Starting a business in the United States- Things you need to know

Get 20% off on
HR & Payroll Software

Building a business from scratch in itself is an exciting endeavor and, at the same time, fairly challenging. The procedures and planning involved in diverse formalities and proceedings leave one overwhelmed. This can be even more harrowing if you come from a foreign country. 

Being a developed economy, setting up a business in the United States is a dream cherished by many, thanks to the galore perks it offers to the person. Whatever niche you strive to enter in the country, you would find a rich, entrepreneurial, innovative, and dynamic business environment. To embark on and lead a business in the United States, you need to abide by certain processes and fulfill specific requirements. For instance, you will need to develop an impactful business idea and a powerful business name, hire employees, get the company registered, peruse national and local codes and laws, and more to count. This renders the task a Herculean one. To cap it all off, if you are not a resident of the country, immigration and foreign investment-related tasks await to be grappled with. 

Nonetheless, starting by laying an immaculate plan and sorting the things to progress can streamline the task of launching a business in the United States. As time-consuming and distressing as the process of initiating a business may appear, once done, it delivers incredible rewards. Furthermore, the US offers full-fledged support to startups and businesses through venture capital, working spaces, educational institutions, etc. 

Here is the ultimate guide for you on setting up a business in the United States, which addresses the procedures, requirements, and regulations one has to go through. It is significant to go through the details before jumping into the venture, clueless! 

Quick Overview

The United States stands as the second-largest economy in 2021, next to China, and offers relative ease in starting and doing a business. The country has bagged the sixth position in the list of nations that offer ease of doing business, as indicated by the “Doing My Business Report.” Therefore, even a non-resident can set up the business quickly and fairly smoothly. Still, the ease largely depends on the legal status selected, such as LLC (Limited Liability Company), Sole Proprietorship, the C-corporation, etc. The entrepreneurs need to adhere to all the regulations posed regarding company type, business registration, employee hiring processes, health & safety standards, taxation, etc., that are specific to their venture. This is because regulations differ for different business sectors. For instance, laws governing a tourism business would be different than those laid forth for agriculture companies. 

Process of setting up a business in the United States

The process of setting up a business varies in every country. Thus, entrepreneurs must get familiar with the course of action they need to follow when instituting a venture. Here is a rundown of the process of setting up a business in the United States with all the crucial steps you must attend: –

  • Conceive a potential business idea: Starting a business includes planning, going through law-related procedures, making critical financial decisions, etc. However, all of it comes after you have come up with a marketable business idea. At this step, you need to act diligent and smart and research your niche while considering the location where you would be erecting a business. Conducting primary and secondary research will familiarize you with the current supply and demand of the product or service, market size, competitors, etc.
  • Conduct proper market research: Performing in-depth market research is crucial to estimating the extent of opportunities available for one’s business. You need to understand economic indicators, market saturation, the demand for the product, limitations, opportunities for procuring customers, pricing, etc. Furthermore, understanding market trends and consumer behavior facilitates the enhancement of the business idea.
  • Prepare a business plan: You can deem a business plan as a roadmap and foundation of your venture. It details everything ranging from structuring and running a business to growing it. Moreover, people who aspire to work with you or invest in your business also ask for a business plan. And having it ready will thus, bring on funding and new business partners. 
  • Fund the business: Starting a new business requires funding. The mediums you prefer and choose to get funds for your business impact the operations and structure of a business. Since all businesses are different and, thus, their requirements and objectives, there is no one-size-fits-all funding solution to resort to. You can choose financial support from investors, loans, crowdfunding, or consider bootstrapping.
  • Pick a business structure: Guidelines, facilities, and requirements vary for different legal structures. Your business structure impacts the ability for fundraising, paperwork you need, personal liability, taxes you need to pay, and other regular operations of your business. One should pick a structure that offers optimum legal protections and benefits.
  • Select a business name: You need to pick a name that reflects your business spirit and captures the essence of your brand. However, at the same time, you have to make sure that the business name is not taken by anyone else. Once you are done finalizing the name, get it registered to protect it. There are different ways of registering a business name, and some rely on the location and legal structure of the business.
  • Register the venture: Now that you have finalized a name for your venture, you will need to register the business. The registration process takes business structure and location into account. Therefore, knowing the details upfront can simplify the process. If you use your legal name, there is no need for registration. However, ignoring the business registration will immune you from getting tax and legal benefits and personal liability protection.
  • Open a business bank account: To handle the financial transactions in your business, you will need a business bank account. Such an account keeps you legally protected and compliant, presents a professional image of your business, and offers perks to the employees and customers. Furthermore, business banking provides a line of credit for the venture, which can be used whenever a need arises.
  • Apply for permits and licenses: While starting up a new business, you would surely not crave to have a run-in with the law and get it seized. Therefore, heed all the regulations specific to your business, stay compliant, and get all permits and licenses your business requires. Permits and licenses you need are determined by the location, business activities, and government rules.
  • Get federal & state tax IDs: State Tax IDs are a must if you need to pay state taxes. To decide if your business needs a state tax ID or not, check the laws concerning employment and income taxes. On the flip side, a federal tax ID or Employe
    r Identification Number (EIN) is required to pay federal taxes, apply for business permits and licenses, and open a bank account. Whether a business should have EIN or not depends on certain qualification criteria such as if it pays employees, works with certain kinds of organizations, etc. 

Hiring Employees in the United States

Hiring employees isn’t as easy as it sounds. Before interviewing people and recruiting staff, a company has to estimate the overall budget, including employee expenses. New businesses typically face a fund deficit; therefore, hiring the most competent folks is crucial while avoiding unnecessary upscaling of the workforce. Furthermore, you need to get aware of the labor and employment rules of the country. It is illegal to hire foreign nationals who don’t own work visas or permanent resident status. 

  • Trial Period/Probation Period: The probationary period is meant to evaluate the performance and productivity of the employee and see if it fits the company. If the employee fails to fulfill the company’s expectations and doesn’t exhibit potential identified during the application or interview process, it has the liberty to terminate the employee after the probationary period. The period typically lasts 3, 6, or 12 months and is not mandatory. Still, the standard of a 90-days probationary period is practiced in the United States. In case you wish to have it; the clause needs to be mentioned in the employment contract, which also clarifies the length of the probation period.
  • Leave and Holidays: Employees of the company are entitled to leaves and holidays on different grounds such as vacation, the demise of a family member, medical reasons, civil causes, military training, etc. Depending upon the duration of employment, an employee can get 14 to 25 days of paid vacation leave. If a family member dies, employers need to allow them three days of bereavement leave which is paid. Furthermore, civil or jury duties also entitle employees to get a paid leave. On top of this, the Family and Medical Leave Act authorizes employees who have served the company for a minimum of 12 months or 1,250 hours to take 12 weeks of leave in case of serious health and take care of a household member or newborn with serious health. 
  • Maternity Leave: Owing to special health risks posed during pregnancy, childbirth, and postnatal phase, ILO lays forth special workplace protection. Overtime, nightwork, and work detrimental to mother and baby’s health are prohibited by ILO Maternity Protection Recommendation Number-95, which was embraced in 1952. Under the federal Family and Medical Leave Act, employees who fulfill the eligibility criteria should be allowed 12 weeks of paid maternity leave. This is to facilitate women during childbirth and take care of the newborn. The updated legislation allows civilian federal employees to take 12 weeks of paid parental leave to look after a child welcomed home through birth, foster care, or adoption. However, employees must have been dispensing their duties in the company for at least a year to relish the perk.
  • Termination of Services: Termination of services can be voluntary (when an employee decides the departure from the role) and involuntary (when the employer fires the employee). The latter is done on the grounds of unacceptable performance, for downsizing, or the purpose of restructuring, while in the former, the employee either resigns or abandons the job without notifying. Employers should be aware of the legal termination procedure of employees so no state or federal labor laws are violated. Employers are expected to treat their employees with dignity when communicating the news of their termination.
  • Pension/ Superannuation: Superannuation is the company’s money provided to employees for their retirements. Any business that employs people should be familiar with the requirements of paying pension. Mainly there are two types of retirement plans: defined benefit plans and defined contribution plans. The former plan states specified monthly benefits while the latter doesn’t assure any specified number of perks at retirement. Another retirement pension plan is a 401 (k) Plan where employees can choose to defer a portion of their salary to this plan before taxes reimbursement.
  • Work Hour Norms: These norms are laid forth to regulate employees’ working time. ILO standards intend to provide adequate daily and weekly rest periods and annual holidays and also organize a framework of regulated work hours to preserve and enhance the productivity of employees. The employers must mention the working hours of the employee in the contract. ILO sets a general standard of working 48 hours per week whereas a maximum of eight hours per day. 

How easy is it to conduct business in the United States?

Ease of doing business is an index that accords positions to countries based on how conducive the environment is for starting and performing business operations. Economies that rank between 1 to 20 offer more straightforward and easier regulations for startups and businesses. The United States got the sixth position in the ease of business index as shown in “Doing My Business Report.” Ease of business rank relies on the following subindices, which we shall walk you through here in the context of the United States. 

  • Starting a Business: The ease of starting a business in the US takes several factors into account, including capital requirement, time, and several procedures. The environment of the United States is fairly conducive for starting businesses, as demonstrated by the “Doing Business” report. Starting from getting credit, implementing contracts to doing business across borders, the US is positioned at the top among other countries. The process of starting a business in the US was further made easier by introducing the option of filing the statement of information online in the case of limited liability companies.
  • Managing Permits: Business permits are licenses issued by the government as permission to conduct busin
    ess in a specific geographical jurisdiction. Often, multiple licenses are required to set up and operate a business in a particular location. Each state in the US poses different licensing and registration requirements to ensure economic welfare, control land use, regulating public space, health, and safety of the residents.
  • Getting Electricity: You can’t think of a business growing without electricity. The business owner must estimate the electrical load the firm would demand so the operations are smoothly accomplished. A company will have to get a license from powerplant authorities.
  • Getting Credit: US SBA (Small Business Administration) facilitates people for starting a small business by laying directives for loans and lowering risks to the lenders. These loans render it easier and more efficient by providing them with the funding they require. However, the business borrowing money should meet the criteria laid forth by SBA, be able to repay the loan and seek it for strong business purposes. Certain eligibility criteria for getting an SBA-backed loan include the physical and operational location of a business should be in the US, funds that are not accessible from other lenders, etc.
  • Managing Payroll: Hiring and managing the workforce includes maintaining records of the employees. The business expands, backtracking working hours, leaves, wages, etc. Therefore, it is significant to integrate a productive payroll management setup to monitor and keep track of these things. You can hire an experienced HR partner like Zimyo to handle all these tasks.
  • Paying Taxes: The United States reduced the corporate income tax rates, lowering tax payment costs. However, several businesses in the US are not subject to reimbursement corporate income taxes. However, are imposed a tax as “pass-through” entities such as LLCs, S-corporations, sole proprietorships, and partnerships. You also need to know what payroll tax is in the US & who pays payroll taxes in the US. 12.4% of tax goes to fund Social Security, and 2.9% tax goes to fund Medicare, thus 15.3% in total.
  • Enforcing Contracts: Enforcing Contracts is an indicator considered by the Doing Business Report to gauge the cost and time needed to settle a dispute legally and check whether a particular economy bears practices to ensure efficiency and quality in the judicial system. The higher the efficiency of the contract enforcement system, the better the growth and economic development of the country. As per the World Bank report, the time required to enforce a contract in the US is the duration between filing a lawsuit in court till the payment and final verdict. 
  • Resolving Insolvency: Frameworks set to resolve debt and insolvency intend to improve a business’s access to credit and financial inclusion. This may result in lowered costs of acquiring credit for business. Allowing better access to finances jacks up the company’s growth, thereby facilitating more job opportunities and preserving employment. In case a business faces insolvency, efforts are needed to settle it.
  1. If a company gets insolvent, the liquidator appointed would have the liberty to sell the assets of the company to resolve it. 
  2. If a business is operated in the partnership or by a sole trader, the owners may consider funding unless the firm is already declared bankrupt. 

The United States offers a conducive environment to start a business, while its democratic ground allows fair competition among businesses. The country has been ranked in the top position for its ease of doing business and general competitiveness. If you are thinking about what businesses are the most profitable in the US, here’s the answer. You can consider starting a landscaping business, going into the IT sector, AI sector, or you may start a cleaning business, etc. 

Being a prominent HR services provider in the US, Zimyo offers a complete range of services to accomplish your employees effectively, be it payroll management or availing advance against salary. This helps you focus on the business’s core processes and let the experts handle the human resources.