Recent studies concerning government involvement in business practices in both the EU and the United States have indicated that the EU, at least for the time being, is falling behind its neighbor across the pond. The paramount consequence of these limitations is the EU facing continued disadvantage for startups, while the United States continues to make progress on the contrary.
As more and more new-age digital companies explore these heavy limits of European jurisdictions for incorporation, many are choosing to resort to the US – either for better alignment with venture capital, or simply To thrive under more liberal business rules. This article sheds light on the trend for foreign business creation in the US, the reasons for doing so as well as how you can get involved if you are interested.
Why Form in America?
residence requirement
The first thing to note is that in the US, unlike in the European Union, owners are allowed to live and operate their business wherever they are located in the country. In contrast, EU law requires each company to be based in the location where the owners work and live.
The coupling of these geographic needs with the absence of a firm government program to prompt American entrepreneurs to stray and invest in EU companies results in a reduction in venture capital and an exodus of entrepreneurs.
Minimum Capital Requirement
Arguably the most important driving force behind businesses migrating to the US for incorporation from the European Union is that the latter requires minimal capital while the former does not. As an example, Danish business law requires limited liability companies to have a minimum capital of $14,000, while no such requirement exists in the US.
Regardless of the need or innovation of a product, EU entrepreneurs have to overcome perennial obstacles to be able to sell the product on the market. As a result, both the industry and the economy suffer.
reluctance to take investment risk
Studies have recently shown that it is far more difficult to raise venture capital in the EU than in the US because the former is far less willing to take risks on investments. On top of this, consumer spending in the US startup industry is 7.5 times higher than the EU value. Overall, it is only in the financial interest of a business to establish itself in the US.
How to Form an LLC as a Foreigner
Choose a Business Structure
Thankfully, the incorporation process in the US is incredibly simple, and there are plenty of resources available online to help you in this endeavor. While non-citizens can form a C corporation or LLC, it is widely considered optimal to form an LLC because the owners benefit from limited liability and forgo taxation.
Choose a state to register
The next step is for the business owner to select the location in which they wish to be located. For businesses that would not be tied to any state, Delaware would be strongly recommended due to its business-friendly taxation rates, maintenance fees, and strict corporate governance. law. Some businesses may realize that certain states are better for businesses to flourish in their industry than they would register there.
register your business
Each state’s registration requirements (i.e. the forms that must be completed) for a business entity vary slightly, but all resemble Delaware’s simple outline of requirements. In short, businesses must do three things to register: choose a unique name, select a registered agent, and complete the certification of incorporation.
Once incorporated, the business must file a report and pay franchise tax each year.
get an EIN
An Employer Identification Number (EIN) is the equivalent of a Social Security number for businesses. This enables them to hire employees and open commercial bank accounts. An EIN can be applied for free of charge through the IRS directly.
Once an EIN is obtained, businesses must weigh the benefits and costs of different business bank accounts to find the one that is optimal for their specific needs. It is important to take into account the rewards, cash deposit facility and interest rates on your deposits when weighing your decision.
final remarks
Due to the many benefits of doing so, it is becoming increasingly common for small businesses based in the European Union to emigrate to the US. While free, the LLC formation process can be quite complicated and long winded for those not eloquent in the field.
Some companies offer an online LLC formation service for a small fee that will significantly reduce the stress and risk of hiccups with a ‘DIY’ approach. For more information about the best LLC services, please refer to the linked resource.
Disclaimer: The information provided in this article is being provided for informational and promotional purposes only and should not be construed as investment, tax or legal advice.
