As a non-US resident, forming an LLC or Corporation in California is quite easy. California does not restrict non-US residents, or foreign companies from forming an LLC or Corporation. This allows non-US residents and non-US citizens alike the ability to set up a business in California. More importantly, it allows foreign residents and companies the opportunity to expand into the U.S. market while still maintaining a principal place of residency or business overseas. Nevertheless, foreign individuals and companies interested in doing business in California must weigh the pros and cons of forming an LLC or Corporation. Read on to learn more about the best business structure for non US residents.
In order for a non-US resident to set up a business entity in California, they must select a business name, file organizational documents, appoint a registered agent, create a records book, and prepare corporate bylaws or operating agreement. When setting up a corporation and after the Articles are filed with the Secretary of State, directors are appointed and the officers must hold the first board meeting. It is important to take all necessary steps to make sure the new business entity complies with federal and California tax requirements. Non-US residents forming a business in California must also file an annual Statement of Information.
When incorporating in California, the non-US resident owner will be required to obtain an Individual Tax Identification Number (ITIN). An ITIN will satisfy the legal requirement of the Corporation paying federal taxes. California non-residents are required to pay income taxes on income received from California sources. If a nonresident forms an LLC, he/she will be required to pay income taxes on earnings received in California.
Best Business Structure for Non-US Residents – LLC or Corporation
For tax and liability purposes when considering the best business structure for non-US residents, it is usually better for non-US residents and foreign businesses to obtain C Corporation status for their U.S. based business. The tax and personal liability benefits far outweigh forming an LLC.
Limited Liability Companies also known as LLCs are a popular business structure in the U.S. LLCs provide attractive tax and legal benefits, including personal liability protection to its owners. When considering the best business structure for non-US residents, keep in mind that LLCs require foreign owners to pay a higher amount of taxes.
Under U.S. law, a non-US resident may form a C Corporation. C Corporation profits and losses do not flow through to its owners. This means foreign business owners do not have to file personal income tax returns. This allows foreign investors the ability to maximize profits at the corporate tax rate. The best business structure for non-US residents would not be an S Corporation because non-US residents cannot hold shares in an S Corporation.
When considering the best business structure for non-US residents, we hope you will contact A People’s Choice for help preparing the documents you need to create an California LLC or C Corporation. If you have any questions about which entity is best for you, contact an accountant. Once you have determined the best business structure for your particular needs and purpose, A People’s Choice can help you draft and file the documents with the California Secretary of State office.