How to Start an LLC in the U.S. – Complete Guide for Non-residents

Starting a business in the United States is like setting sail on a thrilling voyage, where the horizon is adorned with possibilities of growth and triumph. But if you’re a non-U.S. citizen, you might find yourself pondering whether the rewards of starting a Limited Liability Company (LLC) are within your reach.

The reassuring news is that the doors to LLC ownership have been widely opened to non-U.S. citizens of the country thanks to innovative businesses like doola!

Picture yourself standing at the crossroads, with New York’s vibrant markets beckoning on one side and Silicon Valley’s innovation hubs on the other. The journey to establish your very own LLC is a landscape teeming with opportunities, eagerly waiting for your exploration, and I’m here to guide you through this article.

Now, before we begin, I’d like to share with you the AMA thread on Twitter that was initiated by Parshwa Mehta via the hashtag #AskDoola. The subsequent dialogue inspired the article. Have a look at some of his answers.

Required Documents for Starting an LLC

“It is advisable for you to be as thorough as you can reasonably be in retaining documents that are used in tax preparation. During tax season, the following documents will be required from you:

1. Bank statements for accounts relating to the business.
2. Credit card statements for accounts relating to the business.
3. Financial statements or records that were prepared by your bookkeeper.
4. Receipts for any expenses claimed that are above $75.
5. Listings or details for any assets that the business may own
6. Invoices on sales of items, as well as some internal method of tracking cost of goods sold. The above records should be maintained for at least 3 years after the date of filing your original tax return, or 2 years from the date of paying your tax. For employment tax records, if any, you must retain records related to employment taxes for 4 years.”

Parshwa Mehta

Compliance when Certified Public Accountants (CPA) Take Over

” Yes, at @doolaHQ we have self serve financial management tools such as doola books and doola invoicing within the doola dashboard. 

You can connect doola invoicing to Stripe and you can connect doola books to your US bank account to streamline your bookkeeping, invoicing and get accurate, up to date and real time information. 

We also have a dedicated bookkeeping option if you prefer to have our team of CPAs do the bookkeeping for you using Quickbooks. 

You can connect your US bank account to Quickbooks, and all transactions will flow from your US bank account to Quickbooks, and our team will do your bookkeeping. 

This also saves you time at the time of tax filing since our CPAs already have all the required information.”

Here’s the link to the thread to get answers to some other questions that I raised.

Breaking Down an LLC (Limited Liability Company)

Imagine an LLC, or Limited Liability Company, as a versatile business framework that blends the best of both a corporation and a partnership or sole proprietorship. This structure is a go-to choice for business owners because it grants the benefits of limited liability while keeping administrative matters simpler than a full-fledged corporation.

Let’s break it down and have a look at how it stacks up against other business structures:

Getting to Know What an LLC Is:

An LLC is like a legal guardian for your business – it ensures that your personal assets stay separate from your business’s financial responsibilities. 

This separation is a game-changer. It acts as a safety net, keeping your personal finances, like your home, car, and savings, away from your financial troubles or other business problems. 

So, even if your LLC faces financial challenges or legal disputes, your personal assets generally stay off-limits. This feature, known as “limited liability,” is what makes an LLC so appealing.

The Upsides of Going the LLC Route:

• Limited Liability: Forming an LLC means you’re not personally on the hook for your business’s debts and obligations. Your financial responsibility is tied to how much you’ve invested in the company.
• Pass-Through Taxation– an LLC doesn’t pay federal income taxes directly. Instead, the profits and losses from the business show up on your personal tax return. It’s like the company’s financial journey gets bundled into your tax dealings. This often leads to tax savings, as you’re only taxed once on your portion of the company’s profits.
• Flexibility in Running Things: In the world of LLCs, you get to choose your own adventure. You can run the show yourself or appoint managers to handle day-to-day operations. The way ownership is split can also be customized, offering various levels of investment and involvement.
• Streamlined Admin Needs: Compared to the hoops that corporations jump through, LLCs have a simpler set of administrative requirements. No need for big annual meetings or mountains of paperwork. This ease can save you time and energy, which is a plus for small businesses.
• Tax Strategy Versatility: LLCs usually get taxed as partnerships (for multi-member setups) or sole proprietorships (for single-member setups). But here’s the twist – you can also choose to be taxed as a corporation. It’s like a tax menu where you get to pick what suits your financial goals best.

Measuring Up Against Other Business Structures:

• Corporation: Unlike an LLC, a corporation is like a separate personality in the business world, with its own tax responsibilities. While it also offers limited liability, corporations often deal with more complex administrative obligations. Think annual meetings and meticulous record-keeping. They’re also prone to “double taxation,” where the company’s profits get taxed both at the corporate level and again when profits are paid out to shareholders.
• Partnership: Picture a partnership as a business buddy system where two or more folks share ownership and responsibilities. But here’s the catch – partnerships don’t come with the same safety net as an LLC. If your partnership goes south, your personal stuff could be fair game to cover business debts.
• Sole Proprietorship: This is the uncomplicated way to do business – it’s all on you. While easy to set up, a sole proprietorship has a catch. If things go haywire, your personal finances are on the line. So, it’s a bit like walking on a tightrope without a net.

In the grand scheme of things, an LLC is a balanced mix of protection, flexibility, and tax benefits. It’s like having your cake and eating it too – a smart choice for business owners who want a legal umbrella for their personal assets while keeping things straightforward. 

When you size it up against other options, the LLC shines with its limited liability, tax-smart pass-through setup, and management style that suits your vision.

For more information, I’d strongly recommend Parshwa’s step-by-step LLC guide for non-US entrepreneurs.

Steps For Starting a Non-U.S. Resident LLC in the United States

Non-US entrepreneurs often inquire about the feasibility of establishing a Limited Liability Company (LLC) in the United States. The answer to the question, “Can a non-US citizen start an LLC?”, is a resounding “yes!”

Several non-U.S. residents have embarked on this journey, but to reiterate for clarity: neither U.S. citizenship nor a green card is a prerequisite to starting a Non-US LLC in the United States. It’s a revelation that dispels common misconceptions and ignites your path to a smooth and successful LLC establishment.

From the initial spark of an idea to the moment your LLC is a legal reality, let’s go through the most important information that will ensure and inspire your success.

1. Recognize the Advantages of a Non-U.S. Resident LLC

Taking advantage of the opportunity to establish a U.S. LLC can yield several tangible and strategic benefits for non-U.S. citizens that go beyond geographical limitations. An LLC can be a gateway to the expansive U.S. market, providing access to millions of potential customers or clients and connections with American investors, thereby igniting possibilities for partnerships and growth financing.

A non-U.S. resident LLC demonstrates a company’s international vision and strengthens its brand and credibility in the global commercial sector. This reputation not only increases trust among American consumers but also raises the enterprise’s standing when engaging in cross-border endeavors and negotiations. 

By tapping into the power of a U.S. LLC, non-U.S. citizens position themselves for long-term success in the modern commerce industry.

2. Determine Non-Resident Alien Status

Understanding non-resident alien status is pivotal, especially for tax considerations. Non-resident LLCs can potentially circumvent U.S. income taxes if certain criteria are met. To qualify, all LLC members must be non-resident aliens, meaning they are not U.S. citizens, permanent U.S. residents, or subject to the “substantial presence test” for U.S. taxation.

3. Choose the Appropriate State for LLC Formation

Selecting the optimal state for LLC formation is critical. Consulting a knowledgeable business attorney or consultant well-versed in the distinct laws of each state is advisable. Each state offers unique regulations governing the formation, ownership, management, and maintenance of LLCs.

Factors such as physical presence and privacy considerations influence the decision. For instance, Wyoming, Nevada, or Delaware may emerge as attractive choices due to favorable LLC maintenance fees or enhanced privacy provisions.

4. Select a Distinct LLC Business Name

While an LLC can bear the owner’s name, states often mandate the inclusion of a “limited liability company” or “LLC” in the name. The use of a fictitious name, also known as “doing business as” (DBA), requires thorough research to ensure its uniqueness. Employing a local registered agent becomes imperative to facilitate communication and comply with regulations.

5. Designate a Reliable Registered Agent

Most states mandate the appointment of a registered agent to receive official notifications and legal documents on behalf of the LLC. Many foreign-owned LLCs opt for registered agent services due to their lack of physical presence. Choosing a reputable registered agent service is pivotal given the agent’s vital role.

6. Apply for an Employer Identification Number (EIN)

Securing an Employer Identification Number (EIN) from the IRS is essential for tax identification purposes. Unlike U.S. citizens, non-U.S. citizens require an EIN, as they lack Social Security numbers. The IRS provides an online EIN application, while the IRS Form SS-4 can also be submitted via phone, email, or fax.

7. Prepare Essential Formation Documents

Forming an LLC necessitates the preparation and submission of Articles of Organization, outlining fundamental company information. A filing fee is typically required. While Operating Agreements, detailing management and operational guidelines, are not usually filed, they are essential for multi-member LLCs to ensure cohesive governance.

8. Establish a U.S. Bank Account

Opening a U.S. business bank account is crucial for facilitating financial transactions, receiving wire transfers, and managing expenses. A local bank account streamlines processes such as merchant accounts and payment processing.

Choosing Your Management Structure

Selecting the right management structure for your non-U.S. resident LLC is a crucial decision that impacts how your business will be run. As a non-U.S. citizen, you have the flexibility to choose between two main management options:

1. Member-Managed LLC

In a member-managed LLC, the day-to-day operations are overseen and managed by the LLC’s members, who are also the owners of the company. 

This structure is suitable for those who want to be actively involved in the business’s operations and decision-making.

2. Manager-Managed LLC

In a manager-managed LLC, the members appoint managers to handle the daily operations of the company. This structure is ideal if you prefer a more hands-off role and want to focus on higher-level strategic decisions while entrusting operational responsibilities to experienced managers.

Both management structures have their own merits and considerations. Your choice will depend on your business goals, level of involvement, and management preferences. It’s important to carefully evaluate these options to determine the structure that aligns best with your vision for your non-U.S. resident LLC.

Tax Implications for Non-US Citizens

Starting an LLC in the United States as a non-U.S. citizen brings forth another important aspect to consider – taxes. 

Just like plotting your business strategy, understanding the tax landscape is key to a successful venture. Here’s a closer look at the tax implications that accompany your non-U.S. resident LLC:

1. Pass-Through Taxation: Sharing Gains and Losses:

Imagine your LLC as a collective effort with each member involved. With “pass-through taxation,” the LLC’s profits and losses journey directly to the individual owner’s personal tax returns. 

In simpler terms, your LLC doesn’t pay federal income taxes itself. Instead, each member reports their part of the LLC’s financial picture on their personal tax returns. This approach simplifies the tax process, ensuring resources are used wisely for your business’s growth.

2. Navigating Global Tax Treaties:

The world of taxes is a complex web that stretches across borders. Tax treaties between countries play a vital role in how your LLC’s income is taxed. Depending on where you call home, these treaties can make a big difference. 

Some countries have special agreements with the United States – these agreements ensure that your income isn’t unfairly taxed twice, once where it’s earned and again where you reside. This intricate network helps you optimize your LLC’s tax strategy and sidestep unnecessary financial hurdles.

3. Unveiling Withholding Taxes:

Think of withholding taxes as a sneak preview of your tax bill. If your U.S. LLC rakes in specific types of income, you might encounter withholding taxes. 

These are deductions taken right at the source of payment – before your earnings hit your pocket. The payer, whether it’s clients or customers, takes care of these withholdings. The rate varies based on what you’re earning, your home country, and any relevant tax treaties. 

Although they might appear as a portion of your earnings, the good news is that these withholdings can often be claimed as a credit on your home country’s tax return, depending on the terms of the applicable tax treaty.

Opening a Business Bank Account

Having a separate business bank account is essential for managing your LLC’s finances. Forming an LLC as a non-U.S. citizen involves establishing a strong financial foundation, and a critical aspect of this groundwork is creating a dedicated business bank account.

Let’s explore why this step holds such significance and break down what it entails:

1. Drawing Boundaries Between Finances

Picture your personal and business finances as two separate streams flowing side by side. Opening a business bank account acts as a sturdy dam, ensuring these streams remain distinct and don’t intermingle. 

This separation provides a clear view of your company’s financial health. It simplifies the task of tracking expenses, overseeing revenue, and maintaining a transparent record of your finances – all fundamental factors for long-term prosperity.

2. Extra Steps for Non-U.S. Citizens

As a non-U.S. citizen, you might need to provide some extra paperwork when establishing your business bank account. 

Think of these documents as the foundation of trust between you and the bank. Key components may include your Employer Identification Number (EIN), your passport for identification, and proof of your address. These documents serve to assure the bank of your legitimacy and compliance with regulations.

3. EIN: The Business’s Unique Identifier

Just as you have a Social Security Number for personal identification, your business has an EIN – a distinctive identifier for taxation purposes. 

This number functions as your business’s backstage pass, granting recognition from financial institutions and government bodies alike. It’s not only essential for opening your business bank account but also for tax filing, hiring employees, and various other administrative tasks.

4. Passport and Address Verification

Your passport takes on the role of your business’s identity card within the world of commerce. It confirms your presence and plays a crucial role in verifying your non-U.S. citizenship. Meanwhile, providing proof of your address adds an extra layer of authenticity – a utility bill or an official letter bearing your address can do the trick. These pieces of evidence come together to establish your LLC’s credibility in the intricate financial landscape.

You’re not merely creating a financial hub. You’re also crafting a space where your business transactions flow effortlessly. This account evolves into the central hub for handling revenue, expenses, and everything related to your business’s growth. As a non-U.S. citizen, embrace this step as an opportunity to cement your business’s financial identity and cultivate trust within the dynamic world of finance.

Legal and Immigration Considerations

Among the most important considerations that must be taken into account are the legal and immigration considerations.

Let’s delve into what this entails:

1. Visa Status

Imagine your visa as a guiding compass that shapes the landscape of your business journey in the U.S. Just as different terrains call for varying strategies, each visa category sets unique boundaries on the scope of business activities you’re permitted to undertake. By understanding your visa’s nuances, you can chart a course that aligns with its guidelines and ensures your entrepreneurial endeavors stay on the right path.

2. Work Authorization

Think of work authorization as the key to unlocking your involvement in your LLC’s operations. If your visa proudly holds this key, you’re empowered to immerse yourself in the day-to-day workings of your business. It’s like having the green light to steer your entrepreneurial ship in full sail. However, if your visa lacks this authorization, don’t fret. 

Think of it as a challenge to navigate, requiring a creative route. Exploring alternative strategies or seeking visas that grant this privilege might be your compass for overcoming this obstacle.

In essence, your legal and immigration status shapes the canvas on which you paint your entrepreneurial dreams in the U.S. By embracing the guidelines of your visa and remaining well-informed, you can navigate this intricate terrain with poise. Consider it an adventure where understanding legal and immigration dimensions becomes your compass, guiding you to a successful LLC formation journey while abiding by the rules and regulations.

Seeking Professional Assistance

Starting an LLC as a non-US citizen is not only possible but also a promising way to tap into the vibrant US business landscape. By understanding the legal requirements, tax implications, and immigration considerations, you can carry on your entrepreneurial journey with confidence. However, remember that each situation is unique, so it’s crucial to conduct thorough research and seek professional guidance.

As you explore the intricate landscape of forming an LLC, remember that seeking professional assistance from business advisors can provide invaluable insights tailored to your unique circumstances. Armed with knowledge and expert guidance, you can confidently navigate the complexities and seize the opportunities that the U.S. business landscape offers. Parshwa has also written his own guide for non-US entrepreneurs who plan to start an LLC. And, of course, I’m here to help you. Remember to check out my doola page (coming with a 15% discount).

Whether you’re envisioning a startup in the heart of Silicon Valley or a niche business in a bustling metropolis, your non-U.S. resident LLC can become a thriving presence in the dynamic world of business.