Nowadays, many companies have a presence in multiple countries around the world, including the USA. America’s market is vast and it’s no surprise a lot of organizations want to break into it. However, despite the size of the market, establishing a company in the USA can be challenging, especially if you’re running a business remotely.
Since doing business online in the US from another country can be tricky, we’ve put together a guide to describe how it works.
How Does Starting a Company in the USA for Non-Citizens Work?
Foreign companies have two choices for the structure: the limited liability company and the C corporation. You’ll also come across S corporations in the USA but forming one as a foreigner isn’t doable since the shareholders have to be US residents or citizens.
The C corporation lets you accumulate capital and you may be more appealing to an investor looking to work with incorporated companies only. The number of shareholders or owners is unlimited and transferring your corporation’s ownership is an option. Unless a corporation is terminated, it can last beyond the owner’s lifetime.
On the other hand, the most significant benefit of an LLC is that it’s subject to pass-through taxation. This means that profits flow through to the owners and are only taxed once.
Starting a company in the USA as a foreigner doesn’t restrict you to certain states. Many people choose Delaware, Wyoming, or Nevada due to their business-friendly atmosphere and lower business taxes. In any case, you should conduct thorough research while choosing your state to make an informed decision.
This is what comes after figuring out the location of your business:
Hiring Your Registered Agent
Having a registered agent is beneficial on many levels. The person or company holding this function is authorized to handle your paperwork and responding to crucial correspondence. Once you have a registered agent, they will be recognized by your state and approved by the company to perform various operations, such as accepting services of process. On top of that, registered agents will keep business licenses renewed and satisfy the requirements of the business structure, even if you’re working outside the US.
To be eligible, registered agents must reside in the same state where your LLC or corporation was formed. Many companies render this service and can assist you in establishing your business entity.
Obtaining an EIN
The Internal Revenue Service (IRS) uses the employer identification number (EIN) to identify your company for tax and payroll purposes. To apply for an EIN, you first need to have a social security number (SSN).
But if you’re a foreign owner and don’t qualify for an SSN, you can use your Individual Taxpayer Identification Number (ITIN) that will be necessary later on.
Setting Up a Business Bank Account
This step is one of the most complicated stages of companies operating online and outside the USA. Requirements for setting up a bank account vary, but you generally need to provide your passport, ITIN or EIN, and paperwork proving your company is an LLC or corporation.
Submitting these documents is best done in-person, but when doing business online, you can hire a service that will set up your account on your behalf.
Finding a Neobank
A neobank is a financial technology institution that extends only financial services without physical branches. They target tech-savvy clients who prefer doing business through mobile apps.
Apart from cutting-edge technology, a neobank provides many other conveniences. Since there are no physical branches to visit, you can complete business transactions from any place with an internet connection. Moreover, the banking costs of this model are lower, allowing neobanks to lower their fees and render services to more people.
While neobanks don’t have identical structures or offerings, they generally differ from traditional banks and credit unions due to the following features:
· They aren’t plagued by federal or state regulators as much as conventional banks.
· Their services are streamlined and specifically designed for cell phones and other mobile devices.
· Neobanks team up with brick-and-mortar banks when insuring customer deposits.
· They don’t offer overdrafts and other types of credit.
In many critical aspects, neobanks are quite similar to traditional banks and credit unions. For example, a neobank also offers savings and checking accounts, transfer services, budgeting help, and other financial education resources.
From a client’s perspective, working with a neobank may amount to just managing your money and making decisions using a mobile app. For people well-versed in technology, setting up a neobank account is easy. In many cases, you can start using neobanking services without providing physical paperwork. You need only create your account and download the application.
However, a neobank doesn’t replace a conventional bank for all clients. That’s why you should consider linking your neobank account to your traditional business bank account, as allowed by some institutions.
Managing International Business Payments
Making overseas transactions can be extremely challenging due to communication problems, legal complications, and exchange rate fluctuations. There are many other pitfalls, such as relationships with distributors and suppliers. They can easily break down and lead to losing money. To lower the risk of encountering such situations while performing online business, you can adopt several approaches:
Carefully Negotiate Payment Terms
Since US payment laws may not apply in some of your international transactions, you want to limit the risks associated with such payments as much as you can. To do so, try to negotiate a type of arrangement you’re most comfortable with. To name a few, you can use advance payments, letters of credit, or bills of exchange once the customers receive your products.
To decide on how the payment will be carried out, take into account how risky it is, as well as what your customer requires and expects. Plus, growing businesses need to pay special attention to their cash flow because international transactions may expose you to extended payment terms and limit the operating capital available to you.
Manage Currency Rates
Fluctuations in the dollar’s value will determine your budget when entering into purchase agreements with your distributors or suppliers and making or receiving payments. Therefore, it’s always smart to plan your operations. A good practice is to speak to a bank or other currency provider about pre-purchasing or pre-booking currency at a preferable rate. Foreign exchange (FX) providers can also streamline this process.
In addition, you can use a forward contract to safeguard against exchange rate fluctuations for a specific period. This rate is established when purchasing a contract in a selected period, which helps control your cash flow and minimizes risk by avoiding future costs.
Consider Obtaining Trade Credit Insurance
Insuring your company against nonpayments by international customers can prevent your business from getting into a cash crunch. However, you might want to factor the insurance cost into your pricing discussions with customers. Also, figure out whether you need government-supported or commercially available insurance.
Considering that laws and rules surrounding finances change all the time, doing business online comes with numerous intricacies. To help navigate them, it can be a good idea to hire experts like business filing companies, attorneys, or accountants. They can help you manage your overseas operations. Handling legal concerns and finances comfortably on your own will usually require a lot of time and having expert guidance can be a huge boon.
America Is Waiting for You
Now you know how to run online business from home. And there’s no better place in the world to start your company than right here in the USA. While expanding into America from a different country requires a lot of work, this is a wise investment as it enlarges your market and should thus increase sales. Join many other companies that have made the same move and watch your organization flourish.