You’ve got a great business idea but you’re not based in the U.S. Don’t let that stop you from attracting American venture capital and growing your startup. Incorporating in the States can open doors to funding even if you’re oceans away. With the right entity structure, you can position your company to appeal to investors and gain a foothold in the lucrative U.S. market. But navigating business formations from abroad takes knowledge and experience.
That’s where incorporation services like Yondaa come in. We make the process smooth for non-resident founders, allowing you to focus on your tech and avoid legal hurdles. Imagine presenting your pitch to top Silicon Valley VCs armed with an impressive Delaware C-corp behind you. The possibilities for growth and scale are endless. Read on to learn how to attract American VC money no matter where you call home.
Why Non-Residents Should Consider Incorporating in the U.S.
Incorporating your startup in the U.S. opens you up to major venture capital funding opportunities. American VCs invested over $130 billion in U.S. companies last year alone. They prefer investing in domestic companies for a few reasons.
Access to Capital
U.S. companies have access to a huge pool of VC funding. Top firms like Andreessen Horowitz, Sequoia Capital, and Greylock Partners are based in Silicon Valley. They invest primarily in U.S.-incorporated startups. By setting up shop in America, you put yourself on their radar.
Familiar Legal System
VCs are more comfortable with the U.S. legal system. They understand U.S. regulations and governance. There’s less risk investing in a company that’s subject to familiar laws. U.S. courts also strongly uphold shareholder rights and contracts. This gives investors more security over their funding.
Path to IPO
Venture-backed startups often aspire to go public one day. Listing on a major U.S. stock exchange, like the NYSE or Nasdaq, is an attractive exit for VCs. U.S. IPOs raise significantly more capital than those in other countries. By incorporating in America, you’re positioning your company for a future U.S. IPO, which appeals to investors.
While incorporating in the U.S. does come with legal complexity, the potential benefits to your startup are huge. With the right corporate structure and legal counsel, you can gain access to the largest venture ecosystem in the world. For many foreign entrepreneurs, that opportunity is well worth the effort. With hard work and persistence, you can build a thriving U.S. company and achieve your vision.
Popular U.S. Entity Structures for Foreign Entrepreneurs
C Corporations are a common choice as they provide limited liability protection for shareholders while allowing you to raise venture capital. However, C Corps require more paperwork like adopting bylaws and holding board meetings. They are also subject to “double taxation” where both the company’s profits and shareholders’ dividends are taxed.
LLCs provide liability protection with fewer regulations. As an owner of an LLC, you have flexibility in how profits and losses are passed through to members. LLCs allow for pass-through taxation so you only pay taxes on profits once at the personal level. The downside is that LLCs can be more difficult to attract venture capital compared to C Corps.
Another option is the S Corporation which provides pass-through taxation like an LLC but with stricter rules around ownership and shareholder compensation. S Corps can only have up to 100 shareholders who must be U.S. citizens or residents. They also require all shareholders to receive reasonable compensation for work performed.
The entity you choose depends on your priorities. If raising venture capital is key, a C Corp may be your best bet. If you want maximum flexibility and control with fewer regulations, an LLC is a great choice. S Corps provide a balance of pass-through taxation and access to outside investors. Each structure has pros and cons, so think carefully about what will benefit your company most in the long run.
In summary, popular options for foreign entrepreneurs include C Corporations, LLCs and S Corporations. Do your research on the requirements and tax implications of each to determine what aligns with your priorities before deciding to incorporate in the U.S.
The Benefits of Forming a U.S. C-Corp to Attract Venture Capital
Setting up a U.S. C-corporation (C-corp) provides significant benefits if you’re looking to raise venture capital (VC) funding for your startup. As a non-U.S. resident, forming a Delaware C-corp through a registered agent service can help facilitate investment from American VCs.
Familiar Legal Structure
U.S. VCs are most familiar with the C-corp model. It’s the standard for venture-backed companies in the U.S. By adopting this model, you’ll avoid confusion and complications that could arise from an unfamiliar business entity. The C-corp structure also provides the most flexibility in terms of ownership, fundraising, and exit opportunities.
Access to More Capital
Registering as a C-corp in a startup-friendly state like Delaware opens you up to more funding opportunities. Many U.S. VCs focus their investments on C-corps, so you’ll have access to more available venture capital. You’ll also likely get better terms and valuations, as VCs perceive less risk.
According to Crunchbase, in 2021 less than $100 million has gone into U.S. companies in Crunchbase’s smart-home and smart-building categories so far this year. Forming a C-corp can help you gain access to more of this available funding.
Potential Higher Valuation
U.S. VCs may value a Delaware C-corp higher than other entity types because it’s a familiar model they’re comfortable with. They also see C-corps as more attractive acquisition targets, which could lead to a higher exit price. All of this can translate into a higher valuation for your startup.
While the C-corp model does come with certain tax and compliance requirements, for venture-backed startups the benefits often far outweigh the costs. If you want to attract major U.S. VC funding, setting up shop as a Delaware C-corporation is your best option.
How to Set Up Your U.S. Company Remotely With Ease
Choose a U.S. business entity
As a non-U.S. resident, you have several options to consider for setting up your company in the States. The most common are the C corporation, S corporation, and limited liability company (LLC). An LLC is a popular choice as it offers flexibility and liability protection. You’ll need to file articles of organization with the state, appoint a registered agent, and pay the required fees.
Find a registered agent
A registered agent, or RA, acts as your business’s point of contact in the U.S. and helps with legal compliance. They will receive important documents on your company’s behalf. You’ll want to find an RA that specializes in serving international clients. They can guide you through the process and ensure all requirements are met properly.
Complete required filings
In addition to your articles of organization, you’ll need to obtain an Employer Identification Number (EIN) from the IRS, open a U.S. business bank account, and may need additional licenses or permits depending on your industry. Your RA and bank can help facilitate these steps.
Build your team
For day-to-day operations, you have a few options. You can hire an executive management team and staff to run the company in the U.S., outsource to a professional employer organization (PEO), or use a virtual office provider. A PEO or virtual office is more budget-friendly, as they provide an address, staff, and handle HR and payroll for you. You still maintain control of your business.
Attract investors
With your U.S. company formed and team in place, you’re ready to start attracting American investors. Update your pitch deck to highlight your new legal business entity and operations. Tap into angel investor networks and pitch at venture capital events. Build buzz by getting covered in tech publications like Crunchbase.
Setting up a U.S. company from abroad may seem daunting, but with the right partners and step-by-step process, you can do so smoothly and open your business to new investment opportunities. By following regulations and being transparent in your operations, you’ll gain credibility and trust from investors. With hard work and perseverance, you’ll be on your way to funding and growing your startup in America.
FAQs on Forming a U.S. Company as a Non-Resident
As a non-U.S. resident, incorporating a company in America opens you up to major funding opportunities. However, the process can seem complicated. Here are some common questions and answers to help clarify things.
What are the main entity types I can choose from?
The three most popular structures for startups are C corporations, S corporations, and limited liability companies (LLCs). C corps and S corps limit your personal liability but differ in how they are taxed. LLCs also limit liability but are more flexible. For raising VC funds, C corps are typically preferable.
Do I need a physical U.S. address?
No, you do not need a physical office to form a U.S. company. You can use a registered agent’s address for your legal mail and filings. Many startup founders today run distributed companies with employees around the world.
Can I get an EIN as a non-resident?
Yes, as the owner or director of a U.S. company, you are eligible for an Employer Identification Number (EIN) from the IRS. An EIN is like a Social Security number for businesses and is needed to open a U.S. business bank account, apply for business licenses, and file taxes.
What about U.S. business bank accounts?
As a non-resident director or owner of a U.S. company, you can open a business bank account for your entity. You will need to provide documents like your EIN, formation documents, and personal ID to verify your identity and ownership of the business. Some banks cater specifically to the needs of foreign-owned U.S. companies.
How do I attract U.S. venture capital?
The key is to build a great business that solves a real problem. But forming in the U.S. also makes you an attractive target for American VCs. Familiarity with U.S. business law and accounting standards reassures investors. List your company on AngelList, Crunchbase, and Pitchbook to increase visibility. Attend startup events in tech hubs like San Francisco and New York to make personal connections. With a compelling pitch deck, you’ll be on your way to funding success!
In summary, don’t let borders stop you from chasing your startup dreams. With the right knowledge and persistence, raising venture capital in the U.S. as a non-resident entrepreneur is absolutely possible. Now get out there and make it happen!
Conclusion
So there you have it! Forming a U.S. company can help open doors to venture capital and accelerate your startup’s growth, even if you’re not a U.S. resident. With the right corporate structure and location, you can attract investors who want to back innovative companies in a stable regulatory environment.
The process may seem daunting, but services like Yondaa make it straightforward for international founders to incorporate in the U.S. and build credibility. Who knows, you could be the next DeepMind, raising hundreds of millions once you plant your flag in Silicon Valley. The world is looking to fund the next big thing – it might as well be you!
