Crossing the Pond: The UK & EU Founder’s Simple Guide to US Business Structures
You have a brilliant business idea. You are based in the UK or the European Union. You are currently in the planning stage, looking across the Atlantic. The United States market is massive. But before you sell your first product or service in America, you must make a critical choice. What kind of business structure should you build?
In the UK, you simply register a Private Limited Company (Ltd) with Companies House. In the EU, you might form a GmbH or a SARL. The rules are standard. But the US is different. It is a federal system. You must choose between a Limited Liability Company (LLC) or a Corporation.
This is not just paperwork. Getting this wrong can lead to heavy fines and tax nightmares. Let us break down the problem and find the best solution for your SME (Small and Medium-sized Enterprise).
The US Advantage and State Choices
Why should a UK or EU founder set up shop in the US? First, the purchasing power is huge. American consumers are ready to buy. Second, it is incredibly easy to establish a business there. You do not need to be a US citizen, and you do not need to live there. You can run your entire US operation remotely from London, Berlin, or Paris.
Unlike the UK, where you just deal with one national registry, the US lets you pick your state. You can choose the state that gives you the best advantages. Here are the top four states for foreign founders:
Delaware: This is the gold standard. If you want to raise money from investors or sell ordinary shares, choose Delaware. It has a special court just for business disputes. Investors trust it completely.
Wyoming: This state is famous for privacy and low costs. It is perfect if you want to keep your name off public records. The yearly fees are very low, making it great for holding companies.
New Mexico: This is the ultimate hidden gem. It offers total privacy. Even better, there are no yearly reports and no annual fees for LLCs. It is highly cost-effective for digital businesses and e-commerce shops.
Texas: If you want a physical office or a big local presence, Texas is brilliant. It has a massive economy and no state income tax for individuals. It is a great hub if you plan to hire local staff.
Choosing the right state makes your entry into the US smooth and highly profitable.
The Big Choice: LLC vs. Corporation
Now, let us look at the two main structures. We need to translate these into concepts you already know from home.
The Limited Liability Company (LLC): Think of an LLC as a very flexible business wrapper. It protects your personal assets. If the business owes money, they cannot take your house or your personal bank account. The best part? The US tax office, the IRS, does not tax the LLC itself. The profits "pass through" directly to you, the owner. You pay tax on your personal return. It is simple and great for small, bootstrapped businesses.
The Corporation (C-Corporation): This is very similar to a standard UK Ltd company. A Corporation is a completely separate legal person. It has a board of directors. It issues shares to owners. Because it is its own person, it pays its own corporate taxes. If it makes a profit, it pays tax. If it then pays you a dividend from those profits, you pay tax again. This is called double taxation. However, it is the only structure that serious venture capitalists will accept.
The Trap: Tax Pitfalls of the Wrong Choice
Here is the biggest problem for foreign founders. Many people just pick an LLC because it sounds easy. This is a massive mistake if you do not understand the cross-border tax rules.
Remember how an LLC passes profits to you? If you live in the UK or EU, this "pass-through" can create a tax headache. The IRS might view you as being "Engaged in Trade or Business in the US." This means you suddenly have to file a personal US tax return. You might end up dealing with both the IRS and your home tax authority, like HMRC in the UK. This can lead to double taxation and messy accounting. You could end up paying more tax than you need to.
There is also a hidden trap with a $25,000 price tag. If a foreign person owns a US LLC, the IRS requires you to file a special document called Form 5472 every year. This form reports any money moving between you and your LLC. This includes the initial money you put in to start the company. If you forget to file it, or file it late, the IRS charges an automatic $25,000 fine. Many innocent founders get hit with this because they did not know the rule.
Accounting Options: Keeping the Books
Your choice of structure also changes how you must do your bookkeeping. This is a key part of your planning process. You need to know how you will track your turnover and expenses.
If you choose an LLC, you often get to use "cash basis" accounting. This is very simple. You record income when the money actually hits your business bank account. You record expenses when you actually pay the bill. It is easy to manage and great for small service businesses or online shops. You do not need expensive accounting software to track unpaid invoices.
If you choose a Corporation, the rules are stricter. You will likely need to use "accrual basis" accounting. This means you record income when you send the invoice, even if the client has not paid you yet. You record expenses when you get the bill, even if you have not paid it.
Why does this matter? Because US banks and investors prefer accrual accounting. It gives a much clearer picture of your company’s true financial health. It shows exactly what you owe and what is owed to you. While it requires more work or better accounting software, it proves your business is scalable and professional. It is the standard language of global business. However, if you are operating a small business, like a solopreneur, cash accounting may be our best choice. It’s a decision you should talk to a tax professional or Enrolled Agent about.
Navigating the Rules Without the Stress
Expanding your SME from the UK or EU to the US is an exciting journey. But the tax and accounting rules are strict. Choosing the wrong structure or the wrong state can lead to heavy fines and wasted money. You need an expert to guide you through the investigation and planning process. You do not have to do it alone. Atlas Founders Advisory Ltd. is owned by a US IRS licensed Enrolled Agent who can advise them and assist them in setting up their business and in conjunction with their US company, Remote Businesses Services LLC, will ensure that they stay compliant with US and state tax laws.
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