Expanding to the US? Here's How to Build Your Foundation Right
US Expansion Series — Part 2 of 3: Entity Setup, Banking, Payroll & Accounting
In Part 1 of this series, we covered the tax and compliance landscape foreign businesses face when entering the US. Now we get practical: what do you actually need to set up, in what order, and what are the decisions that will matter six months from now?
This is the operational side of a US expansion. The sequence most businesses wish they'd followed from day one. Missed part 1? Read the full guide: here!
Step 1: Choose Your State of Formation
Where you incorporate and where you operate are two separate decisions, and confusing them is one of the most common early mistakes.
Delaware is the default recommendation for most businesses planning to raise US capital, bring on investors, or eventually go public. Its corporate law is well established, courts are experienced, and investors expect it. If investor readiness is on your roadmap, start in Delaware.
Your home state (wherever your US operations will actually be based) is often the better choice if you're not planning to raise capital. Forming in Delaware but operating in California, for example, means you register in both states, pay fees in both, and file tax returns in both. This adds cost and complexity with no benefit unless you need Delaware's corporate structure.
Wyoming and Florida are increasingly popular for tax-friendly LLC structures with no state income tax, particularly for e-commerce or service businesses without a fixed physical base.
The right answer depends on your business model, funding plans, and where your customers and employees are. Get this decision right before you file, changing it later requires a redomestication or dissolution and re-formation.
Step 2: Form the Entity
Once you've chosen a state and entity type, formation is straightforward but has several components:
Step 3: Obtain Your EIN
Your Employer Identification Number (EIN) is the federal tax ID that makes everything else possible. You need it to open a bank account, hire employees, file tax returns, and sign certain contracts.
As we noted in Part 1, foreign owned entities without a US based responsible party with a Social Security Number cannot apply online, you'll apply by phone (if you're calling from outside the US, use the international line) or by fax using Form SS-4. Processing by fax typically takes 4 to 6 weeks, so apply early.
One practical tip: the IRS phone line for international applicants (267-941-1099) operates on Eastern Time. Have your formation documents ready before you call, the agent will walk through the SS-4 information in real time and issue the EIN at the end of the call.
Step 4: Open a US Business Bank Account
This is where many foreign owned businesses stall. US banks are heavily regulated under anti money laundering (AML) and Know Your Customer (KYC) rules, and most major banks require in-person branch visits with original documents, which is a barrier if your ownership is abroad.
What you'll typically need:
Traditional banks (Chase, Bank of America, Wells Fargo): Require in person visits for foreign owned entities at most branches. Some international branches in major cities (New York, Miami, Los Angeles) have more experience with foreign owned accounts.
Mercury, Relay, or Brex: Online business banks that are significantly more accessible for foreign owned US entities. Mercury in particular is popular with foreign founded startups. You can open an account remotely with formation documents and EIN, often within days. Note that these are not FDIC-insured in the same way as traditional banks for all account types, so understand the terms.
Credit cards: Once you have a bank account and some operating history, apply for a business credit card to start building US business credit history. A strong US credit profile matters for leases, vendor contracts, and eventually loans.
Step 5: Register for State and Local Taxes
Before you generate your first dollar of US revenue, you need to understand where you have tax obligations and register accordingly.
Foreign qualification: If you formed in Delaware but operate in another state, you must "foreign qualify" in the operating state filing a Certificate of Authority and paying an annual fee. Failing to do this means you can't sue in that state's courts and may face back penalties.
State income tax registration: Most states require businesses to register before filing income or franchise tax returns. Some states also impose a minimum annual fee regardless of revenue.
Sales tax registration: If you sell taxable goods or services and exceed economic nexus thresholds in a state (typically $100,000 in sales or 200 transactions per year), register for a sales tax permit before you collect a dollar. Collecting sales tax without a permit is a separate violation from not collecting it at all.
Local business licenses: Many cities and counties require a local business license or business tax registration independent of state requirements. This is easy to overlook and can result in penalties that accumulate quietly.
Step 6: Set Up Payroll
If you're hiring US employees, even one, payroll is one of the most regulated areas you'll encounter.
Your obligations as a US employer include:
Using a payroll service is not optional if you're not a payroll specialist. Gusto, ADP, and Rippling are the most common choices for small to mid size foreign owned businesses. These platforms handle withholding calculations, deposits, and filings automatically. The cost (typically $40–$150/month plus per employee fees) is minimal compared to the penalties for misclassification or late deposits.
Contractor vs. employee: Misclassifying employees as independent contractors is one of the IRS's top audit triggers. If you control when, where, and how someone works, they're almost certainly an employee under US law, regardless of what your contract says.
Step 7: Establish Your Accounting System
Your accounting setup in the US should be operational before you make your first transaction, not reconstructed six months later from bank statements.
Chart of accounts: Set up a chart of accounts that mirrors both US GAAP requirements and the reporting needs of your home country parent. If you'll be consolidating financials across jurisdictions, the structure matters from day one.
Accounting software: QuickBooks Online is the standard for small to mid- size US businesses and integrates with most US banks, payroll providers, and tax software. Xero is a strong alternative, particularly for businesses already using it in their home market.
Accrual vs. cash basis: Most foreign owned US entities should use accrual basis accounting from the start. Cash basis reporting is simpler but doesn't give an accurate picture of financial obligations, and some states and tax situations require accrual.
Separate entity records: Your US entity is a separate legal and tax entity. Keep its accounts, transactions, and financial records entirely separate from the parent. Commingling funds, even informally, creates legal liability and can cause your corporate protection to be "pierced" in litigation.
The Sequence Matters
A properly sequenced US setup looks like this:
1. Choose state and entity type → 2. Form the entity → 3. Obtain EIN → 4. Open bank account → 5. Register for state/local taxes → 6. Set up payroll (if hiring) → 7. Establish accounting
Each step unlocks the next. Skipping ahead, trying to open a bank account before you have an EIN, or hiring before registering for payroll taxes, creates rework and gaps that are harder to fix retroactively.
The IB-CPA team guides foreign businesses through every step of this process, from entity selection to ongoing compliance. If you're planning a US expansion and want to get the setup right from the start, [reach out to us](https://ib-cpa.com/contact).
Next in the series — Part 3: The Most Common Mistakes Foreign Businesses Make When Entering the US (and How to Avoid Them).
