The process of establishing a C-Corporation in the United States

In this article, we will describe the process of establishing a C-Corporation in the United States, as many Israeli companies, including Israeli start-ups, seek to expand markets through operations in the United States. For the most part, Israeli companies prefer not to operate through the existing Israeli company but to establish a local American company and operate through it. There are various reasons for this but what they all have in common is the bureaucratic ease of action through a local company.

There are several types of incorporations that are possible under U.S. law, the most common being a C-Corporation. In the article here we will explain what is a C-Corporation, what are the advantages of using it, and how such an association is established.

 

What is a C-Corporation?

A C-Corp is a commercial association for profits. The owners of the company hold it through shares that reflect their relative share in the company. The shareholders are the ones who elect the directors who actually manage the company. A C-Corp is a separate legal entity from its shareholders, who therefore enjoy limiting their legal and financial liability solely to their total investment in the company.

A C-Corp is also a separate entity when it comes to tax – it must file an independent annual income report, and bears its own tax liability.

 

Benefits of operations through a C-Corporation

There are a few advantages to operating through a C-Corp:

 

Limited shareholder liability

The main advantage of using a C-Corp is the legal protection it gives shareholders. The fact that it is a separate legal entity ensures a buffer between the shareholders and the company in a way that protects the other assets of the shareholders. The shareholders ‘liability is limited only to the amount of their investment, so if the company is in debt, it will not be possible to use the shareholders’ assets and they will remain protected.

 

Capital raising

A company can raise capital by selling its shares. A company that seeks to pursue a certain business idea but lacks the capital to do so can persuade investors to invest in the company and purchase some of its shares in the hope that in the future the value of the shares will increase. In doing so, the company raises the capital needed for its operations.

 

A flexible shareholder composition

Unlike partnerships, if one of the owners leaves the company’s operations will not automatically be terminated. The company can continue to operate even if some of the owners changed and it has different owners than the initial ones. This flexibility is important for many businesses.

Of course, there are also disadvantages to operations through C-Corp. including the application of broad regulation, high costs of construction and operation, and two-stage taxation (at the company level and later with the distribution of dividends to shareholders).

Advantages

Limit shareholder liability

Easy capital raising

Flexibility

Disadvantages

Broad regulation

High construction and operating costs

Two-stage taxation – corporate tax and dividend tax

 

In light of the various considerations, we recommend consulting a professional tax consultant who will assist in choosing the best investment model according to your specific circumstances.

 

Establishing a C-Corporation

First, we note that the process of establishing C-Corp varies from state to state. In each of the states of the United States, different rules are set for its establishment. These differences are important as they may also be reflected in different set-up costs and affect the viability of the operation through C-Corp. Accordingly, the steps described below are general steps and may vary from country to country. In this matter, too, we recommend consulting a professional regarding where is it best to set up the company.

 

Selecting a Name

A necessary first step in the early stages is choosing a name for the company. You cannot choose a name that is already in use by another company. To the name that you choose add one of the following extensions: “Incorporated” “Corporation,” “Limited” “Inc.” “Corp.” or “Ltd.”

 

Toll payment

Setting up a company involves paying a fee. The value of the fee varies between the countries but ranges from $100 to $800.

 

Editing and submitting Articles of Incorporation

In order to establish the company, it is necessary to fill out association forms that include general information about the company (name, the purpose of establishment, etc.). The forms must be submitted to the designated authority in the country in which the company is located.

 

Establishing Terms

The Articles of Association is a document that contains the general guidelines of the company.

 

Assembly meeting

Convening a meeting of shareholders and making decisions regarding the board of directors, officials, and the allocation of shares.

 

Appointment of Directors

Shareholders must elect a board of directors to manage the company’s ongoing business. In each state, there are different rules regarding the identity and composition of the directors, and this matter should also be considered when choosing the place of association.

 

Stock allocation

Shareholders must determine the number of shares issued and the number of shares allocated and document the allocation.

 

Issuing an EIN number

The employer identification number is used to identify business entities by the U.S. tax authority.

Want to expand markets to the United States? Debating how to unionize and where is the optimal location of association? The MasAmerica team consists of senior and skilled tax advisors who will be happy to help you plan your way to success.

The aforesaid should not be regarded as legal advice. It is advisable to consult with the MasAmarika team before any action. The service is provided by a professional team, fluent in English and Hebrew, and includes attorneys and accountants with American licenses.

For American taxes consulting only
Contact Now

Table of Contents
Relevant Articles