In short, LLC is the abbreviation for Limited Liability Company; which, as the name suggests, burdens the owner(s) of a company with limited liability both financially and administratively. Unlike a corporation, the members of an LLC have the freedom to attain the roles, responsibilities, and liabilities of the single members of the company. Through the Operating Agreement which is written and signed by the members of the LLC, the owners of the company can determine their respective roles.

The main feature of an LLC is that the members of an LLC are not required to publicly disclose any personal information to form and maintain their companies. In addition, this privacy can save resources and time if the company decides to add, drop, or transfer members to or from the company in the future. In conclusion, when you start an LLC in Delaware, your information is kept confidential, and you do not have to state who started the business. Accordingly, you don’t have to give information about the other members. However, this may sometimes create problems, especially when you need to state who the owner of your company is.

Proof

To remedy this, the above-mentioned “Operating  Agreement” which includes the regulations about the authority, shares, and liabilities comes into play. As all members should sign this agreement,  you can use this agreement if you need to prove you are a member/owner of this company. Accordingly, there should also be a membership certificate for each member of the company. You can also provide this certificate when needed. This certificate usually states the shares, number of stock shares, and the liabilities of a member.

Do you have any further questions? Feel free to contact us!

Although it is not an actual tax return per se, Form 5472 is a declaration/an informational form to be submitted to the Internal Revenue Service (“IRS”) annually for U.S. companies with the following conditions.

The “significant” foreign ownership threshold in question for this form is at least twenty-five percent at any time during the tax year. This filing responsibility starts when a U.S. company is 25% foreign- or when a foreign corporation engaged in a trade or business within the United States. A corporation is 25% foreign-owned if it has at least one direct or indirect 25% foreign shareholder at any time during the tax year.

Generally, a foreign person is a 25% foreign shareholder if the person owns, directly or indirectly, at least 25% of either. For instance:

• Reporting Corporation: A 25% foreign-owned U.S. corporation (including a foreign-owned U.S. DE), or A foreign corporation engaged in a trade or business within the United States.
• 25% foreign-owned: A corporation is 25% foreign-owned if it has at least one direct or indirect 25% foreign shareholder at any time during the tax year.
• 25% foreign shareholder: Generally, a foreign person (defined later) is a 25% foreign shareholder if the person owns, directly or indirectly, at least 25% of either:
• Direct 25% foreign shareholder: A foreign person is a direct 25% foreign shareholder if it owns directly at least 25% of the stock of the reporting corporation by vote or value.
• Ultimate indirect 25% foreign shareholder: An ultimate indirect 25% foreign shareholder is a 25% foreign shareholder whose ownership of stock of the reporting corporation is not attributed (under the principles of section 958(a)(1) and (2)) to any other 25% foreign shareholder.

Please note that depending on certain circumstances, this form has to be filed either separately or as part of the actual tax return. For instance, if the company is a U.S. Disregarded Entity and owned by foreigners, the form must be filed separately.

You might be wondering what would happen if you miss/fail to file this form. It is safe to say that the most essential point is the penalties prescribed for the failure to file. It is essential to ensure to have adequate records and information to timely prepare Form 5472 and keep proof of the timely filing of the returns to avoid assessment of the penalty. Otherwise, the company would be at risk to face stiff penalties. The penalty for not filing or failure to file in a timely manner can be from $10,000 to $25,000.  This penalty is often automatically assessed by the Internal Revenue Service if a tax return containing Form 5472 is filed late.

In short, if your US company has a foreign owner or foreign shareholders then the company probably has to file form 5472 with the IRS.

If you have any questions on Form 5472 and other tax-related issues, do not hesitate to contact us!

To do’s

• Make sure that all franchise taxes have been paid. You will then need to issue a Certificate of Dissolution/Cancellation with the signature of you or someone else who has a signatory power.
• When you first set up your company, a Certificate of Formation was legally granted to you. This time, in an event of dissolution of the company, a Certificate of Dissolution for Corporations or a Certificate of Cancellation for LLC will be drafted.
• A cover memo (information about the related issue and the company) will be attached at the top of the document. Once your documents are ready, you must deliver it to the Division of Corporations of the State of Delaware. You also have to pay a fee to dissolve your company during the delivery of the file. You can make payments either during delivery or by using internet banking systems.
• The process usually takes 3-5 business days to complete.
• If you have a bank account of the company, do not forget to close it.
• Be sure to consult your accountant and tax professionals about the dissolution of your company as well.

First of all, it is a legal document which means that it would lead to certain legal implications in an event of a conflict. Although most states do not require an operating agreement – still we highly recommend it for multi-member LLCs since it structures the finances and organization of the LLC-, it is mandatory in Delaware State of the USA.

It regulates; Organization, Management and Voting, Capital Contributions, Distributions, Membership Changes, and Dissolution.

• Organization: The first part of the operating contract is related to the establishment of the company. It covers when the company was founded, who the members are, and the ownership structure. If there is more than one member, they may all be equal ownership or a different amount of “ownership units”

• Management and Voting: This section discusses how the company is managed and how members vote. It is the case that the company may be managed by one of the members appointed by the members. The operating agreement determines what authority the members have on the company affairs. The decisions may be made through a voting process among the members. The operating agreement may determine the number of votes required by the company for certain actions.

• Capital Contributions: This part is about the money given by the members to start the Limited Liability Company. It covers which members have given the money to establish the company. It also covers how the members will raise extra money.
• Distributions: This part shows how the company’s profits and losses are shared among the members. This money may include physical property or other commercial assets.

• Membership Changes: This part is totally about the process of adding or removing members. It covers what might happen in the case of the transfer of company ownership. For instance, the company determines what happens if a member dies or goes bankrupt etc.

• Dissolution: In this part of the operating agreement, explain in which situations the company should be dissolved. This is sometimes called “wind up”.

If you wish to register your business in a state in which your business is considered to be “alien”, you need tp get a Certificate of Registration (or Certificate of Authority) at the end of the registering process. With this registration, you will be able to protect your business according to the state that you run your business. For instance, by registering your Delaware-based business to California, you will be able to protect your business within the borders of Delaware General Corporate Law and legally conduct your business in California by the local legislation.

Moreover, you need to have the Certificate of Registration when you want to open a bank account in the state the company is operating.

Do you have questions regarding the Foreign Qualification? Please feel free to contact us!

Form W7

An individual could obtain ITIN issued by the IRS by submitting a form W7 to the IRS. An Individual Taxpayer Identification Number (“ITIN”) is a must for those who are not eligible to receive a Social Security Number (“SSN”). ITIN is mainly used for tax purposes and identifying before the Internal Revenue Service (“IRS”).

Before explaining the form W7, we would like to draw your attention to the fact why ITINs are important. For instance, a non-U.S. citizen who has no work authorization but in return a has income from a U.S. source is still liable to file tax returns. While filing these tax returns, one must also identify oneself before the IRS. This is where ITIN becomes essential.

This number is provided by the IRS (Internal Revenue Services) and only used for tax purposes. So, in order to obtain ITIN, the Form W-7 is required to be used.

In the W-7 Form, you are expected to fill in the following information:

• The reason for applying an ITIN
• The name, mailing address and, if different, foreign address
• Date of birth date and location of birth
• Applicant’s country of origin
• Foreign tax ID number, if he or she has one
• The applicant’s U.S. visa number, if applicable.

Form 5472

If your U.S. company has non-U.S. persons and also involves with foreign related parties, you wouldn’t want to miss to file Form 5472. Although not an actual tax return, Form 5472 is an informational form to be submitted to the Internal Revenue Service (“IRS”) annually for the U.S. companies with foregoing conditions.

This form may be filed either separately or as part of the actual tax return depending on the situation. For instance, a U.S. Disregarded Entity and owned by foreigners need to file separately.

The requirements

• The “significant” foreign ownership threshold is at least twenty-five percent at any time during the tax year. This filing responsibility starts when a U.S. company is 25% foreign- or when a foreign corporation engaged in a trade or business within the US. A company with 25% foreign-owned and has at least one direct or indirect 25% foreign shareholder at any time during the tax year. Generally, a foreign person is a 25% foreign shareholder if the person owns, directly or indirectly, at least 25% of either.
• Penalties usually arise for the failure to file. It is essential to ensure to have adequate records and information to timely prepare Form 5472. Keep proof of the timely filing of the returns to avoid the assessment of the penalty. Otherwise, the company would be at risk to face stiff penalties. The penalty for not filing or failure to file in a timely manner can be from $10,000 to $25,000.  Internal Revenue Service assesses the penalty if a tax return containing Form 5472 late-filed.

However, it must be noted that it is the corporation, not the individual owner or shareholder that files the form. As a result, any penalties will incur to the corporation.

In short, if your US company has a foreign owner or foreign shareholders then form 5472 required to file.

Do you have more questions or do you want to file your taxes with us? Please feel free to contact us!

In the United States, business law dictates that a registered agent, also known as a resident agent or statutory agent, might be required for certain businesses. A registered agent is a legal or individual person that is designated to receive service of process when a business entity is a party in legal action. Registered agent is responsible to be in contact with Secretary of State or other official government departments on behalf of the INC or LLC when it is needed. In addition, it sends/receives official and legal documents (tax forms, etc.) on behalf of your LLC or Corporation.

What does a Registered Agent do?

The state where your business is registered naturally wants to know that it has a contact person for the company during business hours; accordingly, PO boxes are not suitable addresses for registered agents. A registered agent approves tax and legal documents on behalf of your business, making sure the company does not miss significant information regarding tax charges, lawsuits, or resolutions involving your business; a registered agent may or may not have a role in the processing of the business itself.

In addition to reminding the essential documents, having a registered agent provides that it is less likely that you will have to accept potentially disgraceful legitimate and tax documents in front of customers. Another benefit is that, as your registered agent address will stay the same, you can readily modify your business place without having to file more paperwork to vary your address with the state for every move.

The typical range of services offered by a registered agent also include:

– Receiving Service of Process (SOP) documents for legal actions

– Providing compliance calendars for filing information (annual reports and tax returns)

– Scanning, storing and sending legal documents via email

– Mailing documents in need of a signature

A registered agent may or may not have a role in the company itself.

Do I need a Registered Agent?

Well, if you are about to set up a business, you should. Because registered agents are quite essential for the smooth operation of the business.

Nonetheless, you especially have to have a registered agent if you are a Non-US resident. The state where your business is registered requires to have a contact individual for your business during business hours. If you do not have a physical location in that state, the necessity is particularly immediate that you have a registered agent to accept documents on your behalf.

If you are a US resident, you can be your own registered agent as long as you know what to do. However, you must be available during all regular business hours. Acting as your own registered agent and using your home address as that of your registered agent may not be a good choice because your address will be publicly listed for anyone to see. In this case, hiring a professional registered agent service helps to protect your privacy.

If you do not comply with the registered agent requirements, this might lead to a number of severe penalties, including legally cancelling the legal validity of your business.

Our company provides a Registered Agent service including state and federal notifications. You can choose one of our services to start your business in the US, and you can contact us for further information and questions.

If you have any further questions, we are always at your service, please contact us.

On Certificate of Incumbency, you may write down:

– Company owners’ names,

– Shareholders,

– Interest rates,

– Address of the company,

– The local address,

If you need help with preparing a Certificate of Incumbency, we can assist you in preparing one

However, there are differences among states. In this connection, forming a company in Delaware is quite simple and requires less procedure compared to other states. However, you might need of professional assistance if you wish for a smooth process. You can choose one of our services to start your business in the US, and you can contact us for further information or questions.

With our broad experience in forming many companies, we would like to help you with the documents you might encounter during the process of forming your own company.

1 – Selecting the Appropriate Type of Business

Generally, startups planning to attract capital starts as corporations. If you want to raise money in a short span of time, starting as a corporation might help. However, if you need to hold your assets and require anonymity, the best option might be an LLC.

2 – Selecting the State (Delaware in this case)

You need to choose the best state for your business. Traditionally, Delaware is accepted as the best state for entrepreneurs. Therefore, it is the most popular for startups. The most significant advantage of incorporating in Delaware is that it has one of the most business-friendly corporate law systems in the U.S. In some cases, you can change your state and get over this problem; however, some states do not allow such a change, and you find yourself stuck in the state you first incorporated in. Winding up your business and starting a completely new one, on the other hand, may be expensive and time-consuming. So, you need to choose your state wisely initially.

3 – Choosing an Appropriate and Unique Name for the Company

In order to form a company in the US, the company name must be determined first. There is no need to include the name of the business activity to be operated when determining the name. However, the name to be determined must be distinctive from the names of other companies. It is possible to check whether the name is already in use by someone else through State website.

4 – Company Registration

Most states do not require minimum capital to start a business. The procedures for establishing a company in the states are simple and quick. Foreign-invested companies are subject to the same laws as domestic counterparts.

The founder must fill in the certificate of company formation to identify its name; the name and address of the registered agent; the par value of the company’s shares allowed to be issued, and the mailing address of the company. Fees will increase gradually based on the number of shares issued or raised capital.

• If you are forming General Corporation, Close Corporation, Public Benefit Corporation, or Non-Profit Corporation, you will obtain a Certificate of Incorporation that includes Articles of Incorporation. This certificate is proof that you have applied to start a business in the state of Delaware. The Company’s Articles of Incorporation are briefly the basic chart of a company.  It includes information such as the company name, purpose, amount & types of shares, the address of the Registered Agent, and the person who founded the company.
• If you are forming LLC (Limited Liability Company), you will receive a Certificate of Formation that includes Articles of Organization. This certificate is proof that you have applied to the state of Delaware to form an LLC.

5 – Choosing a Registered Agent

Registered Agent issue is important to set up a company in the United States. The Registered Agent is the person authorized to receive the company’s notices, such as reminders or other legal documents on behalf of the company

6 – Tax Obligations

Your company will need to be identified by the Internal Revenue Service (IRS). This process is usually done through an Employer Identification Number (EIN).

7 – Opening a US Bank Account

The requirements for opening a business bank account vary from bank to bank. Nevertheless, you will need proof of starting a company in the US, EIN and a copy of the passport.

8 – Follow up the Annual Requirements

Once the company is active, you will need to submit an annual report of the company. This is a basic form that primarily updates the address of the company and the registrar.

One of the most important stages of company formation is the first organizational meeting to be held after the company registration. In this meeting, the company founder identifies the members of the board of directors of the company and completes the company formation.

Please note that in case you do not follow these requirements, your business may fall from good standing.

Conclusion

In summary, company formation and management in the US will require a considerable investment of time and money. Typically, the more time you are willing to invest, the less money you have to spend and vice versa. However, for many businesses, the benefits of starting a company in the United States often go beyond these costs. You should keep in mind the essentials and choose a trustworthy service when starting a company in the US to get the best results.