How to Set Up a Legal Entity in the US

What is a Legal Entity Setup?

A legal entity set up is an authorized business structure, recognized by law, essential to running a business. This structure must follow federal, state, and local rules so your company can operate legally. Once formed, the entity itself (not just the owner) can sign contracts, hire employees, pay taxes, and assume legal obligations. In other words, it’s the legal “body” of your company under US law. Setting up a legal entity is the foundation for doing business, without it, owners would be personally responsible for all business debts and compliance.

Related: Legal Entity Setup in 2025

Why Set Up a Legal Entity in the US?

Access to the World’s Largest Market

Incorporating in the US offers huge benefits. To begin with, it provides direct access to America’s massive market. With over 330 million consumers and the world’s largest GDP, the US remains one of the most attractive destinations for startups and expanding international businesses.

Build Credibility and Trust

Moreover, a US entity enhances credibility and trust: clients, suppliers, and investors often view a formal American company as more professional and stable. In fact, a well-structured entity “builds trust” with customers and authorities.

Liability Protection and Tax Advantages

Other significant benefits include owner liability protection (e.g., a corporation shields shareholders from business debts), and potential tax benefits. For example, the US has income tax treaties with many countries that may reduce withholding taxes and avoid double taxation on certain international income.

Access to Banking and Venture Capital

Finally, forming a US entity gives access to American banking and venture capital. Many VCs and startups prefer a Delaware C-corporation structure, for instance, due to investor familiarity and the ability to issue stock. In short, a US legal entity opens doors to funding and a stable legal framework that supports growth.

Related: Top 15 Countries by GDP in 2025

Entity Types Explained

The type of business entity you choose will determine the form of income tax return you must file when starting a business.

Choosing the right business structure is critical for liability protection, legal and tax considerations, fundraising, and compliance. Business structures include corporation – c corporation, and s corporation, sole proprietorship, and partnership, states also allow limited liability companies (LLC).

Corporation (C-Corp or S-Corp)

A corporation is a separate legal entity from its owners (shareholders). This structure provides strong liability protection – owners aren’t personally on the hook for business debts. Additionally, corporations can issue stock, making it easy to raise money from investors. However, a C-corporation faces double taxation: the company pays corporate income tax, and then shareholders pay tax on dividends. (An S-corporation is a special tax status that avoids double taxation by passing profits through to owners, but it has ownership restrictions.) Corporations require formal governance (board of directors, bylaws, etc.) and thorough record-keeping.

Sole proprietorship

The simplest business structure where the owner and business are legally the same. While easy to establish with minimal paperwork, there is no liability protection. You, the owner, assumes unlimited personal liability for all business debts and obligations. This structure works well for low-risk, one-person businesses or experimental ventures but they carry unlimited personal risk.

Partnership (General or Limited)

Consisting of two or more individuals, a partnership allows owners to share both profits and responsibilities. To begin with, a general partnership is similar to a sole proprietorship but with multiple people, where all partners share profits and also carry unlimited liability. In contrast, a limited partnership (LP) requires at least one partner to have unlimited liability (the general partner), while the others enjoy limited liability and a more restricted management role.

Additionally, in a limited liability partnership (LLP), all partners typically have some liability protection. From a tax perspective, partnerships are pass-through entities, meaning profits flow directly to partners’ personal tax returns. For example, many law firms and professional services adopt partnership structures. However, while partnerships are flexible, they can also become complex if disputes arise, and general partners remain personally responsible for debts.

Limited Liability Company (LLC)

An LLC combines the flexibility of partnerships with the liability protection of corporations. Its members (owners) have limited liability for business debts, which safeguards personal assets. By default, an LLC is a pass-through entity, meaning income and losses flow directly to members’ personal tax returns—avoiding corporate tax. Unlike corporations, LLCs require fewer formalities since there is no mandatory board or meeting minutes. Moreover, they also offer flexible profit distribution, which is why many startups and small businesses prefer this structure. If needed, an LLC can even elect to be taxed as a corporation. Overall, it provides liability protection without the complexity of a full corporation.

Related: US Country Page

LLC vs Corporation: Which Should You Choose?

Choosing between an LLC and Corporation is one of the most critical decisions in your entity setup process. Here are some key differences:

Taxation

LLCs offer pass-through taxation – the business itself usually doesn’t pay tax; instead, profits/losses “pass through” to owners’ personal tax returns. In contrast, C-corporations are taxed at the corporate level (21% federal tax), and shareholders are taxed again on dividends. (S-corporations combine corporate structure with pass-through tax but have strict ownership rules.)

Investor Appeal

Corporations (especially C-corps) are generally preferred by outside investors. C-corps can issue stock and have unlimited shareholders. As a result, fundraising and stock options become more straightforward. For instance, C-corps have well-understood mechanics for granting equity to employees and investors. Many venture capitalists insist on a Delaware C-corporation, because it easily supports multiple share classes and is familiar to investors. LLCs cannot issue stock and sometimes impose more restrictions on transferring ownership, which can deter traditional VC funding.

Ownership Restrictions

LLCs have few restrictions on owners (they can be individuals or companies, and there’s no limit on the number of members). C-corps also allow unlimited owners and shared classes. (Note: an S-Corp is a special election that requires all shareholders to be U.S. persons and capped at 100 owners.)

Paperwork & Compliance

Corporations require more formalities: adopting bylaws, holding annual meetings, and keeping detailed records. In contrast, LLCs are more streamlined with fewer ongoing requirements. That said, both entities must file formation documents and follow state rules.

Self-Employment Tax

In an LLC (unlike a corporation), owners usually pay self-employment taxes on all business profits. Corporate owners can potentially reduce self-employment tax by taking part of profits as dividends (not subject to payroll tax).

Profit Distribution

LLCs can distribute profits flexibly among members per the operating agreement. C-Corp profits are distributed via dividends according to share ownership, which can limit flexibility.

In summary, LLCs offer flexibility and simplicity and are excellent for many small-to-medium businesses. C-Corporations (especially Delaware C-corps) are preferred for startups that plan to raise venture capital or issue stock, at the cost of more complex tax and regulatory compliance.

Not sure which entity type is right for you? Our experts can help you choose.

State Comparison: Where to Incorporate?

Each US state offers different benefits for taxation, privacy, and annual fees.

Top 5 States for Legal Entity Setup in the US in 2025

Delaware is the top choice for venture-backed startups. In contrast, Nevada attracts founders who want privacy and tax benefits. Similarly, Wyoming combines tax advantages with strong asset protection, making it ideal for solo entrepreneurs. Meanwhile, Virginia is emerging as a competitive hub with government incentives. Finally, California remains attractive due to its sheer market size, even though costs are higher.

Need help selecting the optimal state for your business? Contact Cerity Global.

Step-by-Step Guide to Setup Legal Entity in the US in 2025

Phase 1: Planning & Pre-Setup

Choose Your Business Structure and State

Decide whether you need an LLC or corporation and pick a state based on taxes, fees, and legal advantages (e.g. Delaware for investor-friendly law, Wyoming for low cost).

Name Your Business

Select a unique company name and check the Secretary of State database in your chosen state to ensure it’s available. Also search the USPTO trademark database to avoid infringing on existing trademarks.

Phase 2: Register Your Company

Appoint a Registered Agent

You must designate a registered agent with a physical address in the incorporation state to receive legal notices.

File Formation Documents

Submit the Articles of Organization (for an LLC) or Articles of Incorporation (for a corporation) to the state’s business office, and processing may take some business days.

Obtain an EIN

Apply for a Federal Employer Identification Number (EIN) from the IRS via Form SS-4. This is free and can often be done online. Foreign owners can obtain an EIN without a Social Security Number. The EIN is needed for tax filings and opening a bank account.

Draft Operating Agreement/Bylaws

Although not always legally required, create an internal document (LLC Operating Agreement or corporate Bylaws) that sets rules for management and ownership transfers. This is highly recommended to prevent disputes, especially for multiple-member companies.

Phase 3: Banking, Licenses & Operations

Open a US Business Bank Account

Set up a dedicated company bank account. Traditional banks often require you to visit a US branch in person, but nowadays many services allow foreign entrepreneurs to open US accounts remotely. You will need your EIN and company formation documents. Cerity Global can help facilitate remote account setup or guide you through the process.

Obtain Business Licenses and Permits

Depending on your activities and location, you may need federal, state, and local licenses (e.g. professional licenses, sales tax permits). Research requirements for your industry and state.

Set Up Accounting and Tax Systems

Establish bookkeeping and payroll/tax processes. Many new businesses hire accountants or use online accounting platforms to stay compliant.

Ready to launch your US entity? Get in touch with us and get expert guidance through every step

Special Considerations for Non-Residents

If you’re a non-U.S. founder, you can incorporate a US company without a visa or ever entering the country. The formation process is generally the same for foreign and domestic owners. However, merely forming the company does not permit you to work in the US. To actively manage the business stateside, you will need an appropriate visa (such as an E-2 Treaty Investor visa or L-1 Intra-company transfer visa). Non-residents often set up the US entity remotely and use it for business operations internationally or hire U.S. employees.

BOI reporting deadlines:

• Formed before Jan 1, 2024 → File by Jan 1, 2025
• Formed in 2024 → File within 90 days
• Formed on/after Jan 1, 2025 → File within 30 days

Cerity Global supports you with banking providers to streamline this process for overseas founders.

Need help navigating the US business setup as a non-resident? Cerity Global simplifies the process from entity formation to compliance.

Compliance & Ongoing Requirements to Setup Legal Entity in the US in 2025

Once formed, US entities must meet ongoing obligations to remain in good standing:

• Annual Reports and Taxes: Most states require an annual or biennial report (with a fee) to be filed, and many levy a franchise or minimum tax. Missing these filings can lead to penalties or dissolution.
• Maintain Registered Agent: You must continuously have a valid registered agent in the formation state, or the state will suspend your company’s status.
• Federal and State Tax Filings: File all required tax returns. Corporations file Form 1120 (or 1120S for S-corps) and LLCs (as pass-throughs) file relevant schedules on owners’ returns. If foreign owners exist, additional IRS filings (like Form 5472 for single-member LLCs) may apply to report related-party transactions.
• Renew Licenses/Permits: Any business licenses or professional permits must be renewed on schedule.
• BOI Reporting Updates: Although domestic US entities are exempt from initial BOI reporting as of 2025, FinCEN still requires updates if rules change, and foreign-registered entities must update FinCEN if their ownership changes.

Failing to meet these requirements can incur fines, interest, or even administrative dissolution. Therefore, staying compliant is critical for long-term business success.

Common Mistakes in Legal Entity Setup in the US

• Missing BOI Deadlines – Not properly filing required beneficial ownership reports (for applicable companies) can trigger steep penalties.
• Mixing Personal and Business Funds – Always use a dedicated business bank account and credit lines; using personal accounts undermines liability protection.
• Choosing the Wrong Structure – Selecting an unsuitable entity type (e.g. sole prop when you need liability protection or forming the wrong state) can cost a lot in future restructuring.
• No Registered Agent – Every company must have a valid registered agent; failing to appoint or maintain one leads to a loss of good standing.
• Ignoring Franchise Taxes/Reports – Forgetting to file annual reports or pay state franchise taxes often results in penalties or the state dissolving your entity.

While forming a US business entity is a powerful step for expansion, it does require careful planning and ongoing compliance. The right entity choice, state, and attention to reporting will give your venture a solid legal foundation in the US. While you can do much of the process yourself, consider using a legal entity setup service provider to avoid errors and ensure everything is done correctly.

Quick Summary: To set up a legal entity in the US in 2025, choose your business structure (LLC or Corporation), select a state, register your name, appoint a registered agent, file formation documents, and get an EIN. Non-residents can incorporate remotely but must comply with BOI reporting.

How Cerity Global Helps You Incorporate Successfully?

Setting up a US entity is a game-changer for your global growth, but only if you do it right. Cerity Global guides you through every step, from choosing the best state to managing ongoing compliance, so you can focus on building your business.

With over 20 years of experience, Cerity Global helps companies with legal entity setup support. With us, you can hire directly. We help you set up legal entities in 170+ countries.

Contact us today to start your US expansion with confidence.

Key Takeaways:

• Massive Market and Economy – A US entity opens doors to 330+ million consumers and a $30.50 trillion GDP economy. However, success depends on making informed structure and compliance choices.
• Choose the Business Structure Wisely – LLCs offer liability protection, flexibility and pass-through taxation, while C-Corps attract investors but face double taxation by allowing stock issuance and multiple share classes.
• Budget for initial registration and incorporation– State filing fees range, with ongoing annual compliance costs.
• Follow the six essential steps systematically – Select incorporation state, register name, appoint registered agent, file formation documents, obtain EIN, and draft governance agreements.
• Plan for ongoing compliance requirements – After setup, annual reporting and tax filing must be done. Foreign-owned companies need to monitor FinCEN BOI rules (foreign-registered entities must report by the deadline).
• Use professional help – DIY formation saves money, but professional service providers and legal entity setup services, tax advisors can prevent costly mistakes and handle complex issues (e.g. multi-state filings, visa implications).

Frequently Asked Questions About Legal Entity Setup in the US