Establish a company in the United States is often the ideal, if not necessary, choice for companies wishing to export to the US. This process is relatively simple procedurally and can be completed in about 48 hours or less.
To operate in the country, a company can open a Representative Office, which provides a fixed base for the Italian company in the US. However, this office cannot conduct business activities, does not generate income in the territory and is not subject to taxation. The activities carried out must be auxiliary to those of the Italian parent company.
Alternatively (and this is the most widely adopted choice), a company can form an autonomous entity separate from the parent company. In this case, the choice of corporate form becomes crucial.
Among the most common corporate entities in the U.S. are the LLC and the Corporation. All are subject to a range of taxation, whether at the local, federal or state level.
It is also possible to form a company in a state other than the one in which it is intended to operate, provided that the company is also duly registered in the other states as an operating entity.
In this article, we will look at the various solutions available, highlighting the characteristics of each choice.
It is important to note that with the exception of Sole Proprietorship, which is intended only for the sole proprietor, all of the corporate forms we will discuss can be used by both small businesses and large multinationals. There are no significant formal or economic restrictions, and the establishment costs of the various types of companies are quite similar to each other.
Corporation (Inc. or Corp.) and Limited Liability Company (LLC) are comparable to Spa and Srl, respectively, in Italian corporate law. The Limited Partnership, similar to Italian Sas, is less common due to the greater management flexibility offered by the LLC.
The Corporation is considered incorporated once the Certificate of Incorporation is registered with the Office of the Secretary of State. No minimum mandatory capital is required. In fact, the capital has primarily an accounting rather than a legal function and may consist of shares with no par value.
Members can decide whether payments should be considered as capital or loan, with each option offering specific benefits. Management of the Corporation is structured on two levels: Directors and Officers. The incorporation process involves choosing the state of incorporation, selecting the company name, submitting the Certificate of Incorporation, applying for federal and state tax codes, and opening bank accounts. From the point of view of the Italian company wishing to incorporate in the United States, an interesting aspect is the exclusion of assessments of the latter by the U.S. IRS.This avoids the translation of all required documentation into English and its adaptation to the principles of the U.S. accounting system.
The LLC, comparable to the Italian limited liability company, issues shares (Membership Interests) and has only one level of directors (Managers). The formation of the LLC is similar to that of a Corporation, with the articles of incorporation varying according to the state in which it is formed. The LLC can have only one member, and members are only liable within the limit of the capital of the corporation.
One of the main features of LLCs is their tax transparency: they do not have to file a tax return since income is transferred directly to the partners, who must declare it in their personal taxes. From a tax perspective, the LLC is preferred in cases where double taxation is to be avoided:in fact, this legal form can be taxed like a partnership.
The incorporation of the LLC is done by signing the articles of incorporation and adopting a Operating Agreement. This corporate structure is flexible and gives partners limited liability. For this reason it is one of the most popular options chosen by companies interested in exporting to the US.
The Limited Partnership (LP) is similar to the Italian limited partnership. In an LP, the limited partners have liability limited to their share of capital, while the general partners manage the business and are liable with their personal assets.
It is advisable to draw up a partnership agreement to regulate the relationship between the partners and the partnership. If an LP has no limited partners, it becomes a General Partnership, in which all partners are liable with their personal assets.
In the planning of internationalization strategies, the choice of corporate form for operating in the United States plays a crucial role. This decision depends on the specific situation and the type of business to be started. LLCs are often preferred for real estate investments or situations with low taxable income, although it should be considered that, if participated in by a foreign company, they may be treated as subsidiaries for the U.S. tax authorities, with unfavorable tax implications. On the other hand, Corporations, with their flat taxation at 21%, are generally more advantageous for U.S. operations.
When deciding which business structure to adopt to export to the U.S., it is in any case crucial to evaluate several critical elements:
For assistance in choosing the legal form best suited to your needs for exports to the U.S., you can count on Octagona. With more than two decades of experience in the business internationalization consulting, we support companies at every stage of their expansion outside national borders.
Please feel free to contact us for more information.
Forming a company in the United States is relatively simple in procedural terms and can be completed in about 48 hours or less. The costs of forming the various types of companies are quite similar to each other and there are no significant formal or economic restrictions for businesses.
The Representative Office is a permanent base of the Italian company that cannot carry out business activities, does not generate income in the territory and is not subject to tax; its activities must be auxiliary to those of the parent company. The autonomous company, the most commonly chosen option, is an entity distinct from the parent company and can operate commercially.
The most common forms are the Corporation (Inc. or Corp.), comparable to a Spa, and the Limited Liability Company (LLC), comparable to a Srl. The Limited Partnership is similar to a Sas and is less common due to the greater flexibility of the LLC. The Sole Proprietorship is reserved for the sole entrepreneur.
The LLC has tax transparency: it does not file a tax return because the income goes to the shareholders, who declare it in their own taxes, avoiding double taxation. However, if it is owned by a foreign company, the American tax authorities can treat it as a subsidiary, with unfavorable implications. The Corporation, on the other hand, has a flat tax of 21%.
The Corporation does not require a minimum mandatory capital: the capital serves primarily accounting purposes and may consist of shares with no nominal value. The constitution provides for the choice of the State, the name, the submission of the Certificate of Incorporation to the Secretary of State, the request for federal and state tax codes, and the opening of bank accounts.
The choice depends on the specific situation and the type of activity. Long-term goals, tax implications, the degree of personal responsibility, capital requirements and business management—that is, whether to operate independently or with partners—must be considered. Octagona offers assistance in this choice, with over twenty years of experience.
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