Overseas ventures are a stepping stone to enter international market and in recent times, India has taken necessary steps to make its presence felt in the global arena. We are all aware that India has outpaced Japan and placed itself on third rank globally in terms of PPP (Purchase Power Parity). Further in the catalog of Fortune 500 companies’ Indian entrepreneurs have proved their prodigy by placing their name in the list.
International investment is a two-way street. On one hand, when foreign investors route their money to India, it generates jobs’ and economic growth in the country. ‘Make in India’ is one such initiative by the Indian Government, moulding it as a global manufacturing hub, whereby encouraging both multinational as well as domestic companies to manufacture their products within the nation. And on the other hand, when Indians make overseas investment, it increases the export competitiveness in the country and creates a global presence for the Indian firms. There is also an element of value addition through enhanced technical know how in these cross border transactions, which is driving Indian companies to go beyond the domestic shores for investment. India today has not only liberalized its FDI regime but also emerged as investor abroad. Interestingly, new ODI (Overseas Direct Investment) regulations by Reserve Bank of India have seemed to be a boost for all sized businesses to make their presence felt internationally. As most IT companies, automobile companies and textile companies are finding their first overseas destination as USA, this article will throw light on starting up of business venture in United States of America.
A. TYPES OF ENTITIES:
Apart from sole-proprietorship and partnership firm, the following are the options available for incorporation of an entity:
- Corporations (Inc.) further divided as ‘C’ Corporation and ‘S’ Corporation.
- Limited Liability Companies (LLC)
‘C’ Corporation: The standard corporation, also called a ‘C’ corporation, is the most common business structure. A corporation is a separate legal entity owned by its shareholders, thereby protecting owners from personal liability for corporate debts and obligations. This has double taxation compliance i.e., corporate has to pay tax on the income it earns and even the shareholders are taxed when the net profit is distributed to them by way of dividend.
‘S’ Corporation: ‘S’ corp is another type of entity, where there is no double taxation requirement. But it is pertinent to note that here the maximum number of shareholders has been restricted to 100 and they all are required to be U. S. citizens.
LLC: The limited liability company (LLC) is a hybrid business form, combining the liability protection of a corporation with the tax treatment and ease of administration of a partnership. The LLC is America’s newest form of business organization. LLCs enjoy pass-through taxation—sidestepping the double taxation of company profits borne by C corporations
B. STATE OF INCORPORATION:
Once a business owner has decided upon the type of entity, the next step is to choose the state of incorporation. Every state in USA is foreign to another state. There are state laws and federal laws to be complied with. An entity is automatically entitled to do business in the state where it is formed, but in order to expand its activities in another state; it must obtain ‘foreign qualify’ certification to do business in the other state too. Hence it is of utmost importance to consider certain factors while choosing the place of destination, such as client appeal, state statutes and state taxation requirements. Presently, the most preferable destinations for non-US residents in America are Delaware and Nevada.
Why Delaware?
Delaware has been one of America’s most popular corporate and LLC destinations. It was America’s first corporate haven and its laws are intentionally pro business. More than 50 percent of all U.S. publicly-traded companies and 60 percent of Fortune 500 companies call Delaware home. Delaware’s corporate laws are very compatible for doing business. It is widely regarded by international entrepreneurs and investors as a favorable tax climate. No sales tax and no state corporate income tax for corporations and LLCs that are formed in Delaware so long as they do not transact business there (there is a franchise tax, however).
Why Nevada?
For many years, Delaware ruled the incorporation landscape. A few states—including Nevada—are trying to replicate Delaware’s success, hoping to attract business owners to their states. Some of the advantages often cited for forming a corporation or LLC in Nevada include no state corporate income tax and no fees on corporate shares. There is neither personal income tax nor franchise tax for corporations or LLCs (but initial and annual statement fees and a business license fee apply).
C. PROCEDURE TO INCORPORATE:
Business entities are always formed under state law instead of federal law. As each state makes its own laws, the specific rules and requirements are different from state to state. The process is generally comprised of following steps:
- Application for reservation of name to the concerned Secretary of State.
- Preparation of formation documents like Articles of Formation or Articles of Association.
- Establish a registered agent with a valid, physical address in the selected state. A registered agent can be either the business owner or another designated person who is authorized to receive legal documents on behalf of the business during standard business hours.
- Apply to register in the concerned Secretary of State.
- Application in form SS-4 to obtain Employer Identification Number
- Payment of required filing fees
- Open a bank account in the state of incorporation.
Note: For other details you may please visit various online sites specifically catered for incorporation of entities in USA.