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How to form a US LLC from Canada
Whether you live in Toronto or Montreal, you can start a US LLC from anywhere in Canada.
As a non-resident, you don’t ever have to visit US to start a company there.
Surprisingly over the years, forming an LLC in the US has become an attractive option to many founders in Canada due to its tax benefits and currency conversion benefits.
In this guide, you will learn everything there is to know about starting and operating a US LLC.
Let us go through it step-by-step.
Select The State of Formation
What State Is Best for an LLC?
After deciding to go ahead with a Limited Liability Company, your first task is to choose a state to register the LLC.
You can technically choose ANY of the 50 states in the US.
But, should you? Nope.
You will want to spend some time thinking about it.
Here’s a good rule of thumb: If you have an office or full-time employees located in a particular state, form your LLC in that state.
But, most founders from Canada start a freelance business, creative agency, SaaS product or an e-commerce business. In these cases, you may not have a physical presence in the US. So, it is recommended that you form a Delaware LLC or an LLC in Wyoming.
Why these 2 states?
Delaware
- Has some of the most business-friendly laws in the country.
- State statutes like Delaware General Corporation Law and the Limited Liability Company Act are regularly updated.
- Court of Chancery is very efficient. Cases here are decided by judges experienced in this law, not juries.
- No tax for out-of-state income. If you have no operations in Delaware, no additional taxes.
- Formation costs
- Filing fees of $90
- Annual franchise fees of $300
Wyoming
- The only state that provides lifetime proxies. Meaning you can have someone else to hold your shares as a proxy and to vote on your behalf. It’s not something that’s very crucial for small businesses.
- Names and addresses of members and managers are not listed in any public database.
- No state income tax on Wages.
- Formation costs
- Filing fees of $100
- Annual franchise fees of $50
In short, these 2 states are very business friendly are widely popular among founders from Canada. Several startups from Canada are formed in these 2 states with StartGlobal. So, I know it’s a popular choice.
Pick a Business Name
What Name Should I Use For an LLC?
Choosing a business name shouldn’t be hard. Let your creative juices flow.
However, the Secretary of State has some guidelines regarding the name:
- Include the word “limited liability company,” or “LLC” or “L.L.C.”
- Avoid words that sound similar to government agencies (FBI, Treasury, State Department, etc.)
- To use restricted words like Bank, University, Attorney, you require additional paperwork and must meet some criteria. Try to stay away from it.
- If you are using non-english terms that are native to Canada, make sure you include a translation while registering.
After deciding the name, follow the steps below:
- Search for business names on your selected Secretary of State’s website.
- Check availability for a website domain name.
- Nominate a registered agent
- Check the name on the U.S. Trademark Electronic Search System – USPTO database even if you don’t plan to trademark it now.
- Search online for similar names.
- (Optional) Reserve the name for a period of time with your state agency before filing the articles of organization.
Note
Even if you don’t plan on trademarking your business name, it is a good practice to check the availability with USPTO database. Registering with the Secretary of State doesn’t necessarily mean you’ll be protected via trademark.
Delaware
Wyoming
The name that you have chosen is considered ‘registered’ only after you have filed the LLC Articles of Organization.
Before you do that, you would need to hire a registered agent.
Nominate a Registered Agent
Who And What Is a Registered Agent?
Secretary of State requires every LLC to have a registered agent located in the state of formation.
Who and what is a registered agent?
Registered agent is an individual or an authorized corporation that has a physical address in the state that accept official notices on behalf of your LLC.
Since you are a resident of Canada, US government needs a local representative to be physically present in the US. They are the ones who receive notices from the State, notices of lawsuits, legal summons, state franchise tax notices etc on your behalf.
If you have friends or family living in the state you chose, they can be your registered agent. But being a registered agent requires them to be available 5 days a week and their contact details will be made public.
Why trouble your loved ones, when you can pay for professional registered agent services?!
So, find a registered agent and keep their details handy because you will need it while filing articles of organization and applying for EIN.
Choose LLC Management
Member-managed vs Manager-managed LLC
When it comes to the daily operations of the LLC, you can decide to have a manager run the operations or the members themselves.
If you are forming a single-member LLC, you are most likely to be the one running the entire show.
In a multi-member LLC, you can also appoint one of the members as the manager.
But sometimes, when the business is too large and diverse, you need some external help for professional management.
Member-Managed LLC
- All the member/s share responsibility for the LLC’s daily operations.
- In most states, member-managed is the default option until you opt for a different management structure in your formation documents or operating agreement.
Manager-Managed LLC
- Preferred when members want to be passive investors.
- Think about the amount of authority you wanna give the manager: should you give sole authority over hiring, equipment purchases, ad expenses, etc?
This must not be a tough decision to make. Most business owners already know who should manage the LLC.
Whatever you decide, you will need to mention this in the LLC’s Articles of Organization and in the operating agreement.
File Articles of Organization
What Are Articles of Organization?
After you file the Articles of Organization and it is accepted by the Secretary of State, your LLC is officially formed.
Articles of Organization is like the business’ birth certificate.
They contain basic details about the LLC, such as:
- Name of the LLC
- Name & address of registered agent
- Statement of Acceptance by a registered agent
- Management (Member-managed or manager-managed)
- Names & addresses of members
- Purpose
- Statement of limited liability
You can upload the articles to the websites of the Secretary of State in Delaware & Wyoming.
After you have filed the articles of organization, you’ll get a stamped “filed” copy of the document along with the filing receipt in a couple of weeks.
Delaware
- Articles of Organization is known as Certificate of Formation.
- Certificate of Formation template by Delaware State
- Filing fees: $90
- Upload the files on Delaware’s State website, or send via mail
- If you need Certificate of Status, request this in the comment section of the Document filing sheet.
- $50.00 per certificate for a Short Form Certificate of Status (states name and status of entity)
- $175.00 for a Long Form Certificate of Status (states status and all documents ever filed on entity).
Wyoming
Draft an Operating Agreement
What Is An Operating Agreement?
After the LLC is approved, you can set the ground rules for an LLC in a document called as Operating agreement.
Even if you are a single founder, it is always recommended to create an operating agreement as it is often referenced by financial institutions and courts.
In most states, it is not mandatory to have an operating agreement. But it is always a good practice to maintain one.
Operating agreement for non-residents usually includes:
- Management structure
- Allocation of distributions (profits and losses)
- LLC financials (Accounting methods, annual reports, etc)
- Immigration compliance
- Voting rights
- Dissolution of Business
You may have to reach out to lawyers to prepare an operating agreement customized for your needs.
Apply for EIN
How Do You Apply For an EIN?
Next thing to do: request for an EIN, Employer Identification Number.
It’s also known as Federal Tax Identification Number.
EIN is how the IRS identifies your business for tax purposes.
You need an EIN:
- If you have an employee or planning to hire.
- For opening a business checking account and to satisfy other banking requirements.
- To build credit and qualify for loans.
- Create accounts with PayPal US, Stripe US, FBA and other platforms.
Here’s how you can apply for an EIN.
Ensure your LLC is approved by the State
If not, you may end up with an EIN for the wrong business name. There is a lot more work involved in cancelling the wrong EIN and reapplying.
Fill up Form SS-4 and send it by mail or fax
Being a resident of Canada, you may not have an SSN(Social Security Number). The only way to get an EIN without an SSN is by filling Form SS-4 (Application for Employer Identification Number)
This form cannot be filed online.
Include a US address on lines 4a & 4b
Your mailing address doesn’t have to be a US address, but the address you mention here can be used as an address proof by some banks.
Also, mentioning the US will reduce your waiting period after the application.
Attach the approved LLC’s Certificate of Formation (Articles of Organization)
This is not mandatory, but highly recommended.
Your EIN Confirmation letter will be mailed to the address in the form
Find a mail address forwarder in the US who can forward the letter to your address in Canada.
Costs to Form An LLC From Canada
What Are The Costs?
One time
Business name reservation (Delaware)
$75
State formation fees (Delaware)
$90
Short Form Certificate of Status (Delaware)
$50
Annually
Registered agent costs
$150 – $300
Mail forwarding
$100 – $200
Income Tax
What Taxes Are Applicable to An LLC?
There are 2 types of income taxes:
- Federal income taxes
- State income taxes
For non-residents living in Canada, there are no state income taxes in Delaware and Wyoming. That’s a relief.
Federal income taxes are levied based on multiple factors. It’s quite complicated. So, we have created a tax estimator that calculates an estimated tax that your business owes.
Try LLC Tax Estimator
Calculate your estimated taxes in under 5 minutes
Incomes are of 2 types ECI (Effectively connected income) and FDAP(Fixed, Determinable, Annual and Periodic income). ECI generally refers to the income generated by a business, whereas FDAP usually refers to passive incomes like rents, dividends, interest, royalty etc.
When it comes to calculating federal income tax, IRS treats ECI and FDAP differently. ECI incomes are generally taxed at different tiers ranging from 10% to 37%. FDAP incomes are generally taxed at 30%.
However, tax rates vary based on the tax treaty between US and Canada. According to the tax treaty, FDAP incomes of Interest and Royalty are exempt, whereas Dividends is taxed at 15% (Dividends).
Formed an LLC. What’s Next?
You can pat yourself on the back and be confident that you have laid a solid foundation for your business.
Next thing to do is to open a bank account.
Having got EIN and LLC formation documents, you are in a comfortable position to apply for a business checking account.
Banking platforms like Mercury and RelayFi are excellent choices for startups to open an FDIC-insured business bank account.
Alternatively, you can also try Wise or Payoneer to open an online payment account.
These platforms almost always allow founders from Canada. So, that’s awesome.
One more nice addition is to get a US phone number that forwards calls to your local Canada number. That way, you can share a US phone number with your customers.
That’s pretty much all you have to do to form a full-fledged LLC from Canada. Good luck on your journey, it’s a wonderful road ahead.
If you find this entire process to be slightly complicated, StartGlobal offers a formation package specially designed for founders residing in Canada.