Legal aspects of establishing a startup in the USA: what need to know?

Establishing a startup in the United States of America is a promising step for many entrepreneurs from around the world. In recent years, the United States has established itself as a global giant in the field of innovation and entrepreneurship, attracting talent and investment from all corners of the planet. However, successfully establishing and operating a startup requires not only ideas and energy, but also a thorough understanding of the legal environment in which you will operate.

In this article, we will explore the crucial legal aspects that must be taken into account when creating and developing a startup in the USA: from choosing a legal form and state, we will consider the critical questions that every entrepreneur should know to ensure a successful start and sustainable development of their business.

What is the best company form for a startup in America?

The choice of company form for a startup in America depends on various factors, including the type of business, strategic goals, number of founders, financial needs and plans for attracting investment. The most common forms of company registration in the US are a Corporation (C-Corporation) and a Limited Liability Company (LLC). However, forming a C-Corporation is one of the most recommended options for US startups for the following reasons:

1. Protection from personal liability:

A C-Corporation provides the owners (shareholders) with significant protection from personal liability for the company’s debts and obligations. This means that the owners do not bear the risk of losing their personal property in case of financial difficulties or lawsuits against the company.

2. Investment attraction:

The structure of the corporation makes it easy to raise capital from investors through the issuance of shares. Moreover, the corporation can issue an unlimited number of shares of different classes. This provides the startup with access to a wider source of funding, including venture capital and investments from private individuals and from abroad.

3. Advantages of taxation:

A C-Corporation has the ability to attract investment and provides various tax benefits, such as deferring income taxes and allowing various types of expenses to be used to reduce the tax burden. Moreover, taxation at the corporate level is not a significant problem for startups, since many of them do not make a profit for some time, and when the profit finally appears, they often do not pay it out in the form of dividends. After all, the main goal of a startup is to ensure the growth of the company’s market capitalization, not the payment of dividends.

4. Flexibility in ownership:

A corporation may have any number of shareholders, who may be of different classes (usually with different voting and dividend rights), allowing the business flexibility in how ownership and management are organized.

5. Company reputation:

In the business environment, the C-Corp is often perceived as a more professional and reliable form of organization, which can help increase the confidence of potential customers, partners and investors. Corporations also have a clearly established corporate management structure (board of directors, executive officers, annual general meetings of shareholders and other components), which also inspires confidence among investors.

Thus, C-Corp is the most favorable organizational and legal form for startups with ambitious plans for growth and attracting investment.

In which state is it better to register a startup?

No less important issue when opening a startup in the USA is the choice of the state of incorporation of the company, and here one must not make a mistake, because it is worth considering not only low taxes or their absence, but also the possibility of attracting investments and attractiveness for potential investors.

In this regard, Delaware is recommended for the registration of companies, especially for startups that plan to attract investments from venture capitalists and institutional investors. Many venture capital funds and investment institutions believe that a startup registered as a Delaware C-Corporation has a higher degree of legal protection, transparency of corporate governance and stability, which makes it more attractive for their investment and do not even consider financing startups with other states.

Let’s consider several key reasons why Delaware is the preferred location for registering a startup:

• Delaware has extensive experience in corporate law matters and is recognized as a place with a high degree of legal protection for business.
• The Delaware corporation registration process is known for its simplicity and efficiency, as well as relatively low reporting requirements.
• Many venture capitalists and institutional investors consider Delaware registration as an indicator of a company’s professional approach and investment readiness.
• The process of registration and administration of corporations in Delaware is possible without visiting the USA, which allows to reduce administrative costs for the company.
• Delaware has no corporate income tax unless the company does business in the state itself, which is beneficial for startups with international operations or operations in other states.
• Delaware is actively working to improve the business environment and provides a variety of resources and services to support businesses, including advice on corporate law and financial planning.

How to open a startup in the USA: recommendations

In the process of launching a startup in the United States, it is important to have a clear understanding of the key steps and procedures that need to be followed. Therefore, consider several important recommendations that will help you successfully open your startup business in the USA:

1) Register a Corporation (C-corp) in Delaware:

• Choose a unique name for your corporation that is not already used by other companies. It must meet the requirements of the Delaware Secretary of State.
• Determine the minimum amount of capital that you will allocate for the shares of your corporation. This amount is specified in the company’s charter.
• Choose a registered agent to represent your company in Delaware. A registered agent must have a residence or office in Delaware.
• Prepare an application for incorporation in Delaware by filling in all necessary information about the company, including its name, share capital, address, registered agent details, etc.
• Submit all required registration documents with the application for registration with the Delaware Secretary of State. Documents can be submitted online or by mail.
• Pay the registration fee to register your corporation in Delaware. The cost may vary depending on the selected services and the type of company.
• Upon acceptance of your application and payment of the fee, you will receive a certificate of incorporation in Delaware. This shows that your company is officially registered.
• After registration, you may need to complete other documents such as statutory documents, shareholder agreements, etc., depending on your business needs.

2) Obtain an EIN number:

• Contact the Internal Revenue Service (IRS) for an Employer Identification Number (EIN) – this is an employer tax identification number that is required for all businesses registered in the US.
• Fill out the appropriate form and submit all necessary documents to obtain an EIN number.

3) Open an account in Bank and payment system:

• Compare different banks and payment systems for opening a corporate account. Please note that an account in an American bank can be opened only with personal presence and the presence of a resident business.
• Contact your chosen bank or payment system and submit an application and relevant documents to open an account for your corporation.

4) Attracting investments and finding financing:

• Develop an investment attraction strategy and explore various funding sources, including venture capital, angel investment and government programs.
• In the US, there is a well-developed system of crowdfunding, where people can fund your project on platforms such as Kickstarter, Product Hunt and Indiegogo, receiving privileges or the product itself in the future.
• Make connections with business accelerators and business incubators. Among the most famous in the USA are Plug and Play TechCenter, YCombinator and FI. These programs provide startups with funding, expert support and access to resources for their development.
• In the USA, programs supporting innovative projects in the field of small business are also active, such as Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR). However, to receive this support, the company must be registered and operate in the US, more than 50% of its capital must belong to US residents, and the number of employees must not exceed five hundred people.

So, launching a startup in the United States is a rather difficult but promising step in the development of your business. We hope this article has helped you understand the main aspects of starting a startup in the US. Do not forget that professional legal support can be crucial for the successful start of your business. If you need help or advice on legal matters, contact Azola Legal Services and our experts will be happy to help you with all legal aspects of your startup company in the USA.