4. ESTABLISHING A U.S. ENTITY Once a foreign business decides to set up a U.S. entity, several key factors must be considered. Establishing a legal entity in the U.S. provides operational control, limits liability, and allows access to the local banking system and workforce. However, it also requires compliance with tax laws, corporate governance rules, and state regulations. The following sections outline essential aspects of forming and operating a U.S. entity. 4.1 Types of Business Entities Choosing the appropriate business entity is one of the most critical decisions when establishing a U.S. company. The entity type determines liability protection, taxation, governance structure, and investor appeal. Each structure offers unique benefits and potential drawbacks, depending on business goals, ownership structure, and regulatory considerations. Below are the primary business entity types available in the U.S., along with their key characteristics. 4.1.1 C Corporation (C Corp) A C Corporation is a separate legal entity from its owners, providing limited liability protection to shareholders. This structure is commonly used by businesses seeking outside investment, particularly venture capital and public offerings. One notable aspect of a C Corp is the double taxation system: the corporation pays corporate income tax (currently 21% at the federal level), and shareholders are taxed again on dividends. However, retained earnings within the company are not immediately taxed at the shareholder level, allowing reinvestment without immediate additional tax burdens. C Corps also offer flexibility in ownership, as there are no restrictions on the number or type of shareholders, making them ideal for large-scale operations and multinational business expansion. 4.1.2 S Corporation (S Corp) An S Corporation is a special tax designation available to qualifying small businesses. Unlike C Corps, S Corps are pass-through entities, meaning business income, deductions, and credits pass through to shareholders, who report them on their individual tax returns. This structure avoids double taxation while still providing limited liability protection. However, there are strict requirements: an S Corp can have no more than 100 shareholders, all of whom must be U.S. citizens or residents. Additionally, it can issue only one class of stock, which may limit investment opportunities. Despite these restrictions, S Corps are often a preferred option for small to mid-sized businesses looking for tax efficiencies while maintaining a corporate structure. 4.1.3 Limited Liability Company (LLC) A Limited Liability Company (LLC) is one of the most flexible business entities in the U.S., combining elements of both corporations and partnerships. LLCs provide limited liability protection to their owners (members) while offering the option to be taxed as a
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