A US-based LLC can have a variety of advantages for both American and foreign entrepreneurs abroad. To open a US LLC you don’t even have to live in the US.
An LLC is essentially a hybrid between a corporation and a partnership. It provides the limited liability of a corporation, so your personal assets are protected in case of a lawsuit or bankruptcy, and the operational flexibility of a partnership structure. The structure also gives you tax efficiencies, due to its flow-through nature. For foreigners, a US LLC can have additional advantages.
However, if your goal is to seek funding from VCs and angel investors, forming a C-Corp may be a better choice for you. (We can help you determine the best approach for your business structure.)
Where to register a US LLC when you live abroad
You can generally select any state to register the LLC. For taxpayers abroad, we typically recommend opening the LLC in Delaware, which has low taxes, maintenance fees and rigid corporate law. Wyoming is another great option. If you are looking for a state with strong privacy laws, we recommend Nevada.
If you do however, maintain strong ties to a specific state and run your business from there, maybe have an office or a warehouse in that state, the advantages of opening a LLC in another state disappear. In that case it could be more beneficial registering the company in your state.
How to form a US LLC
Requirements for opening an LLC vary between states. In Delaware and many other states, you typically need the following:
1. Tax ID for the company, called EIN – Employer Identification Number
To obtain an EIN, you need a business name, US business address and a brief explanation of the principal business activity and principal service or product the business will offer or sell. In case your preferred business name is not available, you should have two alternative business name choices.
You also need the name, address and SSN (if applicable) of the responsible party to fill out the IRS form “Application for Employer Identification Number”.
2. Operating agreement
An LLC operating agreement is a legal document that defines the rights and responsibilities of each LLC member and describes the organization’s operating terms.
Many states require LLCs to have an operating agreement. While an operating agreement is not required in all states, we recommend having one, as it is needed to open a business bank account.
3. Articles of Organization
To form the company, you have to file the “Articles of Organization” with a state entity. However, with which entity you have to file is different in different states.
For the Articles of Organization you need:
- Business name
- US business address
- The nature of the business, stated in very broad terms to avoid limiting the LLC
- Name, address and percentage of ownership of all members (only required in few states)
4. Registered agent
A registered agent is a third party, registered in the same state as the business is established. The registered agent is nominated to receive and send official documents on your behalf, such as service of process notices, official government notifications, tax forms and notice of lawsuits.
If you incorporate in the state you live in, you can be the registered agent for the business.
5. Licenses, permits, and other requirements
You may be required to hold certain licenses and permits, depending on your state and the type of business you are transacting. This will generally be specific to the business activity, not the LLC itself. Some states, such as NY, may also require you to notify the public of the LLC’s existence by taking advertisements out in a local publication.
To maintain a US LLC in good standing, you will also generally have to file an annual report with the state and renew the registered agent service.
6. Bank account
A US bank account is not required for a US LLC, but we highly recommended having one. If you mix your personal funds with those of the LLC, you are risking the limited liability characteristics of your company. This means that your personal assets could be at risk to creditors, ultimately defeating the purpose of the LLC.
While it is practically impossible nowadays to open a US bank account as an individual who resides outside of the US, a US LLC can easily open a corporate US bank account. Typically, you have to go to the US in person to open the account. Some banks may allow opening an account remotely.
Getting help with setting up a US LLC
Going through all these steps yourself, i.e. dealing with the IRS for the tax ID and the state for the company formation, finding a registered agent, opening a bank account, filing tax returns, can be time consuming and daunting. But you don’t have to do it alone.
We provide this service and have helped many entrepreneurs register their businesses. At Online Taxman, we complete all the paperwork for them and give the peace of mind that everything is set up correctly. We even help set up Registered Agent services and open a US bank account. Contact us to get your US LLC started!