Structuring advice for "non-resident" corporation?

September 3, 2007 6:32 AM

I want to start a business that operates exclusively within the United States, but I don't live there. Who should I talk to about setting up the legal business framework?

I'm a Canadian resident (and citizen) with an idea for an e-commerce site. The site is going to offer products to customers in the U.S. that will be shipped from within the U.S. Eventually I may choose to "go international" but that's not a concern right now.

I suspect that everyone (IRS, CRA) may want a piece of the action, but who should I talk to about getting one or more corporations set up? U.S. accountant? Canadian accountant? Both?

I'd also love to hear from anyone doing this already who wants to share their anecdotes and advice :)

One last thing. If I was to move from Canada to another country (not the U.S.), would that affect things?

posted by lowlife to Work & Money (7 answers total)

You need a lawyer who can help you figure out what the appropriate corporate structure is for you. They can also advise you as to tax consequences. And other things, like employment laws (if you're shipping from within the US, its likely you're going to end up with US employees, whether you mean to or not). You might want a law firm near you if you're located near a border, or, you might find a lawyer in a mid-market city (i.e. not Chicago, Atlanta, or the coasts) and save on the hourly rate.
posted by dpx.mfx at 6:44 AM on September 3, 2007

Yep, you'll need some sort of small business lawyer. It's actually more complicated than starting a corporation "in the U.S."; here, corporate law varies by state, so you'll also have to pick a state in which to incorporate. It'd probably be best to speak to some local (in Canada) specialist first to sort out these types of issues, then hook up with a lawyer in the relevant U.S. state.

Before you spend too much on lawyers, though, you should probably read something like "Incorporating your business for dummies" just to get an outline of the whole process.
posted by rkent at 7:20 AM on September 3, 2007

I am nearly in the same boat: you are going to need a US accountant for yourself and your US corp. Some pointers:

Do some research on what type of US corporations can be owned by foreign entities (IANAL, but IIRC only LLCs and C-corps can be).

You need to pick your US jurisdiction as well (I'd say Delaware or Nevada). You are probably going to be liable for US federal taxes on the profits of your US corp, but not state taxes (as you won't be living within a US state). So, pick a state with low corp overhead (DE and NE being the top two usually).

Then there's the issue of double-taxation. I am almost certain that USA and Canada have a bilateral tax treaty as part of NAFTA, which usually (check with a US or Canadian accountant) means that you will pay your income tax in the US, and that would be credited against your Canadian tax on the same amount. You may have to "top up" your Canadian tax for that income though.

I am not in e-commerce, so I can't help you more than that, but I am sure there are issues around being able to do business out of a particular state (registering with the state bureaucracy) and accounting for sales taxes, etc. The nice thing about the US system though is that these issues are not going to be different for you than for any other US-based e-commerce company. Really, the only differences are your rights as to forming a corporation, taxation (see above) and maybe your ability to open lines of credit, etc in US banks. Canada may be hooked up to Experian, TRW, etc so this may not be a problem at all...

posted by costas at 7:22 AM on September 3, 2007

Oh, as to moving to a 3rd country: the problem there would be taxation. Usually, countries have bilateral tax treaties that govern how the income of a citizen of country A, made in country B is taxed by country A. For most advanced countries that usually means what I mentioned above: i.e. that if you are a citizen of A, and you made say $1000 in country B, you are liable for taxes for the max of the tax you'd pay in either country. So, if country B taxes you 30% on the $1000 you made there, and country A would have taxed you 40% if you made that same $1000 in A, then you'd pay $300 to B, and another $100 to A to "top up" the tax. Again, that is governed by the specific treaty between the two countries.

Now say you move to country C. That doesn't change the equation. You're still a citizen of A, so any income you're making in B must be governed by the A-B treaty and any income you're making in C must be governed by the A-C treaty. If you have dual citizenship then there are usually special clauses within these treaties as well.

If this sounds complex is because it is... If you find an accountant that can untangle this, then they are worth their billable time, believe me (and they usually know it).
posted by costas at 7:32 AM on September 3, 2007

So, pick a state with low corp overhead (DE and NE being the top two usually).

Actually, the generally-cited advantage to incorporating in DE is that the corporate laws are stable and well-known to lawyers nation-wide, as well as relatively favorable to management discretion (as opposed to strong shareholder protection). For these rewards, corporations actually pay a substantial increase in overhead vis a vis other states.

NV, on the other hand, is known for being even more favorable to management, e.g. requiring much less disclosure of information, at a somewhat improved level of overhead.

You can actually reduce overhead substantially by forming your entity (not necessarily incorporating) in another state. But it depends on what your goals are - this is why you speak to a lawyer rather than taking advice from random people on the internet.
posted by rkent at 8:18 AM on September 3, 2007

Why can't you incorporate in Canada? I mean I'm actually curious, I don't know of any law that says Canadian companies can't do business in the U.S, I don't know of any reason why cash can't flow in and out of the country. Would it just be cheaper in the U.S. due to taxes?
posted by delmoi at 12:10 PM on September 3, 2007

Response by poster: Thanks for the answers so far. Some follow-ups:

• It seems that a Delaware-based or Nevada-based corporation would be smart, but I need to talk about that with a lawyer; so, what am I looking for in a lawyer? Any particular catchphrases I can throw into Google? There's a lot of lawyers in the U.S. to choose from ;)
• Rationale for setting up an entity in the States: it seems to make sense as all the transactions would be occurring in USD. I could incorporate in Canada, but I'd rather maintain everything in the one country (especially if I move).

posted by lowlife at 5:54 PM on September 3, 2007