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What Happens After Incorporating in the US from Abroad - Bite-Sized Legal #9

What Happens After Incorporating in the US from Abroad - Bite-Sized Legal #9
By Bite-Sized Legal • Issue #9 • View online
In the last issue of the newsletter, you learned what it means to incorporate in the United States and what are the steps to do so.
Now you may be wondering what happens after the incorporation.
Here we will cover the two most likely scenarios:
  • a single-member LLC, and
  • a C-Corp.
If you found an LLC, that will most likely be in Wyoming or New Mexico.
If you found a C-Corp with other cofounders, that will likely be in Delaware.
Now let’s break down how it looks like to run those for a year. In terms of legal, the basic things you need to know are:
  • Annual forms
  • Taxes
  • Accounting and audits
  • Data protection laws
  • Compliance in general

Annual Forms
The state where your business is incorporated requires submitting an annual form. The purpose of this form is to confirm that your business still exists. It contains the most basic information about the business, such as name, EIN, address, and similar information.
You need to submit it to the state once every 12 months. The time for submitting usually depends on the time when you registered the company. if you registered for it in May, you need to submit it every May.
In most cases, your registered agent will do this for you (check it out with them). You’ll just need to sign electronically.
There is a fee that needs to be paid for the form. In Wyoming, it costs $100. New Mexico, for now, is the only state that does not require this form, so there is no fee.
Single-member LLCs, if they meet the conditions to be a foreign-owned disregarded entity, do not pay taxes in the US.
They just need to submit two forms to the IRS every year before 15 April:
  • Form 1120, where you fill in only the most basic information about the business, and
  • Form 5472, which is a tax return form, where you also need to fill only the basic information and write FOREIGN OWNED DISREGARDED ENTITY by hand on the upper part of the form.
You can submit it by fax or by recommended mail. If you use accountant services, they could do that electronically for you.
However, if you do the accounting yourself, you have no access to the electronic platform of the IRS. This means that you need to submit the forms by mail (post mail) or by fax (yes, a good old fax machine). A recommended mail is your best option.
C-corps, on the other hand, pay taxes in the US.
They also need to submit these two forms. However, they also need to:
  • Fill the whole 5472 form, and
  • Actually pay the taxes.
There are other forms your c-corp may need to fill and submit depending on the nature of your business, so it is hard to draw a line as with the LLCs.
If you are a solo indie hacker, though, an LLC would do the job for you. Tax-wise, submitting those two forms on time will be all you need to do.
Accounting, Audits, and Annual Meetings
If you choose your state of incorporation wisely, none of these would be a hassle.
You can do your accounting on your own if you wish so (Wave App is free to use). Or you could use software to do the accounting for you. Or you could outsource it. This is up to you.
For single-member LLCs, you don’t need high-level accounting. You need just to show how much you’ve earned and how much you’ve spent on your tax return form (the 5472).
The IRS may choose your LLC randomly and audit it. It is not necessarily a bad thing, as long as you keep everything tidy.
If you make more than a few hundred bucks a month and you have many transactions (not one or two clients bringing all the money), outsourcing accounting will give you peace of mind and let you focus on the stuff you enjoy better.
Audits are not required in Wyoming and New Mexico, nor are annual meetings.
C-corps are usually larger organizations and may require more.
At least, you may need to hold an annual meeting. It can be held in any country and is just a formality and paperwork. You’ll need minutes of the meeting and, depending on the state, maybe some form to be filled.
Again, C-corp is a structure suited for larger teams and larger companies, hence the greater requirements for them.
Outsourced accounting is often a necessity (although not obligatory). Annual meetings are usually required. Audits requirements depend on the jurisdiction.
Data Protection Laws
Many countries around the world pass new data protection laws mirroring the GDPR. And GDPR has some strict requirements from businesses.
The US, for now, has no federal data protection laws. California is the only state with a data privacy law, but it applies only to large companies.
For the average indie hacker, freelancer, or ecommerce store owner, the data protection requirements in the US are much easier.
If you are a French citizen, owning a Wyoming LLC, selling products only to US citizens, the GDPR does not apply to your business. This means that you send promo materials freely, and use Facebook pixel and similar tracking technologies with no restrictions.
The local data protection laws apply when you interact with foreigners (for example, the GDPR applies when you process data of Europeans), but in the US business - US citizen/resident interaction, you don’t have to care too much about consents. All you need is a privacy policy.
General Compliance
There may be other compliance requirements for your business depending on your industry.
If you create apps, you may need to apply to the patent office to protect your IP.
If you hire freelancers’ services, you may need to have some contracts in place.
If you operate in a highly regulated industry, such as finance or health, you need to pay attention to the industry-specific laws. Fintechs, for example, have to comply with Know-Your-Customer rules and the anti-money laundering regulations.
If you sell food supplements, you need to comply with the rules for the relevant products set by the FDA.
If you sell a piece of software outside of these industries… well, there are not so many things to worry about.
My Question for You
Was this clear?
How did you like it?
Do you have any questions about running a business from a legal perspective?
Let me know in your reply to this email and will provide an answer.
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