Nigeria has undoubtedly become a foremost destination for African Startups. According to reports by Disrupt Africa, African tech startups have raised over 1 billion US Dollars in the first two months of 2022. However due to reasons such as; positioning for venture funding opportunities, better access to global market, not to mention the economic, political and foreign exchange uncertainties that comes with doing business in Nigeria, most the startups are increasingly getting their companies incorporated overseas particularly in countries such as the United States, which is the primary base of operation to several African unicorns such as Flutterwave, Andela, Paystack, etc.
To this end, we would be discussing in detail, frequently asked questions about registering a company in the United States. If you are considering launching a subsidiary company or starting your primary company in the United States, this article would be of help to you.
Why register a company in the US?
As stated earlier, incorporating a company in the US has become more desirable amongst tech startups for the following reasons;
1. Access to International Venture Funding and Angel Funding opportunities;
Interestingly, venture capital firms and even private investors seeking to invest in foreign startups require such company be incorporated in the US. Almost all Nigerian startups who have secured funding rounds from such firms are primarily registered in the US.
2. Access to the world’s largest and diverse customer base
The United State is made up of about 50 states with a diverse mix of potential consumers. To build trust with these customers, incorporating a company in the US will be a first step to building such trust.
3. Immigration Opportunities
Yes, you heard that right! If you are looking to relocate to the US in the future, incorporating a company in the US is a good step to improving your chances at visa approval.
4. Access to a business friendly laws
When you incorporate a company in the US, you get the opportunity to operate your company with an environment whose laws are favorable for businesses and are at par with modern trends in the business climate.
5. Ability to own a US based corporate account
Incorporating your company in the US affords such company the ability to own a corporate account to enable ease of transaction with global customers in foreign currency. Sounds awesome right?
Can a foreigner incorporate a company in the US?
The answer is YES. As a foreigner, you can have your company registered in the US without a need for a physical presence. You however need to be guided on your choice of state for operations as physical presence of those in charge of daily operations might be a mandatory requirement in some states.
Delaware or Wyoming where do I register?
The US is made up of about 50 states including Delaware and Wyoming, and as a small business you may set up in any of the states. However, for companies (including tech companies), the state of Delaware and Wyoming are recommended for several reasons;
- There are no state corporate/personal income tax
- Details of members of companies incorporated in Wyoming can be fully anonymous except that of those required to run such business on a daily basis.
- It does not receive franchise tax
The only disadvantage with incorporating in Wyoming is that there are no opportunities for remote businesses as a person who wishes to operate in Wyoming is required to be resident in Wyoming. Hence if you’re considering operating on a remote basis, Delaware would be a preferable option.
Interestingly, Delaware houses little or no large companies on its landscape, however, it is the go to destination for most large corporations (including African unicorns) when it comes to where to have their company registered. Some of the advantages of incorporating a company in Delaware are as follows;
- It’s appealing to investors. This is largely due to the existing specialized corporation courts which has established great precedence for company operations in the US.
- It has a flexible corporate structure for businesses incorporated there. Delaware allows for a company to be owned by one individual. In addition, directors and officers of the company do not need to reside in Delaware of in the US to operate.
- Favorable tax benefits. If businesses incorporated in the State do not have their headquarters there, such business is exempted from paying State income tax.
A major disadvantage with setting up a business in Delaware is that its laws does not favor small businesses, it only favors large businesses. Hence a small business registered in Delaware might incur unwanted expenses running a business there.
Should you need further guidance on where to incorporate your business, you may speak to us HERE, and our team of experts would be available to guide you.
What type of entity in the US do I go for as a startup in Nigeria?
Just like Nigeria, there are several kinds of business entities to choose from. The most suitable entity for your profit making venture would depend largely on several factors such as; the purpose of incorporating a company in the US, tax liabilities, the number of founders involved, funding and investing considerations, what state you which to set up such business, etc.
We would briefly consider the various types of business entities available and the circumstances for which they are suitable.
|TYPE OF ENTITY||WHO ITS FOR||OWNERSHIP REQUIREMENTS||EXTENT OF LIABILITY||TAXES|
|Sole proprietorship||Any person who wishes to run a small business||Owned by one person||All liabilities, profits and loss rests on the proprietor||Liable to pay personal taxes only|
|Partnership||Small business run by more than one persons. There are different types; General Partnership, Limited Liability Partnership and Limited Partnership||Two or more persons||All liabilities rests on all partners unless the business is structured as a Limited Liability Partnership||Self-employment tax (not applicable to limited partners) and Personal tax|
|Limited Liability Company (LLC)||Small business and can be run by one or more persons||One or more persons||Founders are not personally liable||Self-employment tax, Personal tax or Corporate tax|
|C-corp||Companies seeking funding opportunities. Non US citizens can own shares under this category||One or more persons||Founders are not personally liable||Corporate Tax|
|S-corp||Large corporations/businesses operating at a large scale. Non-US citizens cannot own shares under this category.||Not more than 100 and all must be US citizens||Founders are not personally liable||Personal Tax|
For most startups already registered and operating in Nigeria, the primary reason for incorporating a company in the United States, particularly in Delaware, is to raise funds from international investors. If this is your goal, then you should consider a Delaware flip. We’ll discuss that in detail in our subsequent post.
However, if your goal as an entrepreneur is to establish a presence in the US, without plans to raise money in the US, then you could incorporate your US Company as a subsidiary to your already existing company in Nigeria.
What information is required to incorporate my company in the US?
To commence this process, you may reach out to us to get you sorted. The following information would be required to process your application;
1. Proposed names for the business
2. Nature of the business
2. ID card of member(s)
3. Contact information of members such as; email, address, phone number
4. Share ratio (percentage) of member(s) where applicable
As the world continues to get smaller and easily accessible, having access to a large and diverse customer base as well as opportunities should become a priority, and getting incorporated in the US is a good step to get you started. If you need further guidance in this regard or you need us to set up your company in the US, you may reach out to us HERE, and our team of experts would be delighted to assist you.