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U.S. Company Registration for a Drop-Shipping Business


U.S. Company Registration for a Drop-Shipping Business

Registering Your Company In The U.S.

Drop-shipping is a very popular modern business concept, and U.S.-based drop-shipping businesses became the driving force of the "location-independent entrepreneur" phenomenon.

Much has been written on the mechanics of the drop-shipping business itself, so this article will only cover the aspect of U.S. company registration, taxation, banking, and other related business filings.

Running your drop-shipping business under a U.S. company has many advantages, and given the relative affordability and ease of registration and maintenance of U.S. companies, it is highly recommended to organize your business using a U.S. legal entity such as LLC or corporation.

Let's explore some of the questions related to U.S. company registration specifically for your drop-shipping business.

Choice of State

Since a drop-shipping business owned by you, a non-U.S.-based entrepreneur, has no physical connection to any specific state you have the freedom to select any of the 50 U.S. states and DC as the home state of your U.S. company. It is recommended to form your company in one of the incorporation-friendly states, such as Delaware and Wyoming.

Majority of our clients choose either Delaware or Wyoming, due to more expensive fees in Nevada. You can see the comparison between those 3 states here: DE vs. NV vs. WY.

Because a drop-shipping business essentially deals with tangible goods, the question of sales tax becomes relevant, and as a result many drop-shippers opt for registration in one of the states that have no sales tax. We cover the issue of sales tax as part of our article U.S. Taxation for Foreign Entrepreneurs: Sales Tax, and it is more complex than just picking a no-sales-tax state, however a decision to register in one of the no-sales-tax states is not without a degree of merit.

Delaware, being a no-sales-tax state, is often the state of choice for drop-shipping business registration, however it is important to note that the registration and maintenance of a company in Delaware are relatively costly, making some other no-sales-tax states an attractive alternative. These states are Oregon, Montana, Alaska and New Hampshire.

It is also important to note that Wyoming, despite having a relatively modest sales tax, is still an attractive state for drop-shippers due to the fact that it is the least populated state, which means the chance of needing to worry about collecting and remiting sales tax in Wyoming is negligeable.

Choice of Entity

Foreign drop-shippers can choose primarily between two types of entities: LLC and C-Corporation. LLC is the most common type of entity chosen by our foreign clients due to its simplicity, flexibility and single taxation. C-Corporation mostly chosen by young entrepreneurs looking to obtain Angel or VC financing.

You can see a comparison between LLC and C-Corporation here: LLC vs. Corporation.

It is important to understand that as a foreigner the choice between LLC and Corporation typically comes down to how one wants to be personally taxed. We cover many questions of taxation in our article U.S. Taxation for Foreign Entrepreneurs, and would like to invite you to go over that article, as well as consult a U.S. tax specialist, prior to making a decision on which type of company to register.

There is one tip that is worth giving here - you certainly can't go wrong with registering an LLC, simply because an LLC is such a flexible entity in terms of taxation that if you at some point decide that you would rather have your company taxed as C-Corporation, you can just file a C-Corporation election for your LLC with IRS. You don't get such flexibility with corporation.

Additional Information and Things to Consider

First of all, to register a company in the U.S. you don't need to present any documents - only information. Documents would be necessary in case you want a US address or need to open a bank account, but not for company registration.

You also don't need to be present in the U.S. to register a company. All filings can be done remotely, with us serving as your proxy in the U.S. In almost all cases when we need a signature from our clients this can be done electronically.

Other important things that many foreigners are concerned about - as a foreigner you are not required to have Social Security Number to open your company and obtain EIN (company tax ID). You also don’t need to have a U.S. address or phone number, however if you like to have U.S. address and/or phone it’s possible to obtain them from specializing vendors (see phone vendors here, and our U.S. address solution here).

You do need to hire a Registered Agent that is located in the state of registration, however this is a standard service that we provide in all 50 states and DC, so there is no need to worry about it (just make sure to select this item on the form).

Banking in the US is a more complicated topic. There are some companies on the internet that promise international clients help in opening a bank account remotely, but we warn our clients to be careful with those who claim they can help that way. To learn more about banking in the U.S., associated problems, and possible solutions please read our article "Opening a Bank Account in the United States".

Finally, international clients would need help filing their U.S. company taxes. We addressed this issue in our article U.S. Taxation for Foreign Entrepreneurs.

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