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How to start a business in the USA

Do you want to start your own company in the USA? Then you should first become familiar with the American business world. Learn about applications, company forms, authorities, taxes, and insurances, to set up your own company in the United States.

The first steps to starting a business in the USA

No matter if you have already specialized in one business area or if you are still looking for the right business model for your fresh start in the United States: you need to do extensive research before setting up your company in the USA.

Address questions about the right location for your business, write a business plan, and then get started with registration, necessary licenses, and all taxes and business accounts issues.

The right location

Some businesses (such as a marketing agency or tax consulting firm) can easily be opened in any US location, as their services can be provided regardless of where they are based.

However, if you plan to open a bakery, auto repair shop, or other location-based business, identify the right state and city for your headquarters before you incorporate. A thorough market analysis will help.

Market Analysis in the USA

To find out which locations are best for your business startup in the United States, learn about the following factors in your preferred regions:

  • The survival rate of companies in your sector
  • The gross domestic product per capita
  • The availability of suitable employees and customers
  • The tax environment
  • The cost of living (and business management costs)
  • Current trends
  • Competitors in the area

Helpful tools for this are the evaluations of the United States Census Bureau and the "BEA Industry Facts" of the Bureau of Economic Analysis, U.S. Department of Commerce.

The American Business Plan

To run a profitable business and gain access to partners, investors, and government funding, you need a good business plan. This should include at least the following items:

  • Company description (incl. future customer and partner structure)
  • Unique Selling Point (USP) and competitive advantages
  • Market analysis (incl. trends and competitors)
  • Organization chart (personnel structure and responsibilities)
  • Company form (e.g., LLC, Corporation, or Partnership)
  • Marketing strategy (channels and measures)
  • Financing plan (incl. debt and equity)
  • Forecasts (financial outlook for the next five years)
  • Appendices (resumes, product images, references, licenses, contracts, etc.)

The goal of the American business plan is to provide a clear overview of resources and prospects for success. Therefore, the document should act as a roadmap through all startup phases, ongoing operations, and growth.

US business environment: consulting and coaching

If you are starting a business for the first time, we recommend attending special training for the American market. The U.S. Small Business Administration works with different consulting firms that you can find through the SCORE search engine.

Register a business in the USA

Once you have found the right location for your company, you need to decide which form of business is best suited for your venture. You can choose from the following legal forms:

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LLC

The LLC (limited liability company) offers attractive tax benefits. Therefore, the legal form of the LLC is very common (for example, for one-person companies).

Corporation

A corporation distributes profits to shareholders. Just like with the LLC, liability is limited. Corporations are divided into C corporations (taxed separately from their owners) and S corporations (whose shareholders report income and losses on their tax returns).

Sole proprietorship

The establishment of a sole proprietorship is limited to a single person responsible for all business operations. All required to establish this form of business is a name registration in the municipality and the acquisition of the appropriate license.

Partnership

Businesses or trading companies consisting of several persons can be established as a partnership. Each of the founders contributes capital, time, or skills to the company and shares in profits and losses.

There is a distinction between a general partnership (in which all partners are jointly and severally liable) and a limited partnership (there may also be limited liabilities and passive partners).

Which legal form is best for US businesses?

The legal form for your company in the USA should depend on your business and personal circumstances because this decision also affects the taxes you will have to pay in the USA. If in doubt, seek advice from a specialized attorney's office.

Registering a business: documents

The documents needed to register your company in the United States vary depending on your company's type and legal form. In all cases, have the following documents ready:

  • Certificate of Incorporation
  • Articles of Incorporation
  • Operating agreement or shareholders agreement
  • Stock certificates
  • Patent certificates
  • Membership certificates
  • Licenses
  • Current employment contracts
  • Your Employer Identification Number application

Tax registration

To register your company in the USA, go to the relevant tax authority in your state. The U.S. Small Business Administration (SBA) search engine will tell you which website to use for your business registration.

Employer Identification Number (EIN)

Along with your business registration, you can also apply for an EIN. This number is required to hire employees in the United States and open a company bank account.

If your US state does not allow applying for the EIN at the same time as your company registration, you can apply for the number on the IRS (US Internal Revenue Service) website.

What visa do I need to start a business in the USA?

If you want to live and work in the USA, you need a residence and work permit. The easiest way to get one is to participate in the US government's annual Green Card Lottery, in which 55,000 immigrant visas are drawn.

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An alternative to the straightforward Green Card is the E-2 investor visa for the USA. However, this visa is subject to strict conditions. For instance, you must provide the following evidence for an E-2 visa:

  • Your company is from a "treaty country."
  • You are a citizen of the same treaty country as an investor (if there are multiple owners, it must be at least 50 %).
  • You have invested or are investing substantially in the United States (e.g., in the form of cash, stock shares, equipment, or inventory). A threshold of $ 100,000 is often cited as the relevant value.
  • Your business adds significant value to the American economy (ongoing business operation and jobs created for US citizens).

Starting a business in the USA without immigrating?

If you do not qualify for either a Green Card or an E-2 visa, it is also possible to start a business from your home country. However, such a "remote incorporation" means an enormous additional administrative burden and does not provide you with a residence and work permit for the USA.

Business license for the USA

You will need an appropriate license to do business in the United States. Business and sales licenses for the USA relate, for example, to the trade of goods or certain services. Examples:

  • Selling alcohol and tobacco
  • Operating gambling and selling lottery tickets
  • Selling gasoline
  • Selling firearms, ammunition, or explosives
  • Selling food and beverages
  • Selling beauty products or services
  • Running a construction business or handicraft business
  • Selling products for children
  • Trading in animals
  • Health and fitness services
  • Operating an agricultural business
  • Operating radio and television stations
  • Operating vending machines
  • Operating a collection agency

There is a distinction between "state licenses" and "federal licenses" in the USA. The overarching Federal Licenses can be obtained from the major US authorities, e.g.,

  • U.S. Department of Agriculture (USDA)
  • Alcohol and Tobacco Tax and Trade Bureau (TTB)
  • Federal Aviation Administration
  • Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF)
  • U.S. Fish and Wildlife Service
  • National Oceanic and Atmospheric Administration
  • The Federal Communications Commission

"State licenses," which are issued independently in all US states, include, for example, professional licenses for your company's employees (e.g., nurses, physical therapists, accountants, veterinarians, attorneys, engineers, architects, and real estate agents).

There may also be additional permits due around your business property, your work processes, or the safety of your operation. These include:

  • Food sanitation or food safety certificates
  • Fire and building safety certificates (at your business location)
  • Business name registration certificates that differ from your name
  • Permits for company signs
  • Certificates of occupancy for business premises
  • "Zoning" permits (permission to operate in certain areas of the US)

Check with your US state, county, and city regulations, as industry requirements vary widely.

Bank account in the USA

To open your business bank account in the USA, submit the following documents to your bank:

  • Your business license
  • Your EIN
  • Your company address in the USA
  • Your identification documents (e.g., Green Card, ID, US driver's license)

Corporate taxes in the USA

Your company is taxed at the federal, state, and local levels in the USA. Ensure you comply with all Internal Revenue Service (IRS) requirements and consult a US tax advisor if in doubt.

US companies generally pay between approximately 20 % and approximately 27 % "corporate taxes." The following taxes may be relevant to you:

  • Income tax
  • Sales tax or added value tax (depending on the company model)
  • Business property tax
  • Dividend tax
  • Corporate tax
  • Shareholder tax
  • Federal Excise tax
  • Self Employment tax
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Corporate insurance in the USA

In addition to licenses, certificates, and permits, your company in the USA should have good insurance coverage for personnel, company property, cybersecurity, and (product) liability.

Worker’s compensation insurance

Worker's compensation insurance covers your staff against temporary disability due to workplace accidents. This insurance provides wage replacement and medical benefits in the event of an injury.

Tip

Although worker's compensation insurance is not mandatory for all employees in all US states, it gives you a big advantage when it comes to recruiting good employees. Offer a generous insurance package as part of benefits negotiations with your prospective hires.

Commercial property insurance

Your business inventory, including equipment and stock, should be protected by commercial property insurance. This kicks in in the event of damage or loss due to fire, severe weather, earthquake, vandalism, or water damage.

You can get an extension of coverage to your fleet of vehicles with a commercial auto insurance policy. This covers the costs of accident-related expenses such as medical bills, repair shop costs, or court costs.

Professional liability insurance

Lawsuits due to business mistakes are not uncommon in the USA. Therefore, protect yourself from the financial burdens of civil lawsuits with professional liability insurance.

Cyber security insurance

Attacks on corporate IT infrastructure are more common than most business owners think. That's why you should look into cyber security insurance to protect your company from the consequences of hacker attacks, phishing, and damage caused by malware and other malicious programs.

Health and retirement insurance in the USA

Through the United States Centers for Medicare & Medicaid's Health Insurance Marketplace, you can arrange health insurance for yourself and your employees. While you are not legally required to do so, you can show off in recruiting if you have a good offer for prospective employees and may even contribute to the cost.

If you have employees in the US, you must also pay the employer's share of the pension insurance (12.4 %) for them. You can also set up a good, low-cost retirement plan for yourself, thanks to the Simplified Employee Pension (SEP) and the popular 401(k) plans.

Social security in the USA

As a business owner, you pay half of Social Security and Medicare contributions for your employees. In 2022, the Social Security tax rate for employees and employers is 6.2 % of salary each, for a total of 12.4 %. The Medicare rate is currently 2.9 %, so 1.45 % each for employer and employee.

For yourself, as a self-employed person, you pay the "Self Employment Tax," which covers both the employee and employer contributions to Social Security. The tax rate is 15.3 % (12.4 % for Social Security and 2.9 % for Medicare).

Subsidies for startups in the USA

Do you have a business idea for your company in the USA that is of great social value? Then you may have a chance to get government grants. On the grants.gov and benefits.gov websites, the US government manages thousands of grants for all types of businesses.

We wish you every success with your new company in the USA! And once you're in the saddle, be sure to check out the US government's H-1B Lottery, which can help you get highly skilled professionals. You may soon be one of the best employers in the United States!

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