(spoiler alert: yes, but read this first)
When we talk with startup founders in the Nordics about incorporating in the U.S., one of the first questions we are often asked is whether they can incorporate a U.S. entity from across the Atlantic with no “boots on the ground” in the United States. There are often good reasons for doing this. Perhaps the Nordic founders are not yet ready to move themselves and their families overseas, but they see a benefit to having a U.S. subsidiary to go-to-market. Or maybe a U.S. investor is willing to invest in the Nordic startup, but the investor requires that a U.S. entity be the parent company.
Whatever the reason, it certainly is possible to incorporate a U.S. company from abroad, but for practical reasons, it is usually much easier to have someone in the U.S. who can oversee the U.S. entity soon after incorporation.
What is the typical incorporation process?
For purposes of this post, we’ll assume a Nordic company wants to incorporate a Delaware corporation as its subsidiary or parent company, which is the most common state of incorporation for U.S. companies.
If a law firm like ours is used, here’s the basic incorporation process: First, we have a short call to discuss the company’s goals and to make sure the choice of legal entity and place of incorporation is a good fit. Second, we prepare incorporation documents, such as a certificate of incorporation, bylaws, and organizational board meeting minutes. Third, we file the certificate of incorporation in the state of incorporation to officially form the entity. Fourth, if the company has begun to do business in the U.S. in a state other than the state of incorporation, we file a form in the state where the corporation is located to “qualify” it to do business in that state.
Do any of the directors, officers or owners of the U.S. company need to be U.S. citizens or legal residents to incorporate?
No, none of the directors, officers or owners of the new corporation are required to be U.S. citizens or to have any U.S. residency status to incorporate.
Does the new U.S. Corporation need a physical address in the United States?
Yes, as a practical matter a U.S. corporation will need to have a U.S. address in order to register and qualify to do business in most U.S. states. However, many companies opt to use a “virtual office” or shared working space as their U.S. address, which in our experience has not been challenged by state authorities.
How long does incorporation take from start to finish?
Once prepared, incorporation documents can be signed electronically, and once that’s done, they can be filed in Delaware and typically are processed within 24 hours. So, from a legal perspective, incorporating a U.S. company from abroad is pretty fast and easy. Even when some time is taken to prepare and review the incorporation documents and consult with us about the process, we often see incorporations completed in a week or two from start to finish.
So, what’s the problem?
Incorporation is the easy part, but here’s the catch: most of the time, companies that incorporate in the U.S. plan to open a U.S. bank account, hire employees or contractors, obtain insurance policies, engage with payroll service providers, and otherwise integrate themselves in the U.S. financial economy. To do any of those things, the company needs a U.S. federal tax ID number (also known as an Employer Identification Number or EIN). And, to get an EIN, the company needs to name a living human – a “responsible person” – who either must have a U.S. social security number (SSN) or an Individual Taxpayer Identification Number (ITIN).
Can I have my lawyer, accountant, or friend be my company’s “responsible person”?
No, appointing a law firm, accountant or other person as a “nominee” responsible person for purposes of getting an EIN is not possible: the Internal Revenue Service has explicitly stated this in a recent publication. [link: https://www.irs.gov/businesses/small-businesses-self-employed/responsible-parties-and-nominees]
OK, so can a new U.S. subsidiary or parent company get an EIN if none of the Nordic founders or executive officers have U.S. tax ID numbers themselves?
If none of the founders or executive officers have a SSN or ITIN, then they either need to name a responsible person in the U.S. – often a country manager or other senior executive – to serve as an officer of the U.S. entity, or one of the overseas executive officers needs to go through the process of getting their own ITIN from abroad to serve as the U.S. entity’s responsible person. This can be a cumbersome paper process. [link: https://www.irs.gov/individuals/international-taxpayers/obtaining-an-itin-from-abroad]
However, even if the Nordic company is able to get an EIN for its new U.S. subsidiary or parent, U.S. banks, insurance companies and other financial institutions often require a person to be physically present in the U.S. to sign documents, or to present other documentation for regulatory compliance or other to meet other requirements.
So, what’s your bottom-line recommendation?
Bottom line, while it is legally possible to incorporate a U.S. entity from abroad, it can be a lot easier to get an EIN, bank account, insurance and other financial and logistical necessities in place if you have a team member on the ground in the U.S. who can serve as an executive officer and “responsible person” for the U.S. entity.
