Choosing a state to incorporate your business is one of the most important decisions you’ll make when you are preparing to enter the U.S. market.
The United States is made up of 50 states that each has its own rules and regulations around how business is conducted within their state. This can range from the level of corporate income tax you will pay to how legal matters are dealt with in a court of law.
As you’re not required to incorporate your business in the same state that operations will be held, you’ll need to understand the different options available to you when you set up. To start with, and similar to the recommendation we made in our blog on choosing the right corporate structure, it is important to know your business objectives and budget.
The decision that you will make is based on two outcomes:
- Incorporate your entity in the state your operations will be based out of,
- Or, incorporate your business in an alternative state that’s favorable to your business objectives and then register your business in the state where your operations will be based out of.
A company that qualifies to do business in another state is subject to taxes and annual reporting fees from both the state of incorporation and the state in which you’re qualified to do business in. If your sole reason for incorporating in a state is the very low or no corporate income tax, it may not be as good as first thought if your business must qualify to do business in the state of operations. Incorporating in the same state as your operations will usually be cheaper but there may be more benefits elsewhere.
Delaware is the most common state for a foreign business to incorporate in. It has a history of corporation-friendly laws, including tax laws that allow corporations to be taxed at a low rate in Delaware and avoid higher taxes in their home states. A Delaware corporation is often preferred by investors due to the predictable interpretation of laws and favorable tax laws.
If you’re operating from the UK, or elsewhere, and wondering if it’s really worth incorporating, then be aware that setting up a subsidiary in the US limits the liability that your company is exposed to. It also means that you only pay US tax on earnings generated in the US rather than across your business.
Choosing the right state to incorporate in is an important step, but by no means the only one. Join PGC’s Commercial Director, Jeremy Wastall, as he interviews two experts on the legal, tax and accounting implications and decisions that you will face when setting up in the USA.
Setting up in America: Legal, Tax and Accounting
Ask the experts as we delve into what it takes to setup your business in the world’s biggest market.