Starting a Business in the USA

(posted in 2010 originally)

If one plans to start a business in the USA, there are primarily five business entity forms to consider: sole proprietorship, limited liability corporation (LLC), limited liability partnership (LLP), S corporation, C corporation.

Sole proprietorship requires the least amount of paperwork or fees but offers no liability protection. It is not recommended for any business that may have any potential liability risks. (the US has the highest number of lawyers per capita: 1 lawyer for 265 Americans). If the shareholder structure is very simple and limited, especially, if the owner, a resident in the US, is the only shareholder, S corporation is clearly a better choice than C corporation. In this case, the choice comes down to LLC and S corporation.

Many businesses are incorporated in the state of Delaware due to its well-respected services, laws, courts and a business-friendly state government. More than 50% of all U.S. publicly traded companies have legal homes in Delaware. The following compares S Corporation with LLC registered in Delaware but headquartered in Massachusetts in the aspects most relevant for a very simple shareholder structure (e.g. one shareholder). It is generally applicable to other states, but the fees and taxes may vary substantially.

LLC vs. S Corporation

		LLC	S Corporation
Onetime expense	DE Filing Fee ($)	90	89
	MA Foreign Business Registration Fee ($)	500	400
Recurring Expense	MA Annual Report Fee ($)	500	125
	DE Annual Franchise Tax ($)	N/A	175 ( for 5,000 shares or less)
	DE Annual Franchise Tax Filing Fee($)	N/A	50
	Annual tax	250	N/A
	Annual Registered Agent Fee for Businesses Headquartered outside DE	Agent dependent ($50 to $200)	Agent dependent ($50 to $200)
	Income Taxation	pass-through	pass-through
	Employment Tax	Self-employment tax on total net income	Employment/payroll tax on salary No employment tax on dividends paid to shareholders
	Deductibility of Employment Benefits (e.g. life insurance, health insurance)	Yes	No
	Charitable Contribution Tax Deduction	pass-through	pass-through

Employment Indentification Number (EIN) can be obtained in a few minutes online. EIN is needed for opening a business bank account.

Choosing a bank for opening a business account is determined by convenience, expense, and quality of service. Mega-banks such as Bank of America provide the best online technology for account management especially if one has already had multiple accounts with them, but they usually have limited quality of customer service and fairly high fees. Local banks with long histories usually have very good customer services, but their ATM and office locations are limited,  their online banking technology and service may be more limited. TD Bank, the claimed America's Most Convenient Bank appears to have the advantages of both large banks and local banks. Their Business Convenience Checking is essentially free of fees because the required daily balance to waive the fee is only $500 and $0 for the first year and it offers a generous number of free monthly transactions - 500.

Creating a company's Web presence is a topic deserving books, but the first two steps are straightforward: register a domain name (e.g. www.hzhang.org) and finding a hosting provider. Among numerous domain registration companies, 1&1 provides reliable and fast service at a very reasonable price. It also provides a variety of hosting packages, but its server-side technology is outdated. For ASP.Net hosting, SoftSys has a very good reputation with reasonable prices.