In recent years, there has been a discernible shift among Indian entrepreneurs towards incorporating their companies in the United States. The surge in Indian startups seeking investment from U.S. sources has contributed significantly to this inclination to establish a foothold in the American market.
This trend is driven by several factors, including access to a larger pool of venture capital and angel investors in the U.S., as well as the desire to tap into the vast market potential.
In today’s blog, we'll explore the essentials of U.S. incorporations, covering essential factors and offering insightful guidance on navigating cross-border requirements.
Table of Contents
1. Benefits of USA Company Registration2. Types for Company Registration in USA from India3. Minimum Requirements to register a company in the U.S.4. Documents required for U.S. Incorporation5. Process for Company Registration in the USA6. Must-Have Documents After Incorporation7. Compliances for U.S.- Incorporated Companies8. Incorporation in U.S. vs IndiaBenefits of USA Company Registration
It is highly advisable to go for U.S. incorporation when aiming to raise capital from U.S. investors or penetrate the U.S. market with product sales. Beyond the inherent credibility associated with a U.S. business entity, it instills investor confidence and aligns with U.S. regulatory expectations.
- It boasts a thriving and a diverse business ecosystem, providing access to a vast market, diverse consumer base, and a network of established businesses and startups.
- Companies incorporated in the U.S. often find it easier to attract investment, whether through venture capital, private equity, or public markets.
- It is home to renowned innovation hubs such as Silicon Valley, which fosters creativity, collaboration, and technological advancement. This can be especially beneficial for tech startups and businesses in emerging industries.
- It offers a relatively straightforward process for business incorporation. Many states, like Delaware, have business-friendly regulations and efficient online platforms that facilitate the setup and management of companies.
- While the U.S. tax system is complex, businesses may find advantages in various tax incentives and deductions, especially if structured as certain types of corporations.
- It can serve as a strategic base for international expansion, providing a gateway to both North American and global markets.
Types for Company Registration in USA from India
The United States offers several types of legal structures for businesses, each with its own characteristics and implications. Here are some of the most common types:
• Single-Person Businesses
• S Corporations
• C- Corporations (C-Corp)
• Limited Liability Companies (LLCs)
• Non-profit Organizations
Regarding U.S. business structures, two predominant forms of incorporation stand out: Limited Liability Companies (LLCs) and C-Corporations (C-Corps). These structures offer distinct features tailored to diverse business needs and goals.
- If you want lower compliance and small franchise fees: An LLC may be a suitable choice, especially for small businesses or startups with simpler structures and a desire for reduced administrative burdens.
- If you want to raise funds: If the goal is to attract external investment, issue stock, or go public in the future, a C Corporation is often more attractive to investors and provides the necessary flexibility for these activities.
Minimum Requirements to register a company in the U.S.
To register a company in the U.S., several essential criteria must be met.
- Minimum Number of Individuals:
At least one person is required to register a company in the U.S. This person can act as the sole owner or be part of a group of owners (members or shareholders), depending on the chosen business structure (e.g., LLC, corporation). - Registered Agent in Delaware:
If choosing to register the company in Delaware, having a registered agent in the state is a legal requirement. The registered agent is a person or entity designated to receive legal documents, official correspondence, and other important information on behalf of the company. - U.S. Address:
A U.S. address is required for official correspondence and legal purposes. This address can be either a physical location (such as a brick-and-mortar office) or a virtual address, depending on the nature of the business and the chosen state of registration.
Documents required for U.S. Incorporation
A succinct breakdown of the documents needed for the initial stages of business registration.
- Name Approval:
The process for name approval is straightforward. In Delaware, you can perform a real-time search for the desired business name and immediately reserve it if available. This reservation ensures that your chosen business name is secured for your use. - Director Details:
Provide details about the directors or members of the company. This typically includes full names, addresses, contact information, and roles or titles within the company. - Number of Shares and Value Per Share:
Specify the number of authorized shares the company is allowed to issue. Also, determine the par value or the assigned value to each share.
Process for Company Registration in the USA
Must-Have Documents After Incorporation
Here’s a list of documents that a business typically receives after the registration process:
1. Certificate of Incorporation
- This document, issued by the state authorities, officially recognizes the establishment of the corporation. It includes important details such as the company's name, location, and date of incorporation.
2. EIN (Employer Identification Number)
- The EIN is a unique identifier assigned by the IRS for tax purposes. It typically takes 3 to 4 weeks through standard processing, but an expedited option is available, reducing the timeline to 3 days if you already possess a Social Security Number (SSN).
This unique identifier, similar to India's PAN (Permanent Account Number), is necessary for various business activities, including opening a bank account, hiring employees, and filing tax returns.
3. Bylaws of the Company (Similar to Articles of Association)
- Bylaws are internal rules that govern the operation and management of the company. They outline procedures for meetings, decision-making, and other essential aspects of corporate governance.
In some ways, they are similar to the Articles of Association mandated in India.
4. Banking Resolution
- A banking resolution is a formal document that authorizes specific individuals within the company to open and manage bank accounts on behalf of the corporation. It provides clarity and legal authority for banking-related activities.
5. Common Stock Certificate
- Common stock certificates represent ownership in the company. When shares are issued, these certificates are given to shareholders as evidence of their ownership stake in the corporation. They typically include details such as the shareholder's name, the number of shares, and the date of issuance.
Compliances for U.S.- Incorporated Companies
Let's dive into the detailed aspects of compliance for businesses in the US, particularly those with C-Corporation structures and operations in Delaware.
1. Federal Income Tax
- The Federal Income Tax rate of 21% applies to C-corporations in the United States. They are required to file a tax return annually using the IRS Form 1120. This form outlines the corporation's income, deductions, credits, and taxes owed, etc.
2. Withholding Tax and Related Party Transactions Disclosure
- Similar to Tax Deducted at Source (TDS), withholding Tax in the U.S. involves deducting a portion of payments made to non-residents for services, dividends, or interest. Additionally, disclosure of related party transactions is a key compliance requirement, ensuring transparency in financial dealings with affiliated entities.
3. Delaware State Franchise Tax
- Delaware imposes an annual franchise tax on corporations, and the amount varies depending on the type and size of the corporation. The calculation is often based on factors such as authorized shares or assumed par value capital.
4. Delaware State Corporate Income Tax
- In addition to federal taxes, C-Corporations operating within the state of Delaware are subject to state corporate income tax at a rate of 8.7% on income generated within the state.
To meet state tax obligations, C-Corporations file the Delaware Form 1100, providing detailed information on income, deductions, and other relevant financial data.
5. Other Regulatory Compliances in Delaware
- Beyond tax-related obligations, businesses in Delaware must adhere to additional regulatory requirements. This includes filing an annual report with the Delaware Secretary of State.
In a nutshell, be it India or the U.S., there will be a lot of compliances to keep a record of. By diligently meeting these obligations, you can fulfill legal mandates and contribute to a robust and trustworthy business environment.
Incorporation in U.S. vs India
When expanding operations from India to the United States, a common strategy involves incorporating a new U.S. company, followed by transferring shares from the Indian parent company (which must be a Private Limited Company) to the newly formed U.S. entity. The Indian company would become a subsidiary of the U.S. company, and there is no such limit to the number of subsidiaries an entity can have.
Keep in mind the compliances and FEMA guidelines to be adhered to during this process, which establishes the U.S. company as a subsidiary of its Indian counterpart, creating a legal and financial separation. The benefits of this approach include improved access to U.S. markets, legal autonomy for each entity, and strategic financial advantages.
Incorporation in the U.S.
Company Registration in India
Time Duration
4-5 Days (To get a COI)
7-10 Days (To get a COI)
Cost
Ideally, it ranges around $200-500, including Government Fees, Professional Fees, etc.
Depends on company type, professional fees, stamp duties, etc.
Registered Agent
Required for legal correspondence
Not Mandatory
Ideal for
If you want to raise funds in the U.S. or expand, then U.S. incorporation is advisable.
If your targeted market is in India, then registering your company in India is advisable.
Name Approval
Simultaneous real-time search and reservation.
Company Name Search and Reservation happen separately
Documentation
COI, EIN, Company Bylaws, etc.
COI, Articles of Association (AoA), Memorandum of Association (MoA), Director’s Identification Number (DIN), etc.
Compliances
Federal and state-level compliances, annual reports, IRS filings
Registrar of Companies (RoC) filings, Annual General Meetings (AGMs), Income Tax Returns
Register your Private Limited Company in just ₹1,499 + Govt. Fee
* Effective 15th July, 2024, DSC charges have increased by ₹ 1,000 per DSC, by the Government. This will be chargeable over and above the given prices.
*Prices and documents can differ based on the company type.