The United States has the world’s largest economy, and it filled with incredible business opportunities. This article outlines some of the basics of United States Corporate Law (Corporate Law USA) that is necessary to consider when planning a business in the United States. It is important to note this document can in no way be considered legal advice. If you want or need legal advice, contact a lawyer or lawyer firm.
The United States has corporate laws at the federal, state, and local levels. All fifty states have their own state and local laws; however, federal law creates minimum standards for trade in company shares and governance rights. These standards are mostly outlined in the Securities Act of 1933 and the Securities and Exchange Act of 1934. The US Constitution allows corporations to incorporate in the state of their choice, regardless of where their headquarters are located. Most major corporations incorporate in the state of Delaware due to their low corporate taxes.
There are many forms of entities in the United States but the four most common ones are listed below:
A branch office is not a separate legal entity of the parent company. The entire company is considered to be “doing business” in the United States; therefore, the company will often be imposed to taxation on all income earned rather than just the income at the branch office. Foreign businesses do not usually elect branch office unless advised by a US attorney.
A company limited by shares, whether public or private, must have at least one issued share. Companies may issue different types of shares called “classes” of shares, offering different rights to the shareholders depending on the underlying regulatory rules pertaining to corporate structures, taxation, and capital market rules. Companies can offer preferred or ordinary stock such that preference shareholders shall each receive a cumulative preferred dividend of a certain amount per annum and the ordinary shareholders shall receive everything else.
A shareholder of a company limited by shares has limited liability. This means that the shareholder is not liable for the acts and omissions of the company. The liability of the shareholder is limited to the nominal value of its share.
In the United States, there is no minimum capital requirement for a corporation or limited liability company.
The US tax law is very complex, and careful tax planning and counseling is necessary for all companies doing business in the US. Companies in the US are subject to separate federal, state, and local taxes. The federal government uses the IRS to collect income tax, capital gains tax, tax on dividends, interest, other passive income and employee payroll taxes. Businesses will also likely have additional tax obligations in the state in which they conduct business.
Corporations can choose between filing taxes as a C corporation or an S corporation. An S corporation is considered a “pass-through entity” which means the business itself is not taxed. Instead, income is reported on the owners’ personal tax returns. C corporations are separate taxable entities and they file a tax return and pay taxes at a corporation level. Below are the requirements for filing as an S corporation.
