Setting up your own business in the USA is easier than in other countries, but still a challenge. Learn how to set up your own company, what taxes to pay and what insurance to get.
Before you start a company in the USA, you need reliable knowledge about your market segment and your chances of success. Next, you write a business plan, take care of the capital issue and register your company in the legal form of your choice. But let's start from the beginning:
As you identify your target audience, learn about the size and trends of your market segment, and also closely examine your competitors. You will gain more clarity and better ideas for your business in the US.
Possible sources for your analysis are:
Your company in the USA should be inexpensive to run, easy to manage, and profitable. To achieve this, you should write a proper business plan. With this plan, you will be able to get capital from investors or important business partners if that's what you want to do.
You can find a useful guide to writing a US business plan on the website of the U.S. Small Business Administration (SBA, sba.gov).
Thanks to your business plan, you already know how much startup capital your business idea needs, and - if you don't have enough money yet - you can start looking for investors.
The location of your company in the USA has a major impact on:
Therefore, your business location is one of the most important decisions you will make in the startup process. Take your time to make this decision.
When you start a company in the USA, you have to choose a valid legal form. You can choose between LCC, Corporation, Partnership, and Sole Proprietorship. We will explain these terms in more detail later.
The name of your company can have a great impact on its success. Ideally, you decide not according to your personal taste but based on the data from your market analysis.
Once you have found a business model, legal form, location, and name for your company, you can register your business with your state tax authority. Apply for a tax number and permission to operate your business.
If you plan to sell products, you will also need a salesperson's license and a sales tax permit. The cost of a business license in the USA varies depending on the industry.
To obtain a company license in the US, you will need to contact the responsible administration. Some examples at the state level:
| Business area in the USA | Responsible administration |
|---|---|
| Agriculture | U.S. Department of Agriculture |
| Alcoholic beverages | Alcohol and Tobacco Tax and Trade BureauLocal Alcohol Beverage Control Board |
| Aviation | Federal Aviation Administration |
| Firearms, ammunition, and explosives | Bureau of Alcohol, Tobacco, Firearms and Explosives |
| Fish and wildlife | U.S. Fish and Wildlife Service |
| Commercial fishing | National Oceanic and Atmospheric Administration Fisheries Service |
| Maritime transport | Federal Maritime Commission |
| Mining and drilling | Bureau of Safety and Environmental Enforcement |
| Nuclear energy | U.S. Nuclear Regulatory Commission |
| Radio and television broadcasting | Federal Communications Commission |
| Transportation and logistics | U.S. Department of Transportation |
The US states regulate an even broader range of activities and industries, allowing construction, cleaning, restaurants, trades, retail, and many other fields to be registered only at the state level. For more information, visit the U.S. Small Business Administration (sba.gov)
The EIN is used to identify your company in the US and is required to hire employees, open a bank account, pay taxes, and often even obtain a business license. You can now apply for an EIN online with the IRS (Internal Revenue Services) at irs.gov.
While the American tax system is generally less complicated than it is in other countries, filing your first tax return in the USA as an entrepreneur can be quite overwhelming. We, therefore, recommend that you hire a tax advisor.
After you have obtained all licenses and permits, you can open your business account in the US. Simply make an appointment with a US bank you trust or look for the option to open an account online.
The amount of startup capital you need to start a business in the USA depends on the state in which you are incorporated as well as your industry and your business plan. For the bureaucratic part, the mere startup costs are at most in the three-digit range and are thus much more affordable than in many other countries.
The legal form of your company will affect the requirements for your business registration, the amount of taxes payable, and your personal liability within your business activities in the United States.
Members of an LLC are not personally liable for company debts. Only in the case of penalties related to the employer-employee relationship can you be held liable.
LLCs are very common in the USA, as there are attractive tax benefits for this legal form. Freelancers especially often decide to form an LLC since "one-person companies" are also allowed.
The name Corporation refers to a business entity that distributes profits to shareholders. In a Corp., as a Corporation is often abbreviated, liability is limited to the company's assets just as in the LLC.
You will often find a "Corp." as the name suffix of a US company, but much more often an "Inc." Both terms refer to the same legal form, namely the corporation.
To explain, a "Corporation" is the business entity itself, and the "Incorporation" is the act of forming it. Both terms may be used as an adjunct. The decision here is purely an aesthetic one.
Under US tax law, a C-Corporation is a business entity that is taxed separately from its owners. Most large Corporations in the US are treated as C-corporations.
S-Corporations are business entities that pass income and losses to their shareholders, who in turn report this income and loss on their personal tax returns. In this way, they escape double taxation.
In contrast to the LLC, the legal form of Sole Proprietorship is actually limited to a single person. Here, the sole owner is responsible for all business transactions.
To form a Sole Proprietorship, all you need is a local name registration. Depending on the nature of your business, you might require a license (e.g., "Liquor License," "Hotel License," or "Real Estate License").
If you want to run a business or trade with other people, you can form a partnership. Here, each partner contributes money, property, labor, or skills and shares equally in the profits and losses of your business.
In a general partnership, all partners have joint and unlimited liability. Each partner also has individual management and representation powers unless the partnership agreement provides otherwise.
In contrast to the general partnership, the limited partnership has, in addition to fully liable partners, a company member who has only limited liability. This "passive" partner is not paid by the company but only shares in the profits and has no management authority.
For your company formation in the USA, you can consult a lawyer. Countless law firms have specialized in setting up companies on the American market and offer complete practical packages.
If you want to live and work in the USA but are hesitant to start your own company, you can invest in an American company and take on a management role there.
Investing in the USA is a good way to gain entrepreneurial influence without starting your own company and to get a Green Card, which allows you to stay in the USA without restrictions.
With an ESTA, you can stay 90 days visa-free in the USA. Apply online now!
Even for non-Americans, setting up a company in the USA is not difficult. However, you will have to go through more steps than a US citizen to get all the permits, accounts, and licenses because you usually need a US visa first.
Attention
If you don't have a Green Card but came to the United States on a work visa, business mistakes can directly impact your residency status.
For most job activities in the USA, you need a work visa. Only short business visits such as attending meetings, conferences, or negotiating contracts can be done with an ESTA or B-visa.
To legally operate a company in the USA for a longer period of time, you can choose from a variety of US visas:
| US visum | Company founder rights in the USA |
|---|---|
| E-1 | Start a business that will trade with your home country |
| E-2 | Establishment of a company by contract investors |
| EB-5 | Investor Green Card program leading to permanent residency after a probationary period |
| L-1 | Transfer of ownership from a foreign branch to the US branch of the same company |
| H-1B | Specialized work visa for employees with a concrete job offer. Not for self-employed work! |
| O-1 | Visa for exceptional skills, e.g., artists, actors, business visionaries, athletes (skills must be demonstrated) |
When you start a business in the USA, you will pay federal, state, and local taxes. Make sure you meet all IRS requirements and check with a tax advisor to learn the exact rules in your state.
The following taxes may apply to you:
US companies pay between approx. 20 % and approx. 27 % in taxes.
In some US states, corporate taxes are very favorable, or setting up a business is easier and quicker. These states include, for example, Florida, Nevada, and Delaware.
However, in other states, there is more security due to an optimal climate or resources from the state. So when choosing, it's best to weigh taxes, average income, the number of startups, the average survival time of businesses, and the climate.
According to a January 2021 evaluation by business specialist Mary Girsch-Bock, the ten best US states to start a company are:
Business owners in the United States should have different insurance policies that cover either the company itself or its employees. These include:
Temporary disability insurance is mandatory in most US states. In some, you can purchase it voluntarily, which gives you an advantage over other companies when recruiting good employees.
Business property insurance can protect almost anything you need to run your business, including equipment, inventory, and furniture.
You can protect yourself from unexpectedly high costs due to accidents with commercial auto insurance. At best, it covers expenses for emergency care, medical bills, property damage, damage to the vehicle, and court costs.
Your firm's professional liability insurance protects you from civil lawsuits and negligence claims related to professional errors.
Comprehensive cyber security insurance protects your company against computer-related crimes and losses. This can include targeted attacks such as malware and phishing, as well as a misplaced laptop containing confidential material.
As a self-employed person in the USA, you can use what's called the US government's Health Insurance Marketplace to sign up for medical insurance. You can also get coverage for your employees by using the SHOP marketplace. Learn more at the healthcare.gov website.
As a self-employed person in the USA, you pay both the employee contribution and the employer contribution of the pension insurance, which amounts to a total of 12.4%.
For entrepreneurs, social security in the USA is paid in the form of a self-employment tax. Here you pay both the employee contributions and the employer contributions for Social Security and Medicare.
Just a heads up if you want to manufacture and sell products in the US: product liability is really crazy here. There have been spectacular court rulings where companies have had to pay millions in compensation because buyers of their products have misused them in absurd ways and injured themselves or others in the process. A few examples:
To reduce your exposure to liability claims from customers, you can protect yourself with a variety of insurance solutions for the US market. Consult an insurance advisor of your choice.
The paperwork you need to incorporate in the USA depends on the legal form of your future business. The following documents may be important for you:
| Documents for a company formation in the USA | |
|---|---|
| Foundation in the USA: | Memorandum and Articles of Association |
| Working in the USA: | US work visa and industry-specific licenses |
| Leadership in the USA: | Company agreement, statutes, agreements, employment contracts |
| Company property in the USA: | Membership certificates, share certificates, patent certificates |
| Taxes in the USA: | IRS Form SS4 – Application for Employer Identification Number |
At best, you should go through all the necessary documents with your tax advisor to avoid any unpleasant surprises when filing your tax return. In addition, the American Chamber of Commerce (AmCham, uschamber.com) is available to answer any questions you may have.
Once you've mastered the bureaucracy, you'll be able to enjoy the unlimited opportunities for which the United States is so well known. Maybe you'll even get a Green Card!
irs.gov, usa.gov, usnews.com, rp-online.de