Starting a business in the United States: legal forms of business

Starting a business or expanding it to another country is always a process that causes concern for the founders. However, with good advice, it is one more piece in the growth strategy. From inlea, we recommend to our clients that before making a decision, they consult with our inlea/LEGAL lawyers, to adapt the corporate structure to the strategy that best suits the objectives of the company.

In this article, we explain the general types of legal forms recognized in the United States and include some of our advice after more than 15 years of experience in this market.

Legal forms of companies in the United States

There are four general types of companies in the United States, and some of them have their own variations.

• Unique property

In Sole Property, the owner assumes all financial and operational responsibility. The owner’s assets are directly linked to those of the company, so the owner assumes all risks without any limitation.

The great advantage of this type of company is that its formation is easy and not very expensive. However, it is not recommended as a subsidiary of a European company.

• Corporation

Corporations are independent entities of their owners, that is, they are protected from the obligations and responsibilities generated by the company. Your only responsibility is the contribution made, which in the end becomes shares of the corporation.

The creation of a corporation is the same throughout the country. With the certificate of incorporation, the bylaws and the payment of a simple fee, the company is operational. From inlea/LEGAL this is a legal form of company that we highly recommend to our Spanish clients to create their subsidiary in the United States.

When considering a corporation, we should take into account that at the tax level there are two types of corporations, the “S” and the “C”:

• • Corporation C

C corporations must pay corporate-level income taxes on the national order. If a corporation distributes dividends either in cash or in kind to its shareholders, those shareholders must also pay income tax.

• • Corporation S

S corporation does not pay taxes at the corporate level. In this model, it is considered that the profits and losses fall on the shareholders, being they who must pay taxes on the profits they have obtained from the corporation, whether or not they have received dividends from it.

• Limited society

The limited partnership must be formed by two people or entities. The partners are the ones who share both the profits and the losses and those who manage the company. For the formation of a limited company, it is necessary to execute a corporate contract and present a certificate of limited company in the state in which it is incorporated.

As in the corporation, there are two other types of partnerships: Limited, in which some partners have unlimited liability and others limited, and Limited Liability, in which partners are protected in cases of negligence of other partners.

If the corporation is useful for subsidiaries, the limited partnership is useful for establishing in the United States the possible “mother company” of a group of foreign companies. We have some examples in inlea/LEGAL of Spanish companies that initially were thinking of establishing a subsidiary in the United States, our lawyers have reviewed the commercial and expansion strategy, and have suggested creating a limited company, transforming the Spanish company into a subsidiary.

• Limited liability company

The limited liability company is a combination of a corporation and a limited partnership. In this type of company, the owners are who control the shares and their responsibility for the operations of the company is equal to their investment.

Finally, some states such as Delaware, Nevada or Wyoming offer very attractive conditions for the formation of a company (speed and tax advantages). However, it is more important to know the company’s operations inside and outside the United States, because some attractive tax conditions in some states will increase tax costs in the states where the company will operate. So we always recommend sharing with our inlea/LEGAL team the business strategy to adjust the most convenient legal structure.

Learn about our Road to the USA program: download here.