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Starting a business in the United States by foreign founders— dispelling some of the myths

Updated: Dec 14, 2021



Many American businesses are founded by foreign founders. Some of the main reasons for registering a business in the United States is to gain access to its capital market—many US investors prefer investing through a US vehicle, branding the business as American, due to the ease of operating a business in the US (less bureaucratic and more democratic), and access to a huge consumer market. However, many foreign founders harbor the notion that they need to be citizens or permanent residents to incorporate in the US, or the US entity’s officers, directors, managers (as applicable) must be physically present in the United States to serve in those roles. In this blogpost, we address some questions we often get from non-US (foreign) founders regarding incorporating a corporation in the United States (most of these answers apply to LLCs and partnerships as well).

  1. Is there any citizenship or permanent residency requirements for founders? No. Unless you are a citizen of, or “ordinarily” reside in a country, on which United States has imposed trade restrictions (in which case some permission requirements are triggered), anyone can be the founder of a US corporation without any requirement to obtain permission from any US governmental agency. However, there are few things to keep in mind—(a) a corporation by foreign founders is not eligible to make a subchapter “S” election under the Internal Revenue Code—in simpler words, the entity cannot be an “S-Corp”; and (b) there may be some additional tax compliance for the entity regarding its foreign owners.

  2. Can all the officers and directors of the corporation be foreigners? Yes. Again, there is no statutory residency requirement to serve as officers and directors of a US corporation. However, for the purposes of opening a business bank account, many traditional banks now require the representative of the business seeking to open a bank account be physically present in the United States to complete the formalities. This is not an insurmountable obstacle and there are digital banks who are a good fit for businesses with overseas founders.

  3. Do I need a US mailing address to incorporate in the United States? In most states, no. For instance, you can incorporate in Delaware without a US mailing address. However, the business will need a registered agent in the state it incorporates in. Many agencies provide this service for an annual fee. The attorney you work with in incorporating your business can generally connect you with such an agency, or you can find one through a simple google search.

  4. Can an Employer Identification Number (“EIN”) be obtained with no SSN or TIN? Yes. Foreign founders with no US social security or tax identification number can also apply for an EIN for their newly incorporated US business. All corporations in the United States must obtain an Employer Identification Number—which is used to identify the business. For more information on EIN, please visit-- https://www.irs.gov/businesses/small-businesses-self-employed/employer-id-numbers An EIN can be obtained immediately if applied online. However, to apply online, the social security or tax identification number of the responsible party applying on behalf of the business must be provided. You cannot apply for the EIN online if none of the founders have a US social security or tax identification number. International applicants must either call the IRS or fax the SS-4 form to the IRS to obtain the business’s EIN. Another alternative is to appoint a third party as the business’s designee to obtain the EIN.

  5. Can foreign founders travel to the US to work for the business after incorporating? Yes, if you have an appropriate business visa. Simply registering a business in the US is not a permission for its founders to come work in the USA. This is one of the most common questions we get, and most founders have the misconception that registering a US entity provides an automatic permit to travel to the USA. This is not the case, and foreign founders desirous of traveling to the United States for business should consult an immigration attorney.

Besides the above, foreign founders also have to ensure they have complied with all laws and regulations of their home country regarding investing in foreign entities. For instance, Indian companies that want to relocate their business’s jurisdiction from India to the USA (the so called “flip” transaction), through incorporating in the US, must ensure the restructuring complies with all applicable regulatory requirements. Hence, it is prudent to consult with lawyers to get customized advice regarding your circumstances.

To summarize, even though opening a business in the United States from overseas may seem daunting, in reality, opening a US based business by non -resident founders is only a little bit more complex than if these founders were American citizens or permanent residents. However, foreign founders should consider obtaining legal advice before engaging in the process to avoid making mistakes and costs of fixing those retroactively.

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