I. Benefits to Incorporate
Limited Liability
The primary advantage is the legal separation between company and shareholders. Shareholders’ liability is limited to their investment. Sole proprietors risk personal assets (homes, cars, property), while incorporated entities protect owners.
Perpetual Existence
Companies continue indefinitely regardless of ownership changes, surviving until formal dissolution.
Capital Raising
U.S. companies benefit from:
✓ No foreign exchange controls
✓ Bank financing & stock issuance options
✓ Equity capital without repayment obligations
Business Credibility
Registered entities gain trust for contracts/B2B deals. Many clients (especially Chinese firms) prefer working with incorporated U.S. businesses.
Visa/Immigration Pathways
U.S. companies can sponsor:
✓ Business visas via invitation letters
✓ L-1 visas for transferred executives → Green Card eligibility
✓ E-2 visas (for citizens of treaty countries making a substantial U.S. investment)
II. Incorporation Requirements
Eligibility
- No U.S. citizenship/residency required
- Foreign individuals/companies may incorporate remotely
Special Cases
- *H-1B holders*: May own but not work for their company
- *L-1 applicants*: Must qualify as multinational managers
- Note: F-1 visa holders (students) generally cannot form or operate a business directly.
III. Required Documents
- Owner’s SSN or ITIN
- Physical address (cannot be a P.O. box; virtual office addresses are allowed in many states)
- Unique business name (state-specific)
- Registered Agent information (required in all states)
IV. Business Entity Types
| Type | Taxation | Best For |
|---|---|---|
| C-Corp | Corporate tax + shareholder tax | Funding-seeking startups |
| S-Corp | Pass-through (no corporate tax) | Profitable small businesses |
| LLC | Flexible (choose C/S-Corp tax) | Most small-to-mid size businesses |
| Sole Prop | Personal income tax | Solo freelancers |
| Nonprofit | Tax-exempt (501c3) | Charitable organizations |
V. Tax Responsibilities
Corporate Taxes
- Annual filing: Net income = Gross revenue – deductible expenses
- Key deductions: Salaries, rent, utilities, professional fees
Sales Tax
- Quarterly filings on taxable goods and some digital services (rules vary by state)
- Note: Service-only businesses may still need to register if selling in nexus states
Payroll Taxes
- Withhold:
✓ 6.2% Social Security (up to $168,600 in 2024)
✓ 1.45% Medicare (no cap) - ✓ 0.9% Additional Medicare Tax on wages over $200,000
- File:
- W-2 for employees
- 1099-NEC for independent contractors
Worker Classification
Misclassifying employees as 1099 contractors risks penalties up to $1,000 per violation and potential back taxes, interest, and audits.
Refer to IRS Form SS-8 or legal counsel if unsure.
VI. Post-Incorporation Compliance
Financial Best Practices
- Separate accounts: Never co-mingle personal/company funds
- Monthly reconciliation: Match bank statements to bookkeeping records
- Document all transactions: Including cash payments (equally taxable)
- Retain financial records for at least 7 years (IRS standard)
Key Deadlines
- March 15: S-Corp tax returns
- April 15: C-Corp/LLC returns
- Quarterly: Payroll & sales tax deposits