Ruhani Health Care
Establishing a company in the United States is relatively simple and fast compared to many other countries. Although there are legal and tax obligations at both the federal and state levels, the clarity of procedures and the ability to complete most steps online make the process highly practical.
Required Documents for Company Formation in the United States
In the U.S., aside from the basic information of the company to be established, there is no requirement to prepare or submit any additional documentation in advance. Company formation applications can be completed online and are processed quickly. There is no requirement to commit capital or begin operations beforehand. As there is no minimum capital requirement under U.S. law, entrepreneurs can establish a company with zero capital and begin operations after forming the company and obtaining a tax identification number (EIN).
Types of Business Entities: LLC and Corporation
While various business structures exist in the U.S., the most commonly used are the Limited Liability Company (LLC) and the Corporation.
- LLC is preferred especially by small and medium-sized businesses due to its flexible structure. It can be formed by one or multiple members. The internal relationships and responsibilities among members are defined in the Operating Agreement, which serves as the key legal document. In case of a dispute, courts primarily refer to this agreement.
- Corporation is a more formal and legally defined structure, similar to a joint-stock company, with a board of directors and shareholder meetings. It is particularly suitable for companies seeking external investment. The presence of different types of shares allows for a clearer investor relationship framework. In an LLC, every member typically has a right to participate in management, which may require additional contractual arrangements to modify.
In the U.S., the process of converting one business entity to another varies by state. Some states allow entity conversion, while others require forming a new entity and merging the old one into it.
State Selection and Tax Structure
The U.S. tax system consists of two main components: Federal Income Tax and State Income Tax.
Federal Income Tax applies to all companies. Corporation-type entities are subject to corporate tax, while LLCs are typically taxed through the personal income of their members (pass-through taxation).
State Income Tax varies significantly by state. For instance, New Jersey and New York have income tax rates ranging between 5% and 8%, while states like Florida and Texas do not impose a state income tax. Some states, like Texas, may have additional taxes such as the Franchise Tax, though these are generally more limited in scope.
Delaware is one of the most frequently chosen states due to its low administrative burden and fast incorporation processes. However, federal taxes still apply, and Delaware also imposes a Franchise Tax. While this tax does not significantly affect small businesses, it can be costly for large companies with many shareholders.
Regardless of where the company is incorporated, it is subject to the tax laws of the state in which it actually operates. For example, a company incorporated in Delaware but operating in New York must register in New York and comply with its tax regulations. Therefore, when choosing a state, the actual business location should be carefully considered.
Key Considerations When Choosing an Entity Type in the U.S.
The most critical factor in choosing the appropriate entity type is not necessarily the nature of the business activity but rather the ownership structure and investment plans.
For startup founders, attracting investment is often a priority. The Corporation structure allows for more clearly defined rights regarding shares, options, and non-management investor roles. In contrast, LLCs grant management rights to all members by default, which can be less appealing to investors. Therefore, if you plan to seek investment, it is recommended to select the entity type accordingly.
Founders’ Personal Liability in the U.S.
One of the key advantages of forming a company in the U.S. is the protection of the founders’ personal assets. Legally, the debts and liabilities arising from the company’s operations are limited to the company’s assets. However, to benefit from this protection, personal and company finances must be clearly separated.
All company-related expenses, revenues, and transactions must be conducted through the company account. If company assets are used for personal expenses, courts may apply the “piercing the corporate veil” doctrine, holding founders personally liable. Therefore, accurate accounting and financial management are essential.
While the process of establishing a company in the U.S. is procedurally straightforward, long-term success requires consideration of many factors such as legal structure, tax planning, investment strategy, and operational location. Choosing the right structure—LLC or Corporation—provides a strong foundation aligned with your business model and future partnerships.
If you would like professional guidance on company formation and structuring in the U.S., Onal Gallant would be happy to assist you.