Legal Myth #2 Forming a business in the US takes a very long time with too many hurdles to overcome
This article first appeared on the EACCNY website. It is part of a series of articles written by Marc S. Friedman, Director of Professional Relations at Global Commerce Education, Inc. as a collaboration with the European American Chamber of Commerce in New York.
Last week I explained how many non-US companies are discouraged from exploiting a robust US marketplace by Myth #1 – The costs of entry into the US, including the costs of business formation, are very great and, thus, prohibitive. In this article, the third in a series, I address Myth #2 – that forming a business in the US takes a very long time with too many hurdles to overcome. Like the other Myths, this one, too, is easily debunked.
At the outset, it is important to note that business formation is a matter of state and not Federal law. Whether you choose to do business in the US as a corporation (c-corp or s-corp), a limited liability company (known as an LLC), a partnership, a limited partnership, a limited liability partnership or a sole proprietorship, each entity will be formed under the laws of the State you select and the appropriate filings will be made with the State – usually in the Office of the Secretary of State. What State to choose and what type of entity to select are questions that can be answered by your lawyer.
Typically, European companies doing business in the US choose either to form a corporation or a limited liability company. Each offers its own advantages although, except in rare cases, both provide limited liability for the debts and obligations of the entity. This means a creditor would be limited to the assets of the US company to satisfy its claims.
To form the business entity – whether a corporation or an LLC – you must follow some very simple steps. First, you must choose a business name that is available in the State and usually this can be ascertained online. Be careful not to choose a name that will infringe another party’s trademark. Second, you must prepare and file the formation document, usually called a Certificate of Incorporation or Charter for a c-corp and s-corp, and a Certificate of Formation for an LLC. These may also be called articles of organization. These filings, which are easy to prepare and frequently are only one page, will be accompanied by a filing fee – typically between $100 and $800 depending on the State of formation – and for most States, like Delaware, can be accomplished within one day, after which you will be in business. While you may be able to make these filings yourself, the better practice is to use an experienced lawyer or a service company, and there are many online, who can complete the process quickly and efficiently.
Once the articles of organization are filed, the business entity exists! Nothing more need be done to form the entity. And, as stated above, this can frequently be done in only 24 hours, and sometimes less.
Once the company is formed, there will be additional steps to be performed. If a corporation, there will be organizational resolutions and by-laws, and the necessity to obtain a Federal tax identification number required for a bank account. (For an LLC, there will be an operating agreement in addition to a Federal tax i.d. number). Other documents may be necessary such as a Shareholders Agreement. In addition, it may be necessary to obtain a Certificate to Transact Business if the company will have offices in a State other than the State of formation. But these additional steps follow the actual formation of the business entity that, as stated above, can be formed in as short a period as one day.
Thus the Myth that it takes a long time to form a U.S. business, and that there are many obstacles to overcome, is simply untrue.
Compliments of Global Commerce Education, a member of the EACCNY