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The other main advantages of operating a business as a limited liability entity include: significant tax advantages and deductible employee benefits, the anonymity available to beneficial owners, members, and shareholders, better access to capital funding, the enduring nature of a corporate structure, simple and efficient transfer of ownership, and all of the advantages associated with the credibility and prestige associated with a corporate face for business activities.
For non-residents of the United States of America, this jurisdiction, although not commonly considered an offshore jurisdiction, can be used as such, and can provide a vital link in an international business structure. The fact that the United States, rather than being seen as a tax haven or jurisdiction of disrepute, is highly regarded as a business center means that business entities formed there are free of any suspicion of disreputable objectives. If properly structured and located, entities designed for use in an offshore tax minimisation strategy can be free of corporate tax within the jurisdiction.
For international companies wishing to grow, the United States of America offers a market of some 300 million consumers, a wealth of established business infrastructure and raw materials, a range of double tax treaties, and relatively low taxation.
Choosing the appropriate structure for your business is extremely important. Each option has its own advantages, and its suitability depends on your personal or business objectives. Registration of legal entities in the United States of America is conducted at the state level; although each state has its own regulations governing statutory requirements and formation procedures, in effect, these regulations vary very little between states. Coddan offers package options for the formation of the most popular and suitable entity types in most of the states within the United States of America. Information regarding a particular state and the formation options available for that state can be found by clicking on the state name in the list to the left. If you have any questions about how to start your own corporation or how to establish an LLC company in the United States, please call us between 9.30am-6.00pm Monday to Friday + (0) 207.935.5171 or + (0) 330.808.0089.
For those who are familiar with common law jurisdictions such as the United Kingdom, forming an entity in a civil law jurisdiction such the United States of America can often be confusing. Of the three main types of business entity available in the United States of America, only limited partnerships have an obvious correlation under United Kingdom corporate law. Corporations and limited liability companies differ from their United Kingdom equivalents in many ways.
Limited liability companies are much like a hybrid between the United Kingdom's limited company and a partnership. Unlike a United Kingdom limited company, a United States limited liability company cannot issue stocks to raise funds; instead, its members are its investors and are issued interest certificates, which reflect the amount of their investment in the company. The liability of the members of a limited liability company is limited to the amount of their investment; this is similar to the way that the liability of shareholders of a limited United Kingdom company is limited to the value of the shares that they hold.
American corporations are more obviously like United Kingdom limited companies; both have limited liability and can take different forms depending on the objectives of a business. A closed corporation is equivalent to a private limited company, where shares are not offered to the public. A public corporation is equivalent to a United Kingdom public limited company, where shares are offered to the public. Charitable and non-profit activities conducted under a private company limited by guarantee in the United Kingdom, find their equivalent in the mutual benefit corporation in the United States of America.
There are also differences in terminology with respect to constitutional documents. The United Kingdom, like most common law jurisdictions, divides the corporate constitution into two separate documents. These relate to their equivalents in American jurisdictions as follows: -
The memorandum of association, known as the articles of incorporation of a corporation, or the articles of organisation of a limited liability company, regulates the company's activities with the outside world, such as the company's objects and powers and specifies the authorised share capital of the company.
The articles of association, known as the by-laws of a corporation, or the membership operating agreement of a limited liability company in the United States of America, regulates the company's internal affairs and management, such as procedures for board meetings, and dividend entitlements.
With the exceptions of Delaware and Nevada, all of the states of the United States of America offer a very similar package with respect to taxation and regulation. For residents of the United States of America, unless there is a compelling reason to do otherwise, it is generally advisable to form a corporation or limited liability company in their home state. This method is generally less complicated if you plan to operate a business only in your home state, and the formation costs are generally less for a local incorporation.
For businesses conducting business in multiple states it is necessary to register in each state. This is generally not a difficult process, though it does entail the submission of annual reports and the payment of annual fees and franchise taxes in each state that a business is registered.
For foreign investors who do not plan to trade locally, preference is usually shown to Delaware and Nevada, as these states offer particular advantages. Other popular state jurisdictions are Arizona, California, Florida, and New York.
The states of Nevada, Washington, and Wyoming do not levy any state corporate income taxes. Alabama, Louisiana, and North Dakota allow federal tax to be deducted from state corporate income tax, while Iowa and Missouri allow fifty per cent of federal tax to be deducted from state corporate income tax.
Taxation in the United States of America is a complicated subject. There are three main authorities who levy taxes in the United States, these are the state government, the federal government, and local government (townships, districts, counties, et cetera). The nature of local government taxation is highly dependent upon each jurisdiction and cannot, therefore, be discussed here in any detail.
The rates and ranges of state taxation vary significantly from state to state, and are an important consideration when deciding on a location for the formation of a business entity. As the total tax liability of a company in the United States is the combination of state and federal tax, there are two obvious ways to decrease the overall tax liability of a company: by reducing the state tax liability, or by reducing the federal tax liability.
Certain states, notably Nevada, Washington, and Wyoming, levy no state corporate or individual income tax. Businesses incorporated in these states can, therefore, decrease their overall tax liability by being subject to only federal income tax. Other States, notably Alabama, Iowa, Louisiana, Missouri, and North Dakota, allow some or all of the federal tax liability to be deducted from state taxes.
What is important is to be aware that even if a state does not levy certain taxes this does not mean that, an entity will be tax-free; a company will still be liable for federal taxes.
As it is possible to reduce state tax liability, it is also possible to reduce federal tax liability. The main way for an entity to do this is to apply to the federal internal revenue service to be taxed under sub-chapter S of the internal revenue code.
A limited liability company is a legal entity form offered in the United States, and some offshore jurisdictions, which limits the liability of its owners and members. This form of business entity is roughly equivalent to a hybrid between a United Kingdom limited company and a partnership, though it operates under civil law and differs in many respects.
A limited liability company does not issue stocks to raise funds. Instead, its members are its investors and are issued interest certificates which reflect the amount of their investment in the company. The members run and own the company, the amount of income that they will earn, and the extent of their powers are contingent upon the percentage of their ownership.
A limited liability company is similar to the other main type of business entity in the United States of America, the corporation, in that they both enjoy limited liability, but is often a more attractive option, especially for smaller businesses with a small number of owners as it is a more flexible form of ownership.
Unlike a corporation, a limited liability company with one member is treated as a sole proprietorship; a limited liability company with multiple members is typically treated as a partnership for tax purposes, thereby avoiding double taxation. A limited liability company is, in fact, the most tax advantageous type of company for non-residents of the United States.
The main advantages of a limited liability company are as follows:
There are, however, certain disadvantages to a limited liability company:
A corporation is a more complex form of business entity. The corporation is a legal entity and exists apart from its owners or shareholders. As a separate entity, the corporation has its own rights, privileges, and liabilities as distinct from the shareholders, officers and board of directors. A corporation can buy and sell property, enter into contracts, and sue and be sued. Elected officers and its board of directors manage the corporation.
The ownership of a corporation is delimited by shares, both individuals and other legal entities can hold shares in a corporation. A shareholder's share of the profit and the extent of ownership and power within the corporation correlates to the percentage of the total amount of shares that a shareholder holds. Shareholders are sometimes referred to as members, though this denotation with respect to a corporation should not be confused with the role of members in other legal business structures, for example, a limited liability company or a non-stock corporation.
Shareholders of a corporation generally have voting rights through which they are able to control the direction of the corporation to a greater or lesser degree depending upon the amount of shares that they hold. When no shareholders exist, a corporation may operate as a non-stock corporation. Instead of having stockholders, the corporation has members who have the right to vote on its operations. If a non-stock corporation is not operated for profit, it is called a non-profit corporation. In either category, the corporation comprises of a collection of individuals with a distinct legal status and with special privileges not provided to ordinary unincorporated businesses, to voluntary associations, or to groups of individuals.
A corporation is typically governed by a board of directors on behalf of the members or shareholders. The directors are elected by the corporate members of a corporation and have a fiduciary duty to act in the best interests of the corporation. Corporate officers, such as the CEO, president, treasurer, and other titled officers, are usually chosen by the board of directors to manage the affairs of the corporation.
In certain cases, a corporation may be party controlled by creditors, such as banks. In return for lending money to the corporation, creditors can demand a controlling interest analogous to that of a shareholder, including one or more seats on the board of directors. Creditors are not said to own the corporation as shareholders do, but can outweigh the shareholders in practice, especially if the corporation is experiencing financial difficulties and cannot survive without credit.
Members of a corporation are said to have a residual interest: should the corporation end its existence, the members are the last to receive a share of its assets; creditors and others with interests in the corporation are the first to receive compensation from the corporation. This can make investment in a corporation risky for an individual shareholder; however, shareholders only risk the sum invested in the shares that are held, and do not have any further personal liability to the debts of the corporation. In the event of the dissolution of a non-profit corporation, members do enjoy residual benefits.
Unless they qualify to be taxed under sub-chapter S of the internal revenue code, taxes are paid by a corporation on its profits; the profits are distributed to its owners via dividends on the shares that they hold, and are also subject to both state and federal taxation.
The main advantages of a corporation are as follows:
Corporations are, however:
The benefits of a corporation registration in United States are that not only does this business structure offer numerous tax advantages, but it also provides additional business benefits such as giving shareholders the liability protection. At Coddan Ltd, our team of incorporation experts has vast experience of American corporation start up. As a result, we can help you register a corporation in Delaware in less than 24 hours. The expertise the team has is what is required to incorporate your corporation in USA, while ensuring you receive a service that will benefit of your clients and your business in the longer term.
Just two one physical person is required to establish a corporation in United States. Plus Coddan can help by providing a registered expert and business service address in Delaware's capital if you need to register your corporation in Wilmington. American corporations are suitable for a wide variety of businesses, you can check how you can use an LLC in your particular situation.
Corporations can apply to the Internal Revenue Service to be taxed under sub-chapter S of the internal revenue code. So called S corporations, unlike normal corporations, generally pay no corporate income tax on their profits. The shareholders are instead levied income taxes against their distributive shares.
This tax is levied against shareholders whether or not dividends have been paid.
This option is only available to corporations who have no non-resident shareholders, and is, therefore, generally not available to corporations design for offshore purposes in the United States of America. Other entity types can also apply to be taxed under sub-chapter S of the Internal revenue code.
Requirements which must be met in order to be eligible to be considered a S corporation include: