More Canadian business owners are selling to customers in the United States, and some decide to set up a US company to do it. Before you start, it helps to understand the basic steps and the questions to ask. Here is a simple overview.
Common types of US companies
The two most common choices are a limited liability company (LLC) and a corporation. Both are set up by filing with a US state.
The right choice depends on your plans. Canada and the US may also treat an LLC differently for tax purposes, which is one reason to get advice before you choose.
Choosing a state
Each state has its own rules, fees and yearly filings. Many owners register in the state where they will actually do business. Others choose a different state for practical reasons. Either way, check the yearly costs as well as the set-up cost.
The basic steps
Choose a company name and check that it is available in your chosen state.
Appoint a registered agent: a person or company with an address in that state who receives official mail for your company. Delaware, for example, requires every company to have one.
File the formation documents with the state.
Apply for an Employer Identification Number (EIN), the US business tax number. If your business is based outside the US, you cannot use the online application; the IRS accepts applications by phone, fax or mail. Anyone applying for you needs your signed authorization.
Keep up with the state’s yearly reports and fees so your company stays in good standing.
Do not forget the tax side, in both countries
A US company can have filing duties in the US and in Canada, even if it is small or has little income. For example, a US single-member LLC owned by a non-US person can be required to file a US information return (a pro forma Form 1120 with Form 5472), even if it has no income. In Canada, residents who own shares of a foreign company may need to file information returns with the CRA, such as Form T1134.
These rules are detailed, and missing a filing can lead to penalties. We recommend speaking with a cross-border tax professional before you register.
Questions to ask before you register
Will you have US customers only, or also US staff, an office or a warehouse? Which state suits your plans, and what are its yearly fees and filings?
Who will act as your registered agent?
How will money move between your Canadian and US businesses, and how will you keep records of it? Who will look after the filings in each country every year?
Keep the two businesses separate
Give your US company its own bank account, invoices and records from the first day. Mixing Canadian and US money in one account makes bookkeeping harder and can cause problems at tax time in both countries.
How North Vista can help
We can guide you through the registration steps, help you get organized from day one, and make sure your Canadian books are set up properly alongside your new company.
