Forming a US startup as a Canadian or non-US Person
We work with a number of Canadian clients who want to form a US entity for their startup. US VC and Angel investors favor investing in Delaware corporations when they invest in US startups, and it is no different with Canadian startups.
Can a Canadian or Foreign Person form a Delaware C-Corp
Absolutely yes. Most non-US persons can own a US company. The most challenging aspect is obtaining an EIN for the startup, which requires a tax representative for the C-corp who has either a social security number of international taxpayer ID number. Below we discuss the process for obtaining one if you are a Canadian or non-US person.
A refresher on entity formation
When a startup forms a US entity, they do so in a particular state. Typically Delaware. However, we regularly help clients form in Washington and Wyoming. See our page on Startup Formation Packages for more information on this process.
Once the founder(s) decides where they will form, they need to decide on entity type. Most small businesses that don’t anticipate raising money from investors will form an LLC. Companies that plan on raising investment dollars typically form a C-Corp. You can review our article here on entity formation how to choose what’s right for your business.
At this point, there are no issues for a non-US person. Most states don’t require owners be a US person. In fact, even a corporate entity can be the owner.
It gets complicated with the IRS
In order to transact business, a business needs a bank account. In order to get a bank account, that entity needs an Employer Identification Number from the IRS.
For companies founded by US persons, this is a simple process. A US entity applying for an EIN must have a responsible party who has either an Social Security Number (US citizen) or ITIN (Individual Taxpayer Identification Number – typically held by foreign persons). A US person will use their SSN and it is very quick work to obtain an EIN.
How a non-US Person (including a Canadian) can get an ITIN
Obtaining an ITIN can be problematic. The IRS requires that you mail original documentation proving your identify to the IRS. Many don’t feel comfortable sending these documents via mail – rightly so! Sometimes they don’t come back!
An easier process is to visit an Acceptance Agent, These are agencies authorized by the IRS to review and confirm the authenticity of your documents so you don’t have to send them in. The IRS has a list of them here
Once the founder receives an ITIN, the company can quickly complete the process of obtaining an EIN.
How can Sunder Legal help?
Sunder Legal regularly helps startups and small business form LLCs and Corporations, including for Canadian clients. Please Contact Us for more information.