Why you shouldn’t start a company in the USA through online registrars
Many entrepreneurs and IT professionals dream of starting a company in the USA. However, the path to realization can be full of surprises and challenges, especially when choosing a business registration method. In this article, we will look at some of the key issues entrepreneurs face when choosing registrars to start a business in the US without additional support services.
The main problem with registrars that offer exclusively fast company registration in 3-5 days is the need for a comprehensive approach. Or rather, the complete absence of it.
The task of such registrars is to add your company to the general database of legal entity owners and issue a certificate confirming the fact of incorporation. Such services have advantages in terms of simplicity and speed of company registration. Still, they are more suitable for US residents, as they have all the necessary tax documents and internal accounting support .
Such services are often limited to formal paperwork for $500; sometimes, you can find them for $300. But the question is, will these savings create a few unpredictable problems for you, a business owner in the US, in the future?
Disadvantages of online registrars when registering a company in the USA
- Lack of legal support
Many registrars provide limited or no legal services. This can lead to problems with compliance with US corporate laws and regulations, which makes it much more challenging to manage the company.
We do not recommend starting the process of registering a company in the United States without prior consultation. Before registering a company, it is essential to understand clearly what the tax structuring will be. We remind you that only some businesses suit the US company format. Even the choice of a state is best agreed upon with specialists, as they all have their own tax peculiarities and corporate law.
- Lack of tax advice
Without qualified assistance, a company can face serious tax violations that lead to fines and even legal problems with the IRS. It is worth noting here that the US tax and legal system are powerful bodies that can not only levy a fine for non-payment of taxes or late submission of a report but also punish you with a court sentence and several years in prison.
An incorrect company form (LLC, C-corp) is challenging to correct. The same applies to drafting a company charter. If you plan to attract business investments or options, you should draft constituent documents before registering a company in the United States. It is easier to do this with a team of professionals.
- An account for your business
Any company needs an account to exist – a bank account (in the jurisdiction of incorporation) or an account in a payment system (an alternative to a classic account).
To open an account with Bank of America, the company owner must provide certain documents proving his identity and intentions to use the account. In the case of registering a company through express online registrars, there is a high risk of being rejected by the bank due to the need for proper documents. And opening an account in payment systems such as Payoneer and Mercury bank is best done with qualified support. For example, Mercury requires a legal address not associated with the registration agent, as well as a few other interesting nuances. Finding these things on your own is difficult and time-consuming.
- Difficulties in obtaining visas and work permits
Business immigration to the United States is a complex process, and registrars who do not offer related services leave entrepreneurs without the necessary support.
CPAs and online US registrars
Registrars do not provide accounting services, and they do not warn about reporting deadlines or the need for tax numbers (ITIN or SSN). They leave many aspects to the owner’s responsibility, who may not have the relevant knowledge and experience.
In the United States, your own CPA (accountant) is the person who solves more than 80% of all issues related to paying taxes and additional charges and organizing communication with the IRS (Internal Revenue Service). The absence of service support from a CPA is guaranteed to lead to tax problems, as the US has a multi-level tax system and many ‘interesting’ issues that you may need to learn about.
It would be best if you were especially careful with innovations in reporting. For example, the filing of Form BE-12 is due once every 5 years. Only some people know, but missing this tax form results in a $2,500 to $25,000 fine. In addition, you can get an additional $10,000 for intentional failure to file a report.
CFC and company in the United States
The laws of countries of residence, such as Ukraine, may have special requirements for controlled foreign companies (CFCs).
Registrars who do not work with local laws often cannot provide the required level of support in these aspects. A simple situation: you have registered a company in the United States, but you do not know that you need to send a notice of the establishment of a CFC to the Ukrainian tax authorities within 60 days and further prepare and submit reports to the CFC by the deadline of a certain calendar year. Moreover, if you suddenly decide to liquidate the company, you will also need to communicate not only with the US IRS but also with the Ukrainian tax authorities.
In addition, we have encountered Ukrainian addresses in some cases, and other issues are indicated when registering a company in the United States. This may become a precedent for recognizing a company as obliged to register a permanent establishment in Ukraine.
A case study on online registrar services (our own experience)
We changed the name and some facts, but the essence is the same…
Mykhailo, an entrepreneur from Ukraine, expanded his IT business by opening a company in the United States for his SaaS project. He turned to an express online registrar that promised fast and easy company registration in the US for just $500. The process seemed simple, and the documents were prepared and submitted through the registrar. Indeed, he registered his company in March 2023.
Within a few months of registering the company, Mykhailo faced several significant problems:
- Due to a lack of advice, he was unaware that the state where the company was registered required a real office. This led to a disagreement with the local regulators.
- Mikhail shouldn’t have been informed of his tax reporting obligations in the United States, and he missed tax payments and received fines.
- The registrar’s lack of support also complicated opening a bank account in the US, and the company could not promptly start financial activities.
- The entrepreneur also should have notified the Ukrainian tax authorities of the CFC registration. Moreover, as of February 2024, he needed to be made aware of the need to file a CFC report and notification.
Mykhailo turned to Finevolution in February 2024 with a request to help resolve all the requests and take the company on board. However, issues with the US tax authorities sometimes do not get resolved in 1-2 months, so he continues to spend additional money on CPAs, lawyers, and tax officers to put things in order and avoid falling into the American legal trap.
This case highlights the importance of choosing a reliable partner to register and support your business in the US. When you register a company through an express registrar, you need to look for
- CPA
- a lawyer
- a tax expert in the country of your tax residence
- a translator and a notary.
As a rule, the services of each entity separately are more expensive than in the case of comprehensive registration and support from one provider.
Choosing a reliable partner who will help you register your company and ensure its future success is important. The Finevolution team will happily assist you with registering and maintaining a company in the United States and guarantee a full range of related services. Contact us today. Together, we will make the process as simple and efficient as possible. Our working hours are 9:00-19:00 from Monday to Friday. Send a request through the form below or a message on Telegram Chat/Viber, Whatsapp Chat for consultations.