How to start a business in California as a foreign investor

Wise

Aside from Hollywood and The Golden Gate Bridge, there are a lot more things California is known for, from beautiful terrain of beaches, redwood forest, valley farmlands, and its climate. Given these attributes, it became a famous business hub for every investor who wants to start a business venture in any industry of their liking. While starting a new business venture can be exciting, it comes with some complexity.

This article will guide you through the process of opening your business in California as a non-resident. Let's start from the first and most important;

Which visa do I need to open a business in the US?

If you’re moving to the US to open a business, you’d need either a Treaty Trader (E-1) or Treaty Investor (E-2) visa. These are for citizens of countries with which the United States maintains treaties of commerce and navigation.

However, there are types of enterprises that constitute trade under E visa provisions such as international banking, insurance, transportation, tourism, communications.²

In order to qualify for a Treaty Trader (E-1) visa

  • You must be a citizen of a treaty country.
  • The trading firm for which you plan to come to the United States must have the nationality of the treaty country, meaning persons with the treaty country’s nationality must own at least 50 percent of the enterprise.
  • The international trade must be substantial, meaning that there is a sizable and continuing volume of trade.
  • More than 50 percent of the international trade involved must be between the United States and the treaty country.
  • Trade means the international exchange of goods, services, and technology. Title of the trade items must pass from one party to the other.
  • You must be an essential employee, employed in a supervisory or executive capacity, or possess highly specialized skills essential to the efficient operation of the firm. Ordinary skilled or unskilled workers do not qualify.

In order to qualify for a Treaty Investor (E-2) visa

  • The investor, either a person, partnership or corporate entity, must have the citizenship of a treaty country.
  • If a business, at least 50 percent of the business must be owned by persons with the treaty country’s nationality.
  • The investment must be substantial, with investment funds or assets committed and irrevocable. It must be sufficient to ensure the successful operation of the enterprise.
  • The investment must be a real operating enterprise, an active commercial or entrepreneurial undertaking. A paper organization, speculative or idle investment does not qualify. Uncommitted funds in a bank account or similar security are not considered an investment.
  • It must generate significantly more income than just to provide a living to you and family, or it must have a significant economic impact in the United States.
  • You must have control of the funds, and the investment must be at risk in the commercial sense. Loans secured with the assets of the investment enterprise are not allowed.
  • You must be coming to the United States to develop and direct the enterprise. If you are not the principal investor, you must be considered an essential employee, employed in a supervisory, executive, or highly specialized skill capacity. Ordinary skilled and unskilled workers do not qualify.

What are the next steps?

If you’ve done the market research and decided which industry to venture on, here are your next steps:

1. Prepare a Business Plan – it will serve as the roadmap of your business, it is also needed if you want to secure financing from outside investors or bank loan. There is no specific format to follow in writing a business plan, what is important is that your business plan will meet the needs for the specific industry. However, you can use our business plan template to get the ball rolling. Whether you plan a small business, an LLC or a corporation, it is the living guide of your business, and very crucial to the success of your business venture.

2. Open a business bank account - yes, don’t leave this to the last as its very important that you have a bank account in the U.S. to hold your capital and get funding. If you need to transfer some funds from outside the US, use money transfer services like Wise to make sure that you always get the real exchange rate and with a minimal fee. Wise is a modern financial solution for start-ups and helps cut the cost on international transfers and offers a wide range of financial services like batch payments to vendors and contractors and a flexible multi-currency account that you can use to receive, hold, and send funds in 40+ currencies. This helps manage your international business more effectively.

Compare the best business checking accounts to make an informed decision about your choice of business bank.

3. Secure Financing – not everyone has access to a significant capital needed in starting a business, so if you need a business loan, you might find it challenging to sort the various options available. Financing can be from your own personal investment, love money from friends and family, bank loans, SBA loans, or crowdfunding. As long as you have the required finances to start your business, it’s easy to take the next step in achieving your entrepreneurial goals.

4. Choose a Business Entity and Business Name – your choice of entity has

something to do with how your business will be taxed. Entities that is required to

register with the California Secretary of State are the following:

  • Corporations (including non-profits)
  • Limited Liability Company (LLC)
  • Limited Partnerships (LP)
  • Limited Liability Partnerships (LLP)

General Partnerships as well as small businesses like sole proprietorships are not obliged to register with the Secretary of State small businesses. The entity you choose will also determine how you will achieve your business goals.³

Choosing a name for your business is easier said than done, many legal and business conflicts may arise from picking the wrong name. So if you want your business name to be unique, you can personalize the name for your business. You can also search on the web for names, or do trademarks research with the US Patent and Trademark Office (USPTO). You can make sure your company name is available by searching the California’s Secretary of State Business identity database.

5. Choose a Registered Agent – you can serve as registered agent yourself or choose another person if needed as long as the other person has a physical address in the state of California where they can accept legal documents. A registered agent will provide address and forward important documents to you giving you convenience if you have to move, you don’t have to file forms or pay fees, just update your address with your agent.

6. Register the Business with the Secretary of the State - the paper works required to register with the Secretary of State (SOS) depends on what type of business entity you choose. Forms for filing are available on the SOS website. This only pertains to business entities that are required to register. There may be additional requirements for foreigners who are opening business in California, this may include banking accounts or credit card accounts or similar tasks for the business, however the formation of the business can be relatively simple with the help of an experienced business lawyer in California.

7. Hire a Lawyer/Seek Professional Advice - hiring a lawyer will be very helpful in terms of understanding the ins and outs of the business in compliance with all the laws in California. An experienced business lawyer can evaluate your needs and goals in order to be guided in starting a successful business in the state. Besides you’ll need professional help if you’re diving into unfamiliar territories. Aside from lawyer you can also hire accountants and tax experts to guide you through the journey of your business venture.

8. Get a Federal Employer Identification Number (FEIN or EIN) – You’re most likely going to have employees for your business, you are required to get EIN, it is like your Social Security Number but for your company. It’s required for Corporations and LLC’s and optional for DBA’s (if you don’t have any employees, then it’s required). As an employer you are required to pay obligations such as payroll taxes, wage withholding requirements, along with employment eligibility requirements and insurance. However, if you are doing Business As (DBA) and don’t obtain an EIN you will be forced to use your Social Security Number on many documents so it’s typically recommended you obtain the EIN to prevent identity theft. You can apply online with the IRS or via IRS Form SS-4. State of California requires DBA or fictitious business name filings for protection of consumers conducting business with the entity.⁴

9. Secure Business Permits and Licenses – after registration of your business entity with the California Secretary of State, the business must obtain necessary business permits and licenses to conduct business. Typically this process involves registration for state taxes and permits that the city may require as part of the business licensing process. With the help of your lawyer this process will be easier, but you can do it on your own through an online portal like CalGold. This website provides detailed information about how to register your business.

10. Tax Information Requirements – as a business owner it also your responsibility to pay taxes to the government to avoid any issues so you can run your business smoothly. California imposes a variety of taxes on businesses; corporate tax, franchise tax, and an alternative minimum tax, most businesses across the state pay at least one these taxes or more. Aside from that, business owners must also pay personal income tax after income was distributed to the partner. The same case applies to sole proprietorships.

11. Annual and Ongoing State Filing Requirements – every business has always ongoing requirements and obligations to every state where they belong, a corporation and LLC is required to file a statement of information with the Secretary of State with the first 90 days of registration and annual thereafter for corporations. Other requirements needed are, DBA, your fictitious business name after 5 years, LLC is every 2 years need to file a statement of information which update the state on your business address and other things.

What are the start-up resources that you can visit in California?

  1. Small Business Administration (SBA)

  2. California District Offices (Fresno, Los Angeles, Sacramento, San Diego, San Francisco, and Santa Ana District Offices)

  3. California Legal Statutes

  4. California Business Portal

  5. Go-Biz

  6. California Secretary of State

  7. California Lawyers

Free multi-currency account for your start-up

If you need to manage your business internationally, or simply have to send or receive funds across the globe, use Wise Business to make sure that you don’t lose money on exchange rates using traditional banks and save over 50% of the overall transfer cost. With this modernized solution, you could transact in different currencies using one account on the website or app. You can keep track of all your transactions through an integration with an accounting software called Xero to ease tax reconciliation, billing, invoicing and many more.

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Sources:
  1. Travel.state.gov
  2. California Secretary of State
  3. IRS.gov

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This publication is provided for general information purposes and does not constitute legal, tax or other professional advice from Wise Payments Limited or its subsidiaries and its affiliates, and it is not intended as a substitute for obtaining advice from a financial advisor or any other professional.

We make no representations, warranties or guarantees, whether expressed or implied, that the content in the publication is accurate, complete or up to date.

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