This post is also available in: Chinese (Simplified)

By: Kun Zhao, Esq.

As more and more Chinese individuals and companies invest in the U.S. and break into the U.S. market, they recognize that the first hurdle to setting up shop is their status as foreign nationals or entities. Since U.S. citizenship and residency are not required, however, foreign nationals are able to start and expand their businesses much in the same way that domestic individuals and companies would.

Although details vary slightly from state to state, the following steps are generally required for foreign nationals to establish businesses or operations in the U.S.:

  1. Incorporate or form a LLC in the chosen state.
  2. Obtain a federal Employment Identification Number.
  3. Open a business bank account.
  4. Register the business with state government.
  5. Obtain a business license from local and state government if required by law.

Incorporate or Form a LLC

Foreign business entities are incorporated as corporations or formed as limited liability companies (“LLCs”) at the state level in the U.S. If one operates the business offshore and has no physical presence here, Delaware, Wyoming and Nevada are most popular states for purposes of registration; otherwise, choosing the home state where most of the business is to be transacted is optimal. The process varies from state-to-state, but usually it is quite simple and straightforward. For example, to incorporate in New Jersey, an authorization certification needs to be filed and the basic information required for the filing is as follows:

  1. Corporate name.
  2. Business purpose.
  3. Total number of stock shares.
  4. Registered agent information.
  5. As least one director information.
  6. At least one incorporator information.

Usually, one needs to have several corporate names as candidates, just in case that the most preferred corporate name has already been used by another business. The business purpose could be just stated as “general,” which permits the business entity to engage in any legal business. A registered agent can be an individual or a corporation, but must have a physical address in the U.S.  The director and incorporator can be the same person. This filing process can be done entirely online.

Obtain a federal Employment Identification Number (“EIN”)

Each new entity needs a federal Employer Identification Number (“EIN”) to open a bank account and have employees in the U.S. To obtain an EIN, the Internal Revenue Service typically requires the corporation to provide the social security number (SSN) of a “principal officer”. The principal officer must be someone who “controls, manages, or directs the applicant entity and the disposition of its funds and assets”. For those foreign “principal officers” who do not have a SSN, the IRS does not reject the EIN application if a SSN is not included. In such a situation, one must contact the IRS to obtain an EIN by telephone and follow the specific procedures and requirements.

Open a Business Bank Account

A foreign owned corporation or LLC may open a business bank account at a U.S. bank. The requirements for opening a business account vary from bank to bank. Most Banks require (1) incorporation documents of your U.S. Business (corporation or LLC); (2) EIN Number of the U.S. Corporation or U.S. LLC; (3) A copy of a photo ID (passport) of all signers of the account. The representative of the corporation or LLC should be present in person to open the bank account with original documents.

Register Your Business with State Government

For state tax and employer purposes, most states require all businesses to file registration with the state tax department. For example, in New Jersey, all businesses must register for state tax purposes by completing the form NJ-REG to report their business information and profile. This process can be completed online in New Jersey.

Obtain a Business License from Local and State Government If Required by Law

Special state and local licenses may be required in some industries which are regulated under state laws and local rules, such as childcare, construction, telemarketing and environmental mitigation. Therefore, all businesses should check with local and state government agencies to ascertain the regulatory requirements.

Obviously, registering a business as a legal entity is merely the first step towards establishing a successful business in the U.S. In order to flourish, a new corporation or LLC will have to also consider organizational and structuring issues, employment issues, immigration issues regarding employees sent from Chinese parent companies to work at U.S. affiliates, etc. It certainly requires a strategic plan, an experienced executive team, and a group of experienced, sophisticated and efficient legal, accounting, and business consulting professionals here in the U.S.