The first step for setting up a company in the U.S. is determining in which State to set up such company, because each of the 50 States has its own forms and rules. Generally, a sole shareholder or member would set up a Limited Liability Company (LLC), which protects the member from personal liability and offers wide flexibility in terms of its management. Depending on the type of business conducted, a sole shareholder could also set up a Corporation. A Corporation offers the strongest protection to its owners from personal liability. However, generally, the cost of setting up a Corporation are slightly higher than those for setting up an LLC. Also, Corporations require more extensive record-keeping and reporting.
Business entities (except for corporations) may elect classification for federal tax purposes. The possible classifications are: (1) as corporations, entities taxable at the entity level and the dividend distributions of which are taxed once again at the recipient level, (2) as partnerships, entities with more than one partner, generally transparent (i.e., non-taxable at the entity level, but at the partners’ level), and (3) as disregarded entities, entities with a single partner and which, as their name suggests, are disregarded for federal tax purposes and are exclusively taxed at the level of such partner. Exemplifying: a Corp. or an Inc. cannot elect to be treated in any other way and shall be taxed as a corporation. An LLC with two or more members may elect to be treated as corporation or as a partnership. An LLC with a single member may elect to be treated as a corporation or as a disregarded entity (i.e. taxed at the member level).