USA LLC Formation

Choosing the state

Delaware is the default for companies expecting outside investment, because its corporate law is settled and investors are familiar with it. Wyoming and New Mexico are common for small operating LLCs on cost and privacy grounds.

If you have a physical presence, employees or property in a particular state, you will generally need to register there regardless, so incorporating elsewhere adds a foreign qualification rather than avoiding it.

What is involved

• Name availability check and reservation in the chosen state
• Articles of organisation filed with the Secretary of State
• A registered agent in the state, which is mandatory
• An operating agreement setting out ownership and management
• Employer Identification Number from the Internal Revenue Service
• US bank account, which is the step most affected by having no US presence

The tax position for a non-resident owner

An LLC is generally a pass-through, meaning the entity itself is not taxed and income flows to the members. For a non-resident owner that raises questions of whether the income is effectively connected with a US trade or business, and whether US filing obligations arise.

A single-member LLC owned by a non-resident must file Form 5472 with a pro forma Form 1120 annually, regardless of income. The penalty for not filing it is substantial and is assessed per year.

Indian side obligations

An Indian resident forming an overseas entity is making an overseas direct investment, which must be reported to the Reserve Bank through the authorised dealer bank.

The Indian owner must also disclose the foreign entity in Schedule FA of their Indian income tax return. Omitting it carries consequences under the black money legislation, which are considerably more serious than ordinary non-disclosure.

How we handle it

1. 1 State selection We identify which state fits your purpose, taking any physical presence into account so you do not end up registering twice.
2. 2 Name and filing Availability is checked and the articles of organisation filed with the Secretary of State.
3. 3 Registered agent A registered agent is appointed in the state, which every LLC must have.
4. 4 Operating agreement The agreement is drafted covering ownership, management, distributions and exit.
5. 5 EIN The federal tax identification number is obtained, which the bank and payment processors will require.
6. 6 Indian reporting The overseas investment is reported through your authorised dealer bank and flagged for Schedule FA disclosure.

Frequently asked questions