How to Form a US LLC from South Africa: The Ultimate Guide

Napoleon

— 8 min read
How to Form a US LLC from South Africa: The Ultimate Guide

Are you considering expanding your audience and learning how to form an LLC from South Africa? In the US, you will hire top talent, connect with potential investors, and achieve your business goals. Whether in Pretoria, Durban, or Pretoria, you can incorporate a US LLC from any part of South Africa through Foundeck.

Starting an LLC company in the US has gained popularity among many South Africans due to currency conversion and tax benefits. As a US non-resident, you don't have to come here and register for your company. At Foundeck, our goal is to ensure that your LLC registration is easy so that you can focus on expanding your audience.

In this blog, we'll uncover what a US LLC is and the vital requirements and steps to follow when creating an LLC from South Africa.

What is the US LLC?

In South Africa and the United States, the term "LLC" or "limited liability company" refers to a legal entity that safeguards the personal assets of its owners from business liabilities. The LLC is also a Proprietary Limited Company (Pty Ltd.) in South Africa.

However, unlike South Africa, an LLC is also classified as a pass-through entity in the US for taxation purposes. This means that instead of being taxed as a separate entity, the profits or losses of an LLC are reported on the owner's personal income tax return and are subject to individual tax rates.

Why Create a US LLC from South Africa?

Over the years, South Africa's economic and political environment has improved, but its business climate cannot be compared to that of the US.

Most South African entrepreneurs seeking stability find it in the US. If you're looking to establish your position in the global market, you can leverage the benefits offered by the US business ecosystem. The United States has Free Trade Agreements with more than 20 nations, such as:

  • South Korea
  • Australia
  • Latin American countries

This means there are fewer exporting barriers. American companies have the upper hand when trading with other countries in these markets.

Another reason why business owners create US LLCs from any part of South Africa is the current currency rate. A dollar is worth 18 times the Rand. Using a US-based business presents an opportunity to engage in more transactions because of the favorable exchange rate.

How to Create a US LLC from South Africa

Understand the US Company Requirements

To register a US LLC from South Africa, you must know the requirements as a non-resident. Although every state has unique compliance rules, basic requirements apply to almost all US states.

1. Registered Agent

Your registered agent acts as the formal contact point for your business. In legal proceedings, such as lawsuits, notifications will be directed to your registered agent rather than your company's physical office.

Registered agents can be individuals or company formation entities, such as Foundeck. The registered agent must be where you intend to incorporate your company. Furthermore, they must be accessible during regular business hours to ensure timely delivery of documents when required.

2. Choose Business Structure

The next is choosing the business structure of your new business in the US. Remember, the type of structure will significantly impact compliance obligations, taxes, and other aspects of your company.

In this case, you will choose an LLC (limited liability company)

Incorporating an LLC allows for separating personal assets and liabilities from the business. This shields you from personal responsibility in case of legal actions, liabilities, or bankruptcy against the business.

LLCs function as pass-through entities, meaning they are not subject to income tax. Instead, profits are directly distributed to the LLC's members, who pay taxes on their portion as personal income.

However, a fundamental restriction of LLCs is their inability to issue stock. So, you won't offer equity to stakeholders or investors.

3. Select a State

Unlike most countries, company incorporation in the US occurs at the state level. This means you won't be registering your company with the United States government but a particular state government.

You can create your US LLC from South Africa in any state, but each state has different rules, compliance, privacy, and taxes.

3a) What's the best state to incorporate an LLC as a non-resident?

Although your target market might influence the state where you will register your company, most non-residents prefer Wyoming and Delaware. They choose these states because they offer privacy to LLC members, meaning their names are not disclosed.

Why these states?

Wyoming

Wyoming is the sole state offering lifetime proxies, enabling individuals to designate others to hold their shares and vote indefinitely. However, this feature may not be particularly essential for small businesses.

  • Managers' and members' names and addresses are not publicly disclosed in any database.
  • There is no income tax on wages.
  • You will pay a $100 filing fee and a $50 annual franchise fee during registration.

Delaware

  • The state offers the best business-friendly laws in the US.
  • State statutes such as the Limited Liability Company Act and Delaware General Corporation Law undergo frequent revisions and updates.
  • The Court of Chancery is highly effective, with cases adjudicated by experienced judges specialized in this area of law rather than by juries.
  • There are no taxes imposed on income earned from out-of-state sources. There are no additional tax liabilities if your business doesn't operate within Delaware.
  • You pay a $90 filing fee and a $300 annual franchise fee during registration.

4. Register your Company

After deciding on the state you're incorporating your company, the next step is registering your US LLC.

We recommend registering your LLC through Foundeck since we can handle all your paperwork.

Here are steps to follow when registering your business if you're doing it alone:

  1. Choose company name:  Choose a distinctive name for your business that adheres to the state's naming guidelines. Remember that you cannot use a name that closely resembles an existing business in your desired state. You can use different name search tools to verify the availability of your chosen business name swiftly.

The name should also follow these guidelines:

  • Include the word L.L.C, LLC or limited liability company
  • Avoid using restricted terms such as attorney, bank, or university in your business name; it needs additional documentation and must meet specific criteria. It's advisable to avoid such terms to simplify the registration process.
  • Refrain from using words similar to those used by government agencies such as the State Department, FBI, Treasury, etc.
  • If you use non-English or native South African terms, ensure to provide a translation during the registration process.
  1. File registration forms: Fill out the forms provided by the state's official website. These forms ask for information about your business, its owners, and what it will do. Make sure to be accurate and complete when you fill them out.
  2. Pay the registration fees: These fees vary based on the state where you register your company. So, ensure you check the fee schedule and include the payment with your registration forms.

Wait for approval: All you have to do is wait for the state government to process your application. If there are any problems with your filing, you might need to fix and submit them again, so make sure you get it right on your first try.

Once the application is approved, you will own a legal US LLC from South Africa.

The processing also varies from state to state; for example, Wyoming LLC formation may take 3-7 business days. On the other hand, Delaware expects to wait approximately 25 business days. This includes 15 days for the state to process your application and an additional ten days to receive the certificate by mail. Expedited filing is available for an extra charge.

5. Get an Employer Identification Number (EIN)

The IRS assigns the EIN to identify your business for tax-related matters. Since the IRS issues EINs rather than the state government, you must apply for one separately.

You'll be able to file for an EIN after registering your LLC. We can help you apply for EIN if you form a company with Foundeck.

You need an EIN when:

  1. You plan or have an employee
  2. Open a business checking account and fulfill other banking necessities
  3. To build credit and qualify for company loans
  4. To create accounts with Stripe US, PayPal US FBA, etc

5a) How to Apply for an EIN

The state must approve your LLC. Otherwise, you might obtain an EIN under an incorrect business name, which can lead to complications. Canceling the incorrect EIN and reapplying involves a significant amount of additional effort.

  • Fill out the form SS-4 and send it via fax or mail: being a South African resident, you lack the Social Security Number (SSN). If you don't have an SSN, filling out the SS-4 is the only way to apply for an EIN. Remember, you cannot file this form online.
  • Provide your US address on lines 4a and 4b: Your mailing address doesn't necessarily need to be in the US, but some banks may use the address you provide as proof of address. Specifying a US address can shorten your waiting period after the application.
  • Include the LLC certificate: although this is not mandatory, it is highly recommended.

You will receive your EIN confirmation letter via mail to the address you provided. If you didn't provide the US address, look for an email forwarder who will forward letters to your country.

6. Stay Compliant

As a US company, you must comply with state, federal, and local regulations to remain in good standing and operating.

Among the requirements you may fulfill include:

  1. Franchise tax
  2. Annual reports
  3. Public disclosure, etc.

Here are the requirements that will help you stay compliant:

  1. Get Required Permits and Licenses: Depending on your business type, you might need to acquire particular permits and licenses from your state government. These authorizations ensure that you conduct your business legally and adhere to local regulations. Consult your state's licensing board or department to ascertain the specific permits and licenses necessary for your industry.
  2. Comply with Employment Laws: Companies must get workers' compensation insurance, comply with minimum wage and overtime regulations, and fulfill unemployment insurance tax obligations. Additionally, the Affordable Care Act states that if you have 50 full-time employees, you must provide healthcare coverage to your staff. It is advisable to familiarize yourself with US federal and state regulations to ensure you are treating your staff legally. By researching and ensuring adherence to state regulations, you're laying the groundwork for success in your company. It's more efficient to preemptively meet your responsibilities rather than reactively addressing issues after they arise.

US LLC vs South Africa LLC Taxes

A significant benefit of setting up a US LLC is its characteristics as a pass-through entity. This type of company won't pay federal or state taxes in the US.

However, as a non-resident, you may pay individual taxes. In most cases, the tax load you may pay as an LLC member at a personal level may be up to 37%.

South African company owners may be exempt from US taxes under certain circumstances. For instance, you may not be required to pay taxes if they provide services like software development and digital marketing or are from outside the US.

At the state level, as a non-resident entrepreneur, you may find ways to reduce your tax load. States like Delaware and Wyoming don't have non-resident state income tax. You won't pay this tax if you run your company from South Africa.

Advantages of Registering a US LLC from South Africa

  1. South Africa has grown in its tech market and other industries. With innovation increasing, you can introduce your company to one of the biggest markets globally. The United States provides advantages for foreign-owned companies in this market through business-friendly legislation.
  2. Creating an LLC enhances the business's credibility, demonstrating to clients, potential investors, and suppliers that the company is a legitimate and committed entity. Additionally, using an LLC structure allows for opening a business bank account.
  3. Retailers can discover a thriving market in the United States as well. It is one of the largest e-commerce markets globally, projected to surpass $1 trillion in sales. The nation's extensive trade agreements allow your businesses to access markets worldwide.

Form Your LLC with Foundeck Today

Foundeck offers a range of fast and efficient online company formation services, allowing you to register a business structure of your choice quickly. To get started, kindly contact us here.

Winding Up

As a South African entrepreneur, choosing to go global by expanding your market to the USA could be the best business idea. You only need to register your company in your country's comfort and start trading. Although there are requirements you must meet with the right company formation agent, everything will be seamless.

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