How to Open an LLC in the US From Canada: A 6-Step Guide

If you are considering opening an LLC in the US but live in Canada, you have come to the right place.
Sure, it might seem daunting at first. Setting up a business is generally challenging, let alone in another country!
But do you want to know the truth? It’s much easier than you think. You can even do the entire process online, with no flights or piles of paperwork needed.

For Canadians, forming a US-based LLC comes with plenty of benefits. It’s a business structure that offers flexibility, protects your assets, and allows you to operate in one of the largest markets in the world. And yes, even if you are a non-US resident!

In this guide, I’ll show you exactly how to do it. There are some key things you must know. Understand the legal basics, choosing the proper name for your LLC, the state you want to form your LLC, hiring a registered agent, and getting an EIN to pay the applicable taxes to your business.
In this article, I’ll break it down step-by-step so you can get your LLC up and running with zero stress.

Ready to dive in?

What Is an LLC?

An LLC (Limited Liability Company) is a type of business structure. It offers businesses a combination of sole proprietorship’s low cost and the legal protection of corporations. LLC exists as a unique entity. This means that the owners are not responsible for the debts that are incurred in the business. Making it a safe option for them.

Benefits of Opening an LLC in the US As a Canadian

Before knowing how to open an LLC in the US from Canada, let’s see the benefits of forming an LLC. (Compared to sole proprietorship, partnership, or corporation):

Liability Protection

This is an attractive aspect of opening an LLC. LLC owners are called “members”. Liability protection means they are not typically held accountable for the losses or debts their companies may incur. Thus, it protects the personal assets of LLC members from getting taken away.

However, do not “pierce the corporate veil,” as it is possible for an LLC owner to lose its limited liability. If the owner of the LLC doesn’t take the necessary steps to stop or undo the damage, their assets are at risk of being sued. If the member of an LLC does everything accordingly, there shouldn’t be much to worry about. To avoid piercing the corporate veil:

• Ensure all the annual filings by the corporation’s state are done and filing fees are paid.
• Keep all the necessary documents for at least seven years. Some examples are:
  • the contracts your company enters
  • the minutes of the crucial meetings
  • and significant business decision documents
• Make your LLC status known to everyone. This includes:
  • creating business cards
  • making purchases with your business bank account
  • creating invoices with the name of your company and sending them to your clients

Flexible Management

There is one crucial difference between LLCs and other types of business structures. LLCs don’t need to have fixed management. This means that the usual regulations and conditions are less and easier to deal with. LLC members can choose between the two member-managed or manager-managed structures.

Member-managed 

• All members of the LLC have the authority to make decisions for the business. 
• Suitable for small or family-owned LLCs. The structure is fairly simple and preferred by the LLCs, with only a few members.
• However, the challenge is that investors typically do not invest in this LLC with this management structure. This is because they don’t want to be involved in managing the business or making decisions. 

Manager-managed

• In this management structure, one or more individuals are chosen among many to run the business. 
• It is typically suitable for larger businesses with more members.
• Selected managers have the authority to make different decisions, such as hiring new staff, planning a strategic business plan, or handling finances. 
• Investors are typically fascinated by this management structure. Because they can be passive and not get involved in managing the business. 
• However, it might be challenging to select the manager(s) that all the LLC members trust. 

Pass-Through Taxation:

LLCs are generally considered a pass-through entity for taxation. But what does this mean exactly? It means that all the losses and profits of the businesses are directly passed on to the members. The members report them on their personal income tax returns to avoid being taxed twice. This is entirely unlike other business structures. In an LLC, you are not obliged to pay taxes once for profits and again on profits each member receives.

Business Type	Liability of Owners	Taxation	Establishment	Management Type
Sole Proprietorship	Owner is entirely liable for their personal assets.	Because of pass-through taxation, the owner should report it on their personal tax return.	Very easy and straightforward process. DBA filing is needed.	One owner and they have to manage it themselves.
General Partnership	The owner (s) is entirely liable for business regulations.	Because of pass-through taxation, the owner(s) should report it on their personal tax return(s).	It is a simple and straightforward process. A General Partnership Agreement is needed.	All the general partners get a say in the company’s business and make decisions together.
C-Corporation	Owners are partially liable for business debts. Only the company’s assets are in danger if they ever get sued.	Double taxation. Once taxed at the corporate level, and again on the dividends passed to owners.	More expensive to establish. Articles of Incorporation Stock LedgerStock CertificatesOrganizational Board Resolutionsneeded.	The Board of Directors, chosen by the owners, has an overall authority to manage the business affairs.

Are non-US Citizens Allowed to Open an LLC in the US?

Yes! Non-US residents can indeed open an LLC in the US from Canada without being a US resident or a citizen. There is also no need for a Social Security Number, which makes the United States a very accessible, safe option for foreign business owners to form an LLC. And most of the benefits of an LLC business structure are passed on to the members.

If you are a foreign business owner who wants to open an LLC in the US, it’s worth mentioning that the whole formation process is online! Our team at SALAccounting can help you in every step of your LLC formation.
The steps include filing documents like Articles of Organization or assigning a registered agent. However, there are also some legal requirements. Non-US residents must obtain a business visa or open an LLC as a passive investor.

How to Open an LLC as a Non-US Resident?

Many of the non-US residents are willing to open an LLC in the US. But they don’t have enough information to know how.

If you are also wondering how to open an LLC in the US as a non-US resident, you’ve come to the right place. Basically, all you need is to choose the right state, file the necessary legal documents, and pay the tax based on its membership setup.

Keep reading. In this article, I will guide you step-by-step through opening an LLC as a non-US resident.

Step 1: Choose the Right State for your LLC

How to open an LLC in the US from Canada is one thing, but knowing which state is right to open your LLC is another. Some states have better laws regarding your business. And offer tax treatment that is mostly in your favor. 

Since every state has its own regulations, you must choose one that fits your interests. 

If you have an office with staff working in the particular state, form your LLC as you think would be best.

If you don’t have a physical presence in the US, beware that it might be in your interest to choose between forming either a Delaware LLC, a Wyoming LLC, or a Nevada LLC.

Top States to Open an LLC 

You can technically choose any of the 50 states you want, but we advise you not to. You must carefully weigh your options before making a final decision. 

Now, let’s take a look at three top states to open an LLC. With a clear mind, you can make the best decision based on the facts you know. 

Delaware

• Renowned for its business-friendly laws and regulations.
• The Court of Chancery is very efficient. And the decisions are made by judges specializing in corporate law.
• If your LLC doesn’t operate or trade business within Delaware, there is no need for you to pay state income tax. 
• Delaware does not share the names of LLC members with the public records. Making this state a very safe option for non-US citizens.
• $90 filing fees, $300 annual franchise fees.

Note: Delaware has relatively higher annual franchise fees and filing fees.

Wyoming

• Wyoming LLC taxation for non-US residents does not include state income tax. It paves the way for LLC members to gain the most profit.
• Wyoming ensures LLC members’ privacy and preservation of assets. They do not reveal their names and addresses in public filings.
• It was the first state to present the LLC business structure, which shows its long history of being business-friendly.
• $100 filing fees, $50 annual franchise fees

Nevada

• As the other two states mentioned, Nevada doesn’t impose any state income tax on businesses.
• Nevada does not disclose the LLC members’ information in public records.
• Nevada’s regulations favor businesses and simplify tax obligations imposed on business owners.
• $75 filing fees, $150 annual franchise fees.

State Name	Laws and Regulations	Taxation	Confidentiality	Formation Fees
Delaware	Business-friendly laws and regulations in favor of the LLCs.	No state income tax if there are no operations in the state borders.Pass-through taxation is possible.No sales tax.	No disclosure of private information of LLC members.	$90 filing fees, $300 annual franchise fees
Wyoming	First state to present the LLC business structure. Very business-friendly.	No state income tax.Pass-through taxation is possible.	Privacy of personal and financial information of LLC members.	$100 filing fees, $50 annual franchise fees
Nevada	Business-friendly climate with laws backing up businesses.	No state income tax. No corporate tax.	Privacy of personal information of LLC members.	$75 filing fees,  $150 annual franchise fees

Step 2: Pick Out a Name 

One crucial step when wanting to know how to open an LLC in the US from Canada is choosing the right name for your LLC.

• The name you choose should be according to the state’s naming guidelines.
• Don’t forget to add the “Limited Liability Company” or “LLC” phrase to the end of your chosen name.
• You should do a deep search and choose an utterly unique name that is not being used by anyone else but you.
• Stay away from names that sound like government agencies’ names. (FBI, CIA, State Department, etc.)
• Make sure to include a translation when registering if you use non-English terms.

After deciding on a name, do as follows:

1. Open the selected Secretary of State’s website and search for company names.
2. Search for an available domain for the LLC name of your choice. 
3. Check the name on the USPTO database for trademark purposes.
4. Search online for similar names and double-check.

Note: the name you choose for your LLC is only considered “registered” once you hire a registered agent. And also file the LLC Articles of Organization.

Step 3: File the Necessary Legal Documents

Most states require LLCs to file Articles of Organization. Once the Secretary of State approves it, your LLC is finally formed. But what is “Articles of Organization”? It basically acts as a business birth certificate. Every necessary detail and information about the company should be in there, including:

• LLC name 
• The registered agent’s necessary information, such as their name and address
• Statement of acceptance by a registered agent
• Is the business member-managed or manager-managed
• Name and address of members
• Purpose
• Statement of limited liability

Make sure the Articles of Organization are done. Then, you may upload them to the Secretary of State websites of your chosen state. Then, you will get a stamped copy of the document, along with the filing receipt, in the upcoming weeks.

Step 4: Hire a Registered Agent

We’re halfway through answering “How to open an LLC in the US from Canada?”. 

Now, we must know that every Secretary of Service asks LLCs to have a registered agent residing in the LLC formation location.

But who’s a registered agent, and what can they actually do?

The registered agent is a person who is responsible for receiving all the legal documents on behalf of your LLC. The registered agent can also be an authorized corporation. They also must indicate an existing address in the state the LLC is formed.
Some of these legal documents registered agents receive are:

• State notices
• State franchise tax notices
• Notices of lawsuits on behalf of your LLC.

You can choose a family member or friend who resides in the state as your registered agent.
However, they must be available 5 days a week, and their personal contact information will be shown to the public.

Step 5: Get an Employer Identification Number (EIN)

A Taxpayer Identification Number (TIN) is an identification number issued by the IRS to facilitate the tax laws. If you’re a non-US resident, obtaining an EIN is a crucial step in the business formation process. The IRS usually handles the EIN issuing part. The EIN is a necessary thing to get since it’s how the IRS holds your business responsible for tax purposes. 

How can I get an Employer Identification Number?

Here’s a step-by-step tutorial to apply for an EIN:

1. Make sure the state approves your LLC. If your EIN is issued for the wrong business name, a lot of work will be involved in reapplying for an IEN. So make sure your LLC is approved!
2. Fill out Form SS-4. As a non-US resident, you do not have a Social Security Number. Therefore, you must obtain an EIN. You need to fill out the SS-4 and then email or fax it. 
3. Include a US address. It is not necessary to do so, but it will reduce the time you have to wait after sending out the application.
4. Send the LLC’s Certificate of Formation: Again, it is not necessary but highly recommended.

Step 6: Open a US Business Bank Account

Now that you almost know how to open an LLC in the US from Canada online, let’s move forward!

Once you have the EIN and LLC formation documents, it is finally time to open up a business bank account in the US. Some banks like Mercury, Wise, and Payoneer agree to open business bank accounts for business owners residing outside of the US.
Opening a US business account is essential because you can:

• Handle and separate your personal and business finances 
• Conduct transactions efficiently.
• Apply for credit cards.

The usual necessary documents to open a business bank account as an LLC owner are:

• Passport and your home country ID card 
• EIN
• Articles of Organization
• Your LLC’s US address
• LLC Operating Agreement

Note: Depending on your chosen bank, you may need additional documents. It’s best to ask the bank you have chosen to inform you about the additional requirements. 

What Taxes Are Applicable to Your LLC?

There are two main kinds of taxation applicable to your income:

1. Federal Income Taxes
2. State Income Taxes

As we mentioned earlier, choosing a state to open your LLC is relatively significant in terms of the taxes that are applicable to your business. 

Delaware, Wyoming, and Nevada are better options because you won’t be subject to state income taxes as a non-US resident business owner. 

Firstly, as a business owner residing outside of the US, you need to act following the specific state and federal tax regulations. And remember to pay your taxes on time to avoid the consequences of not filing taxes.

How Are Non-US LLCs Taxed?

The tax treatments of a non-US LLC depend on its classification and activities in the US. Here’s a thorough breakdown of how non-US LLCs are taxed and what forms need to be filed. 

Classifications 

The IRS may classify a foreign LLC based on its business structure:

• Single-member LLCs: This type of LLC is treated as a disregarded entity (like a sole proprietorship) if there’s only one owner or it’s a branch of a parent company. The disregarded entity’s income is treated as if a single member of the LLC earns it. Therefore, they are the one obligated to file a personal tax return.
  
• Multi-member LLCs: This type of LLC is treated as a partnership. In this LLC, there is more than one owner, and the expected tax is passed through to each member, and they should report it on their individual tax returns. 
• As a Corporation: Non-US LLC owners can file IRS Form 8832 and choose to be taxed as a corporation. This form must be filed within 75 days of the LLC’s formation. 

Tax Obligation

Disregarded Entity 

This type of LLC is not considered a separate entity for tax purposes. There are some forms that need to be filed:

• Form 1040-NR (U.S. Nonresident Alien Income Tax Return): This form reports whether your business’s income is effectively connected with a US trade or business. You must file it by June 15. However, you have the option to push the deadline to October 15.
  
• Form W-7  (Application for IRS Individual Taxpayer Identification Number): This form is to apply or ask for a renewal of an ITIN, a 9-digit number that the IRS issues. This number is required to pay for federal US tax purposes for those who don’t own a Social Security number. The ITIN is like a Canadian SIN and serves as a taxpayer identification number, specifically for tax purposes in the US.

• Form 5472 (Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business): This form reports whether the disregarded entity has had any US transactions with foreign parties like loans or services. If you’re a calendar-year taxpayer, you must file this form by April 15. However, you have the option to push the deadline.
  
• Pro-Forma Form 1120 (U.S. Income Tax Return of a Foreign Corporation): You can use this form to understand how to report your corporation’s financial data and projections without actually submitting it. Pro forma Form 1120 must be attached to Form 5472 because it is a required disclosure for foreign corporations that meet specific ownership or business conditions. If you wish to learn more about particular instructions regarding Form 1120, click here. The deadline is the same as the deadline for Form 5472 (April 15). 

Note: Don’t forget to file this form; the penalty for not filing it on time could cost up to $25,000. 

• Form 8833 (Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b)): This form is for foreign taxpayers willing to claim tax treaty benefits and want to notify the IRS. This form ensures compliance with tax laws and prevents misuse of tax treaties to reduce US tax liabilities.
  You must attach Form 8833 to your Form 1040-NR (U.S. Individual Income Tax Return) by June 15.
  Failing to file Form 8833 on time can lead to a $1,000 penalty for individuals. This could go up to a $10,000 penalty for corporations.
  
• Form T1134 (Information Return Relating to Controlled and Non-Controlled Foreign Affiliates): This form, used by the CRA, is mandatory for all Canadian residents who own any sort of foreign affiliates. The CRA uses this form to know about Canadian taxpayers’ investment in foreign entities.
  If your tax year begins on or after January 1, 2021, you have 12 months after your tax year ends to file this form. If you fail to file this form on time, you will face a $25 for each day you’re late, which can go up to $2,500. 
  
• T1 Personal Tax Return: Line 12100 of this form in Canada is to report income from business activities, like self-employment or sole proprietorship. Individuals running their own business or freelancing whose income is not salary or wages from an employer must file the T1 personal tax return by April 30 of the following tax year, or June 15 if you are self-employed. 

Partnership

This type of LLC is treated as a partnership for tax purposes. There are some forms that need to be filed:

• Form 1065, (the US Return of Partnership Income), This form is designed to report the business’s profits, losses, credits, and deductions. Even if the LLC has no income, it must still file Form 1065. You must file it typically by March 15. However, the deadline can automatically be pushed to September 15.
  

After that, the LLC issues a Schedule K-1, Schedule K-2, and Schedule K-3  to each member.

1.  Schedule K-1: This form is designed to report each partner’s share of the income, credits, and deductions. Schedule K-1 ensures that each partner reports their share of the entity’s income to avoid double taxation or tax evasion. The K-1s are usually issued by March 15 or September 15 if there’s any extension.
   
2.  Schedule K-2: The IRS has designed this form to report the entity’s international income, deductions, credits, and other activities. The purpose of Schedule K-2 is to ensure that LLCs comply with the rules and regulations surrounding the tax reporting requirements. It is filed as part of the entity’s tax return, and you need to file it by March 15 or September 15 if there’s any extension.
   
3.  Schedule K-3: This form is issued by the IRS to provide information about international tax matters, foreign income, taxes paid, etc. It is to make sure that there’s compliance with the global tax reporting requirements.
   

• Form 5472: If an LLC has foreign owners and has transactions with foreign-related parties, it needs to file this form. Typically, you can file it by March 15.

As a C-Corporation 

Suppose you have elected your LLC as a corporation. Then, you must pay income taxes at the corporate income tax rate.

C Corporations Tax
C corporations are taxed as a standalone entity with a flat corporate tax rate of 21% on net income. Also, the owners (members) pay taxes twice on dividends (double taxation). There are some forms that need to be filed:

• Form 1120 (U.S. Corporation Income Tax Return): This form reports the LLC’s income, deductions, and taxes owed. You have until April 15 or the 15th day of the 4th month after the fiscal year ends.
  
• Form 5472: In case the %25 ownership of the LLC is by a foreign individual. The form reports transactions between a US corporation and its foreign owners.   You must submit this form by the 15th day of the 6th month after the end of the tax year.
  
• Form 1042-S, (Foreign Person’s U.S. Source Income Subject to Withholding): This form is designed to report certain types of US source income, like dividends, interest, royalties, etc., paid to foreign entities subject to US withholding tax. You must file it by March 15.
  

Tax Rates for Non-US LLC Owners

You should constantly be updated about the US tax rates imposed on non-US LLC owners, which are as follows:

• Income Tax Rate: 10% to 37%
• Corporate Income Tax Rate: 21%
• State Sales Tax: 2.9% to 7.5%
• Non-Resident Alien tax rate: 30%

Final Words

In this article, we tried to explain how to open an LLC in the US from Canada. We started by answering what an LLC is? Then, why should you open an LLC in the US? What are even the benefits? We tried to walk you through the whole taxation process.

Opening an LLC in the US from Canada can considerably impact your business growth. This is because you have access to the endless possibilities in the vast American market!

To fully understand how to open an LLC in the US from Canada might be confusing for some initially. Seek proper assistance from the specialized account managers. It can make the journey simpler and smoother!

Need help setting up your LLC in the US? Our team specializes in helping small businesses begin the process. Visit the wide range of services we offer at SAL Accounting. Book a free consultation with our CPA, and choose the service you need help with! 

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