. There is no tax payment for the LLC since it’s just an informative return. The LLC will also provide a Schedule K-1 to each member, so they can fill out and submit their individual income tax returns and pay taxes based on their share of the profits. Usually, at state and local levels there are no filing requirements for LLCs but the regulations vary between states.
How to start an LLC in the US online?
Now that you’ve checked what US state is the best for you to register your company and the taxes you will have to pay, you’re ready to open your own LLC in the United States.
With Globalfy you can do the entire process from home and there’s no need for an American visa, US residency, or US tax ID. You can open and run your American LLC without ever leaving your home country.
These are the steps you must complete to register your LLC in the US:
- Submit Articles of Organization (also known as Certificate of Formation) to the state. As seen above, the fees to submit this document vary depending on the state. You might also submit the Operating Agreement to establish your LLC’s management structure (not mandatory but recommended). The submission is also included in Globalfy’s all-in-one business plan.
- Apply for the EIN. Fill out and submit Form SS-4 to the IRS via mail to obtain your EIN (Employer Identification Number, the American business tax ID). With Globalfy, you don’t have to send this correspondence, the company will take care of your EIN processing.
- Obtain a business license. In states such as California, you need to pay the municipality for a business license (this doesn’t apply to the states mentioned above).
- Get an American business bank account. Your business will need a US bank account for finance and tax purposes. With Globalfy’s all-in-one business plan, you get a US bank account 100% online.
The business formation process is pretty straightforward and you can do it all by yourself. However, with Globalfy, you only have to fill out an online form submitting your information and the rest is on us. Completing the form takes less than 5 minutes and from there on you will be receiving via email your business formation documents and EIN confirmation letter from the IRS as they are approved. In a few days, your company will be ready and you will be able to do business in the United States without having to set foot in the country.
How to file the LLC Articles of Organization?
This is the information you have to include in the document you submit to the state to register your LLC.
- Company’s name. Most US states require your LLC’s name to be unique, which means you cannot register the name of another company from the same state you choose to register in.
- Company’s address. In some states, you need to provide a US street address. You can also fill out a mailing address in case it is not the same. The best option for entrepreneurs who don’t reside in the US is Globalfy’s Virtual Address service (included in the business formation plan).
- Member’s names. In some states, you must supply this information, along with the members’ and/or managers’ addresses.
- Registered Agent’s information. A Registered Agent is an individual or entity authorized by a state to inform you about your LLC’s legal and tax requirements. It is mandatory for every US company to have a Registered Agent. Globalfy’s all-in-one business formation plan includes this service (free of charge for the first year).
- Business purpose. Most US states require you to describe your business. In some cases, it can be a broad statement allowing the company to engage in any lawful purpose, but some states will ask for a more detailed description of the services and products provided.
These are the institutions where you must file your Articles of Organization in each state:
- Florida Division of Corporations
- Delaware Division of Corporations
- Texas Secretary of State
- New Mexico Secretary of State
- Wyoming Secretary of State
Now, besides the formation document, you can also submit your Operating Agreement to specify how the LLC will be run and organized.
How to file the LLC Operating Agreement?
The LLC Operating Agreement is the document that establishes the structure of the company, the responsibilities of the members, and the protocols for specific scenarios. There are no predetermined layouts for Operating Agreements, so you can add as many sections as you wish to describe any particular company aspect.
You can determine how profits are to be distributed, who will manage the business, and for how long. In case you want your LLC to be treated as a Corporation by the IRS, you will have to submit Form 8832 to the institution but you can also add a section for it to the Operating Agreement.
Is a single-member LLC the best option for you?
Did you know that if you open an LLC by yourself, with no other partners, and your operations are oriented on providing services in the US from abroad, you can enjoy tax reductions? That’s right! If you open a single-member LLC in the United States to provide digital services from your home country you will not have to pay federal individual income taxes.
Now it gets even better. If you decide to register your online services company in the state of Wyoming, you won’t have to pay individual state income taxes either. That’s why Globalfy also launched a plan dedicated to sole entrepreneurs and freelancers. Learn more and see how to set up an LLC in Wyoming, with just one member and pay no US taxes!
What are the benefits of opening an LLC in the US?
By having a presence in the American market, you will be able to do business in the world’s most profitable environment. The US alone is responsible for a third of the global revenue in the IT sector.
Meanwhile, the e-commerce industry is projected to enjoy accelerated growth in the next 2 years, with the American sector positioned at its forefront.
The low tax rates and the foreign-friendly of business and financial institutions in the US, also make the country more than appealing to international entrepreneurs and companies of all sizes. With Globalfy, you will get an all-in-one service for your venture to thrive in the American and global markets: An LLC in the US from abroad, an American business bank account, a Virtual Address, a Registered Agent, over US$200,000 in discounts from our Rewards program, and more!
You can now participate in the biggest market in the world without leaving your home country. See how to start an LLC in the United States without ITIN, social security number, or any US tax ID whatsoever.
Register your business now and take advantage of the American business ecosystem.