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Opening a Business in the USA


Starting a business in the US is easy if you follow your State and Federal requirements and guidelines. The current world wide economic crisis has created job losses that may cause many unemployed or under employed workers to consider using their skills to create new businesses. In order to increase you companies chance for success and limit potential problems, set up your company properly at the beginning.


Determine the Legal Structure of Your Business


Determining the legal structure of your company may be the most important business decision you make. The structure of your business determines how you pay taxes, liability, State/Federal filings, etc. and is difficult to change after the business is created. If you are uncertain what type of legal structure is best for you ask your business consult, an accountant, tax consultant or attorney. Many people make the mistake of wanting to spend capital on business operations rather than legal and accounting expenses. Make sure to allocate funds in your business plan to start your business off correctly.


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Types of Legal Business Structures


Sole Proprietorship – a single individual owns ALL assets, is personally responsible for all debts (no distinction between business and personal debts), can not transfer ownership of the company, is not required to file a separate company tax return, and usually operates under the name of the owner but may choose to operate under an assumed/fictitious name (DBA) that must be filed with the County Clerks Office in your area.


General Partnership – two are more businesses or individuals join together to operate a business that already exists. Partners equally share business assets and liabilities and are required to file a separate annual partnership income tax return.  An assumed/fictitious name (DBA) MUST be filed at the County Clerks Office in the county where the company will conduct business. Creditors are allowed to seize partners personal assets to satisfy debts.


Limited Partnership – same as General Partnership EXCEPT partners debt responsibilities are limited.


Registered Limited Liability Partnership – in some situations a partner is not individually liable for debts created by other members of the partnership (usually related to fraud, negligence, etc). 


Corporation (Subchapter C) – has it’s own legal identity, business owners personal assets are protected from liabilities/debts related to the operation of the company, must be registered with the Secretary of State, pays a higher tax rate than an individual and is subject to being taxed twice (Corporation pays tax on profits and owners pay personal tax on salaries and dividends).


Corporation (Subchapter S) – owners or shareholders can deduct business losses on their personal tax returns and can distribute the business income in different ways (earnings can be paid to owners in order to avoid higher corporate tax rates). An S Corp can only issue common stock, use domestic capitalization (non US citizens are not permitted) and is limited to 75 shareholders. 


Limited Liability Company (LLC) – must be registered with the Secretary of State, is more flexible than other business structures, is unincorporated yet shares some benefits of a Subchapter S Corp but has more pass through business income advantages and limits owner’s liabilities. An LLC can have an unlimited number of members (rather than shareholders) and non US citizens may participate. LLC membership is not subject to S corporation restrictions and members may include C corporations, trusts, partnerships and other LLC's or S corps.


Choosing a Business Name


A business name must be registered with the County Clerks Office in the area that you are doing business and depending on the legal structure of you company may need to be registered with the Secretary of State.


A business name can not be used by more than one corporation per state.


Research company names before filing. This information is available on individual States databases. Find out if the name you are considering using is trademarked and already being used.


Apply for a Employer Identification Number (EIN)


An Employer Identification Number (EIN) and a Federal Tax ID Number are two names for the same thing and are used to identify a business entity. Most businesses are required to obtain an EIN. If your business has employees or operates as a corporation or partnership you most obtain an EIN. Additional EIN requirements do exist.


Applying for an EIN is a FREE service provided by the Internal Revenue Service (IRS), is fairly simple and can be done online, by phone (800- 829-4933) or by fax or mail.


If you apply for an EIN by phone or online your EIN number is generally issued immediately. Other methods of obtaining EIN number may take up to 4 weeks.


State Business Registrations and Requirements


After your business has established a legal structure, business name and obtained an EIN you can begin focusing on State and local business requirements, licenses and registrations. Most businesses do not require a federal license or permit.


All businesses operating as limited partnerships, limited liability companies, corporations, non profit corporations, professional associations or registered limited liability partnerships MUST register with the Secretary of State.


Some business licensing requirements may be different for every state. Common requirements include:


State Business License – required for tax purposes and business functions and operations.


Professional and Occupational Licenses – applies to contractors, doctors/physicians, accountants, cosmetologists, real estate agents and more. To determine whether you need a license check with your state licensing agency.


Products sold – in order to sell many items special licenses are required. Some items include alcoholic beverages, gasoline, firearms and lottery tickets.


State Sales tax Registration – if you are selling goods or services you are required to charge and collect State Sales Tax. You must become a registered sales tax vender within 20 days of starting business operations. Apply online.


State Unemployment Insurance – you are required to carry State Unemployment Insurance if you have one employee (other than yourself) or more. To find out more, contact your State Department of Labor. Unemployment insurance is paid for an carried by the employer not the employee.


Workers Compensation – most States require an employer to carry Workers Compensation if they employ 3 or more employees (not counting yourself). While you may not be required to carry a Workers Compensation Policy (w/c) if you or and employee is injured while working, you (the companies owner) can be held personally liable and sued. Additionally, most companies or individuals will not allow your company to perform services for them if your company does not carry Workers Comp because they may be held liable or sued if an injury occurs while working for them or on their property.


Health and Safety Requirements – your business may be required to meet health and safety requirements mandated by The Federal Occupational Safety and Health Act (OSHA) the individual state your business operates in.


Posters and Information – the Department of Labor requires that notices and posters be displayed in an easy to see area of your workplace or business. These posters inform employees of their labor rights, what to do if they are injured or hurt while on the job or at work, etc.. Electronic copies of these posters are FREE and available in several languages from the Department of Labor. Your company may be contacted by private companies disguising themselves as government agencies and offer to provide posters for a fee. DO NOT PAY FOR THIS MATERIAL.


Tax Requirements for Employers


After you have followed and completed all the requirements listed above you are responsible for:


Withholding employment taxes (Social Security/ Medicare or FICA) and state and Federal income taxes from your employee’s paychecks.


An employer also must withhold other items from employee’s paychecks including disability insurance, child support and garnished wages for outstanding debts.


All payroll information and deductions must be reported to the state, IRS and employee.


Money withheld from employees paychecks must be paid to the proper state and federal tax authorities and agencies.


Independent Contractors – the guidelines for hiring someone as an independent contractor rather than a regular employee are very specific. If your company hires independent contracts their earnings must be reported to both the contractor and the government (IRS) annually on Form 1099. 


Professional Employment Organizations (PEO’s)


If you are not familiar with federal and state requirements that relate to workers compensation, unemployment, withholdings, quarterly and annual filings and payroll administration you may want to consider outsourcing these responsibilities to a PEO. If you choose to have a PEO handle your employee related obligations, they become the employer of record as far as the state, federal government and insurance companies are concerned. Even though your employees are under the EIN of the PEO, the PEO has no effect on daily business operations, decision making, etc. The responsibilities of a PEO are limited to your employees only. Some advantages of using a PEO to administer employee related issues include:


Lower Business Costs – typically a PEO will offer lower state and federal unemployment rates and reduced workers compensation rates.


Protection – since your employees are under the federal ID number /EIN of the PEO, they assume the responsibility of dealing with employee related problems including unemployment and work comp claims, discrimination and other issues involving employees. If your company is experiencing difficultly obtaining a workers compensation policy a PEO can generally obtain one for you.


Benefits – provide and administer benefits typically enjoyed by large companies at a low cost. Benefits include group health insurance, 401k/retirement savings plans, dental insurance, disability insurance and more. Being able to offer quality benefits at a low cost enables your company to attract and keep quality employees.


Payroll Administration – issues payroll checks, handles payroll deductions such as child support, health insurance, tax withholdings and is responsible for all state and federal quarterly and annual filings that are employee related.


Human Resources – most PEO’s have a Human Resource Department available to help you deal with employee issues.


Professional Employment Organizations (PEO) offer many additional advantages. To learn more about the advantages of using a PEO visit The National Association of Professional Employer Organizations (NAPEO).


Opening a business in the US  as a Foreigner or Non US Resident


You are not required to be a United States Citizen or live in the USA in order to own or operate a business here. In order to do business in the US you must:


Establish a corporation or limited liability company (LLC), obtain an EIN from the IRS, follow all state an federal requirements listed above (business licenses, permits, insurance, etc), maintain a physical business address and phone number and open a business bank account in the state the business is incorporated in.


To obtain an EIN, international applicants must call (US country code if calling from outside of the US) + 215- 516- 6999.


Most US banks require the business owner or a corporate officer open their business checking account in person. Additionally, any individual authorized to sign company business checks must sign the bank signatory card in person.


The “S” corporation structure is not available to foreign or nonresident corporate owners or shareholders.


Non resident aliens doing business in the United States must pay US taxes and must obtain a certificate of authority through the Secretary of State.


Utilizing the services of a PEO may be beneficial for non residents or foreign business owners who may not be familiar with state and federal employment laws or be readily available to personally deal with employee related issues, filings and requirements.


Additional information on doing business and working temporarily in the United States.


Other Resources:


Register a business 


Employment and labor laws 


Employee standards and state licenses (state by state)


US Small Business Association (SBA)


Information on doing business in individual states, State websites, links for employers, taxation and more.


Internal Revenue Service (IRS) business information


Official business link to the US Government 






























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