Forming an Incorporated Company (Inc.) in the USA

Forming an Incorporated Company (Inc.) in the USA is an attractive step for entrepreneurs worldwide, thanks to the stable economic environment and access to one of the world’s largest markets. An Inc. not only offers significant benefits in terms of liability limitation and potential tax advantages but also lends credibility and trust to your business among customers and investors.

Table of Contents

• Introduction: Starting an Inc. in the USA
• What is an Incorporated Company?
• The Process of Forming an Inc.
• Choosing the Right State for Your Inc.
• Legal Requirements and Registration
• Taxation of Corporations in the USA
• Benefits of Forming an Inc.
• Avoiding Common Mistakes
• Conclusion
• Frequently asked questions

Starting an Inc. in the USA: What is an Incorporated Company?

An Incorporated Company, or Corporation, is a type of business entity that is recognized as a legal person. This means that the Inc. is legally separate from its owners (the shareholders), has its own rights, and can enter into contracts, sue or be sued, and own property.

The Process of Forming an Inc.

Forming a corporation (often referred to as an “Inc.” for “Incorporated”) in the United States involves several steps that vary somewhat depending on the state in which the corporation is established. Here’s a general outline of the necessary steps to form an Inc. in the U.S.:

1. Choose a Business Name

• Availability: The name must be unique and not in use by another corporation in the state. It typically must include a corporate designator such as “Inc.,” “Incorporated,” “Corporation,” or an abbreviation of these terms.
• Name Check: You can usually check the availability of a name through the website of the state’s Secretary of State or similar state agency.

2. Select a State for Incorporation

• Decide on which state to incorporate in, considering factors like tax implications, legal requirements, and the business environment. Delaware, Nevada, and Wyoming are popular due to their business-friendly regulations.

3. Appoint a Registered Agent

• The registered agent is responsible for receiving legal documents on behalf of the corporation. This agent must have a physical address (not a P.O. box) in the state of incorporation and be available during normal business hours.

4. File Articles of Incorporation

• Documents Required: Prepare and file Articles of Incorporation with the Secretary of State. This document includes important details about the corporation, such as the corporate name, principal address, registered agent’s name and address, and sometimes information about the type and amount of stock to be issued.
• Filing Fee: Pay the required filing fee, which varies by state.

5. Create Corporate Bylaws

• Although not filed with the state, bylaws are crucial as they outline the corporation’s internal operational rules, including procedures for holding meetings, electing directors and officers, and other corporate governance matters.

6. Hold an Organizational Meeting

• Conduct an initial meeting with the incorporator(s) or initial directors to adopt bylaws, elect officers, issue stock certificates to the initial shareholders, and undertake any other necessary actions to complete the formation of the corporation.

7. Issue Stock

• Issue stock certificates to the initial shareholders of the corporation. The corporation must maintain a stock ledger that records details about the stock issued, held, and transferred.

8. Obtain an Employer Identification Number (EIN)

• Apply for an EIN from the Internal Revenue Service (IRS) for tax purposes. This is required for opening bank accounts, hiring employees, and for tax and regulatory purposes.

9. Comply with Local and State Business Licenses and Permits

• Depending on the nature of the business and its location, you may need to obtain various business licenses and permits from local, state, and federal agencies.

10. Register for State Taxes

• If applicable, register with the state tax authority for state taxes, including sales tax, use tax, employment tax, and any other relevant state taxes.

11. Comply with Ongoing Legal Requirements

• Annual Reports: Most states require corporations to file annual reports and pay a franchise tax.
• Corporate Records: Maintain good corporate records, including minutes of the board of directors and shareholders’ meetings.
• Compliance: Ensure compliance with federal, state, and local regulations, including securities laws if applicable.

12. Opening a Corporate Bank Account

• Open a bank account in the name of the corporation to keep corporate funds separate from personal funds, which is essential for maintaining the corporate veil and protecting personal liability.

These steps provide a framework for forming a corporation in the U.S. It is often advisable to consult with legal and financial advisors to ensure that all legal requirements are met and to assist with the setup process, especially if the incorporation involves complex arrangements or significant assets.

Clevver, Your Partner for Business Formation in the USA

Clevver specializes in services related to business establishment in the USA and offers comprehensive support in navigating the country’s complex system.

Our team has the necessary experience with incorporation services in the US and compliance with accounting standards.

Additionally, we offer tax and accounting services and virtual offices in the USA and worldwide, including registered agent services, business addresses and digital mailboxes.

Interested in learning more? Get in touch!

Choosing the Right State for Your Inc.

Choosing the state in which you form your Inc. is crucial as tax rates, fees, and legal requirements can vary significantly. Delaware, Nevada, and Wyoming are popular among entrepreneurs, offering various advantages for business founders.

Legal Requirements and Registration

Complying with legal requirements, including filing necessary documents with the relevant authorities and maintaining local business licenses and permits, is critical for the legal operation of your Inc.

Taxation of Corporations in the USA

Corporations in the USA are subject to double taxation, where the company is taxed at the federal level, and dividends distributed to shareholders are also taxable. However, there are strategies to minimize tax liabilities. For personalized advice, please speak with a local tax advisor.

Benefits of Forming an Inc.

Forming an Inc. offers numerous benefits, including liability limitation for owners, transferability of shares, potential tax advantages, and increased credibility with customers and investors.

Avoiding Common Mistakes

Many entrepreneurs make mistakes when forming their Inc., such as neglecting proper bookkeeping, ignoring state rules and regulations, or failing to file annual reports and fees, which can lead to fines.

Conclusion

Forming an Inc. in the USA provides a solid foundation for business activities and growth but requires careful planning, compliance with legal regulations, and strategic decisions, especially when choosing the state of incorporation and tax planning.

Frequently Asked Questions

These questions guide you through the complexities of starting and running an Incorporated Company in the USA, ensuring you make informed decisions.

How to Choose the Best State for Incorporating an Inc.?

The choice of state should be based on specific business goals, tax considerations, and the costs of forming and operating an Inc. Delaware is often chosen for its business-friendly environment, while Nevada and Wyoming offer advantages in terms of taxes and anonymity.

What are the ongoing obligations for an Inc.?

Incs must file annual reports, pay fees, maintain proper accounting, and remit all relevant taxes. Additionally, compliance with all relevant federal, state, and local regulations is required.

How can one minimize the tax burden of an Inc.?

Strategies to minimize tax burden include choosing S-Corporation taxation (if qualified), optimizing the use of business expenses and tax deductions, and strategically planning dividend distributions.

What is the difference between an Inc. and an LLC?

The main differences between an Incorporated Company (Inc.) and a Limited Liability Company (LLC) lie in the structure, taxation, and ownership. While an Inc. is an independent legal entity owned by shareholders and can be subject to double taxation, an LLC offers a more flexible structure with pass-through taxation and can be held by one or more members.

How long does the incorporation process of an Inc. take?

The duration of the incorporation process for an Inc. varies by state but can range from a few days to several weeks. Using online services for filing can accelerate the process.

Can a non-US citizen form an Inc. in the USA?

Yes, non-US citizens can form an Inc. in the USA. There are no citizenship requirements for forming an Inc., but non-US citizens may need to take additional steps, such as setting up a US bank account or appointing a Registered Agent based in the USA.

Are personal assets protected in an Inc.?

Yes, forming an Inc. provides liability protection by separating the personal assets of the shareholders from the debts and liabilities of the company. However, this protection is only valid if the Inc. is properly managed and there is no commingling of personal and business finances.

How often must an Inc. pay taxes?

An Inc. must make quarterly estimated tax payments to the IRS if they expect their tax liability to be $500 or more. Additionally, annual tax returns must be filed, and there may be additional state and local tax obligations.

What documents are required for forming an Inc.?

Several documents are required for forming an Inc., including the Articles of Incorporation, which are filed with the Secretary of State, and often a company bylaws, which set the rules and procedures for corporate governance. Additional documents may be required depending on the business activity and location.

How do you choose a name for an Inc.?

The name of an Inc. must be unique and not confused with the name of another entity registered in the same state. It often needs to end with “Incorporated,” “Corporation,” “Company,” or an abbreviation of these. The availability of a name can be checked with the Secretary of State of the respective state.

What role does a Registered Agent play?

A Registered Agent is a person or firm that is officially authorized to receive legal documents on behalf of the Inc. Every Inc. must appoint a Registered Agent who resides in the state where the Inc. is registered.