Company formation in brief
The "OFFSHORE" concept as such is not applicable in relation to legal entities registered in the United States, and offshore companies are not registered here (except for tax-exempt corporations of the US Virgin Islands).
There are a lot of things to be considered in respect of setting up a business in the United States, types of companies registered there, their structuring and taxation peculiarities. Deciding which state is the most attractive for the future company registration, it should be noted that the legal and tax base, as well as the cost of registration and annual fees in the United States may vary significantly in various States.
In general, foreign investors could carry out their activities in the United States through entities in such organisational and legal forms as:
• Limited Liability Company (LLC)
US Partnership may be both unlimited and limited.There is no fundamental difference between unlimited and limited partnerships except for the following:
• unlimited partnership must have two or more partners with equal rights (general partners) who bear unlimited liability for the partnership's debts and obligations in the United States;
• limited partnership must have at least one general unlimited partner and one or more limited partners personally liable for the partnership’s debts and obligations in the United States only within the amount determined by the partners and the constituent documents in advance.
Management, control and decision-making in both types of partnerships rest with the general partners alone.
Partnership, as a legal entity, is not subject to taxation in the United States, and only partners pay taxes on their income from participation in the partnership.
It should be noted that in some states of the United States, the general partner may be subject to a so-called 15% self-employment tax on the partnership’s profit.
For the tax planning purposes, it should be noted that double taxation agreements signed by the United States with many countries do not consider partnerships to be subject to those agreements.
Regardless of whether a partnership does business in the United States, it has to keep accounts and to file financial statements with the tax authorities and with the Secretary of State of its registration (in some cases this may require that an auditor licensed in the United States be engaged for those purposes).
A US Corporation can only be formed with limited liability of its shareholders.
Based on the taxation peculiarities, all US corporations are divided into two types: C Corporation and S Corporation. By default, all US corporations in the United States are registered as C Corporations. If a corporation elects for tax purposes to be qualified as a Small Corporation, it may obtain the status of S Corporation by filing the appropriate form with the US tax authorities.
C Corporation and S Corporation are characterized as follows:
• C Corporation may have an unlimited number of shareholders (residents and non-residents of the United States, physical and legal persons), unless it provides professional services, acts as charitable organization or is involved in trust activities related to real estate investments. C Corporation may issue shares of various types.
• S Corporation may have no more than 75 shareholders who may be physical persons, US residents only. S Corporation may have shareholders - legal entities if it is involved in trust activities related to real estate investments. S Corporation may issue registered shares only.
Both C Corporation and S Corporation may be open or closed. Any open corporation's shares may be offered to third parties without the shareholders’ meeting approval, unless it is limited by the statutory documents. No minimum capital is required for incorporation. Corporation may be managed by one director who may combine administrative duties of the president, treasurer, and secretary (these officers supposed to be appointed in any corporation). Regardless of whether a corporation does business in the United States, it has to keep accounts and to file financial statements; in some cases this may require that an auditor licensed in the United States be engaged for those purposes.
A US Limited liability company (LLC) is not allowed for registered in all the States. Having features of corporation and those of partnership, an LLC is characterised as follows:
• LLC may have an unlimited number of members - physical and legal persons, residents or non-residents of the United States;
• company members’ rights and responsibilities as well as company management procedure are determined by so-called Operating Agreement;
• registered certificates of shares of various nominal values and with various dividend rights may be issued but shares may not be offered to third parties without the LLC members’ meeting consent;
• if LLC has one member, it may, from the tax accounting perspective, be considered as a US corporation or a sole proprietorship depending on the various circumstances of economic activity;
• regardless of whether LLC does business in the United States, it has to keep accounts and to file financial statements in the United States.
Many hundreds of thousands of corporations have chosen Delaware, "The First American State”, as this piece of land on the coast of the US Atlantic proudly called, to be the place of their legal registration. Thanks to the international popularity of the US LLC, several other States, such as Wyoming, Nevada and Oregon, successfully compete with Delaware in offering corporate services.
Considering the US corporate law flexible and simple is not only wrong but also fraught with sad consequences, and before making a final decision to register a corporation or LLC in the United States, it should be borne in mind that the US tax system has three levels – Federal, State and personal one.
All US companies, citizens and resident individuals are required to pay taxes in the United States regardless of the place where their income was actually generated (unless otherwise provided for by double taxation agreements; however, there are no such agreements with offshore jurisdictions).
The US Internal Revenue Service (IRS) requires that US taxpayers be familiar with the “what, how, when” principle regarding taxation of their income.
Delaware. Corporate obligations in brief
In accordance with Title 8 Section 502 of the Delaware State Code, each legal entity registered in this State is required to pay minimum tax and annual fees set up in the State in order to maintain its "good standing" status. Each Delaware legal entity is also required to annually file with the Secretary of State a so-called Annual Franchise Tax Report which specifies the actual business address (mailbox IS NOT accepted) of the entity inside or outside the United States and also names of its actual directors and managers (one of whom either has to personally sign the form, or to authorize a local corporate agent to file the form on his/her behalf). Filing of incorrect information is an offense punishable under the laws of the United States!
The Delaware Annual Tax must be paid by all legal entities registered there except for non-profit businesses such as churches, charity organisations, etc. (which, however, are not released from the obligation to file the Annual Franchise Tax Report with the Secretary of State).
All Delaware corporations have to pay the tax by 1st March and limited liability companies - by 1st June each year. For this purpose, there are two methods for the Delaware Tax calculation - the Authorized Shares Method and the Assumed Par Value Capital Method. Regardless of the method used for tax calculation and its actual result, the Annual Franchise Tax Report must be annually filied with the Delaware Secretary of State and paid accordingly.
Once a US legal entity gets registered with the Internal Revenue Department and receives an EIN, it is required to file an annual tax return that shows a profit (or loss) for the previous year and a type and value of the shares issued. The tax report must be filed annually by 1 March.
IMPORTANT! ALL US LEGAL ENTITIES ARE OBLIGED TO REPORT THEIR BANK ACCOUNTS OPENED OUTSIDE THE USA IF THE BALANCES OF SUCH ACCOUNTS EXCEED US$10’000.
Exhaustive information and answers to all related questions are provided on the official website of the US Internal Revenue Department (IRS).
Due to various income tax rates applicable to physical and legal утешешуы in the United States, we cannot describe them in detail here and strongly recommend that all those interested in setting up a business in the United States seek a professional tax advice.
A company formation in USA could be arranged with a professional registered agent providing incorporation, virtual office and other corporate services in USA. To set up a company in USA is possible by correspondence, but to open a bank account in USA will, most probably, require a personal visit.
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