Incorporating In The USA Without Being An American
Almost Everything You Need To Know
Since writing this Stripe has introduced a service called Atlas. I highly recommend using this service for all incorporation needs.
Every time I’m browsing /r/startups & /r/Entrepreneur there is somebody asking about incorporating in the United States. Originally I wrote up an informal response, found here. After I had written the response, I received a handful of private messages. With that in mind I figured it would be beneficial to write a formal post. Hopefully, those subreddit communities can add this to their sidebar.
Let me start with some context. I’m a foreigner(Canadian) to the USA, incorporator of a Delaware C-corp that has 100% foreign ownership. Our company, GamerBet Inc, also has no Americans on our board or acting as officers of the company. Below is the process to accomplish the same as a foreigner. The process is very different if the company has an American as an officer of the company and or if you’re a resident of the USA in any form (H1-B, TN, PR).
The Right Reasons To Do This
Why do you need to incorporate in the United States? If you don’t have a specific answer, then it probably isn’t worth the trouble. If you live in a developed country, it will almost always be easier to incorporate in the country of your citizenship. Here are some situations where incorporating in the United States with foreign ownership might be worth the hassle.
1)Raising Funding From US Investors
The most common reason to consider incorporating in the United States is to raise funding for the startup. It is a lot easier to raise capital from VCs (venture capitalists) in the United States when the company is incorporated there.
2)Legal & Tax Reasons
The country you’re a citizen in has legal issues around the business you wish to operate or it would be extremely difficult to incorporate in the country. You might be advised to set up shop in the United States by a tax profession under specific instructions to minimize your taxes.
3)Exclusive Services
Imagine the company you’re building requires services such as Amazon fulfillment or Amazon Turk. These services are exclusive to certain countries that you might not reside in. If the company depends on services that are exclusive to a handful of countries or only the United States, then you’re probably stuck incorporating in the United States.
Pre-Incorporation
Listed below is the services that I’ve personally used during the corporation phase. These services will make the process seamless during this journey. All of these are non-affiliated links.
VirtualPostMail provides a mailing address, use this address during the incorporation process. Signing up is straight forward. The company provides a partially filled out USPS Form 1583 that allows that is required for them to open the company’s mail. The USPS form 1583 is required to be notarized, just search for notary services.
HelloSign means you won’t need to buy a printer & scanner just to incorporate. The service makes it simple to import documents and then sign those documents online. There will be plenty of PDF documents during & after the incorporation process that will need to be signed.
HelloFax provides you with a fax number and allows you to fax out documents easily. Post incorporation will require you to fax in & receive a fax back from the IRS to obtain an employer identification number.
Incorporation
Doing the actual incorporation is rather simple and straight forward with the services that are online. Follow the instructions, sign some documents and fork out ~$700.
Clerky
This service is designed specifically for technology startups that are venture-backed (or soon-to-be). We wanted to replicate a similar setup that YCombinator uses for their startups, and we felt that Clerky achieved this. They provide a simple package for incorporating and post-incorporation.
If you email support@clerky.com requesting private beta access and mention this article they will refund the Clerky fees for up to 5 convertible notes or Safes. Thank you to the people at Clerkly!
If Clerky doesn’t make sense for you, then I suggest looking at LegalZoom.
Post-Incorporation
83(b) Election
Once the equity is issued by the corporation, you will want to mail a letter to the Internal Revenue Service within 30 days. It must be mailed within 30 days, there are no exceptions. This letter will request the tax on your equity to be taxed on the date the equity was granted to you rather than on the date the equity vests.
The reasoning of why an individual files an 83(b) election are found here. An example of the letter you want to send is located here.
EIN (Employer Identification Number)
To obtain an EIN, you will need to fill out the SS-4 form. Followed the instructions. Box 4B will ask for an ITIN/SSN as a foreign owner you will have neither of these, put ‘Foreign’. HelloFax will provide you with a fax number. Use this fax number as the fax back number on the SS-4 form. At the time of writing this our form was faxed to 1–859–669–5760.
Foreign Qualification
Before conducting business across state lines, you are required to file for a foreign qualification. Financial institutions will not allow you to put down a business mailing address in a state that doesn’t match your incorporation state without providing a foreign qualification for that state. If you plan on using VirtualMailPost as your business mailing address, I highly recommend filing for a California foreign qualification. It will cost ~$300 to file the company’s California foreign qualification.
Opening A Bank Account
Opening a bank account was impossible for us from Canada even dealing with US banks in Canada. The banks told us it would not be possible unless I went to the state of incorporation. Each bank has different policies for dealing with corporations with entirely foreign ownership. Seven banks were not able to serve us due to their policies. These banks included Wells Fargo, Bank of America, TD Bank, Citizen Bank, PNC Bank, Capital One, and Chase. We were able to open an account with M & T Bank in Wilmington, Delaware.
If you intend to travel to the state of incorporation to open an account make sure to bring all documents along. These documents should include the companies IRS EIN letter, certificate of incorporation, board resolution authorizing, state qualifications and two pieces of photo identification.
If you can raise investment within the United States, I highly suggest opening an account with Silicon Valley Bank.
Corporate Compliance
Cap Table & Options
ShareWave provides a tool to view and manage the complete history of your company’s ownership. This is known as a cap(capitalization) table. Keeping the cap table organized and in order is important because it will help prevent spending $5k — $15k when the company wants to do a financing round.
Annual Report & Franchise Tax
A franchise tax is a tax charged to corporations incorporated in some US states. To be in good standing with your state, you will need to file these annually if required by the state. If you used Clerky, this should be ~$500/year to file the annual report and to pay the franchise tax.
By-laws
Bylaws widely vary from organization to organization but outline how the corporation is going to operate. Think of the by-laws as the rule handbook of the corporation. Within these rules, there will be requirements such as:
- Documenting corporate resolutions
- Holding annual meetings
- Removal & electing officers & directors
It is extremely important to understand the by-laws and to abide by all the rules outlined by them.
Wrap Up
The incorporation process is fairly straight forward, but the post incorporation process can be a nightmare. Mainly dealing with financial institutions can become a nightmare. It is all doable, but there should be a clear justification to begin this journey.
Disclaimer: IANAL & TINLA
