Forming a US company, the short version

Entity types in one page, what a state actually sells, the real timeline to the first dollar, and the one filing that costs $25,000 to miss when an owner is not a US person.

Most formation advice is long because it is written to rank, not to be used. Here is the whole subject at the length it deserves.

The entity types, in one line each

Sole proprietorship. No filing, no separation. The business and the person are the same legal thing, so a claim against the business reaches personal assets. Free, and that is its only advantage.

Limited liability company. One state filing, no board, no share classes. It separates business liability from personal assets as long as the separation is real. By default a single-member LLC is a disregarded entity for federal tax and a multi-member LLC is taxed as a partnership. (IRS, single member LLCs.) This is the default answer for most owner-operated businesses.

LLC with an S corporation election. The same entity, taxed differently. Once profit is high enough that self-employment tax on all of it hurts, an S election lets the owner split salary from distributions. It adds payroll, a separate return and a reasonable-salary judgment call, so it earns its cost only above a certain profit, not on day one.

C corporation. The default when outside investors are involved, because their documents assume it. Profit is taxed at the company and again on distribution, which is why owner-operated businesses rarely choose it voluntarily.

The practical test: if outside investors are not in the picture in the next few years, an LLC covers the ground, and the S election is a later optimisation rather than a starting decision.

What a state actually sells

Three things, and nothing else. A public record that the company exists, which is what a bank, a payment processor and a customer's finance department will look up. A body of law for disputes inside the company, mainly between owners. And a recurring bill, forever, whether or not the business earns a dollar.

With no partners and no investors, the second is close to irrelevant, which leaves the record and the bill.

New Mexico charges $50 once and requires no LLC annual report at all. (New Mexico Secretary of State.) Wyoming files an annual report with a $60 minimum. Delaware LLCs owe a $300 annual franchise tax due 1 June, with a $200 penalty if late. Over five years that is $50 against roughly $290 against $1,500, before a registered agent, which is a separate bill everywhere.

Delaware is not a scam. It sells the Court of Chancery, the deepest body of business case law in the country, and the fact that US institutional investors' documents assume it. If a priced round is genuinely coming, that is worth more than $300 a year. If it is not, that is $300 a year for a courtroom nobody will enter.

The trap that costs real money

The state of formation is not a shield from the state of operation. An office, staff or inventory somewhere generally means that state expects an out-of-state LLC to register there as a foreign entity and pay its fees. Forming in Wyoming while operating from California adds a second set of filings on top of the first rather than replacing it. Check the operating state's own website before filing elsewhere. This is a pattern, not legal advice.

US owner or foreign owner, where the paths split

Everything above is the same either way. Three things are not.

The EIN. It is free, directly from the IRS, and any site charging for it is reselling a government service. (IRS, get an employer identification number.) With a US taxpayer number the online application issues it in minutes. Without one the online tool is unavailable, and the routes are the IRS international line on 267-941-1099 or Form SS-4 by fax or mail, which takes days to weeks. (Instructions for Form SS-4.)

Form 5472, the $25,000 sentence. A US disregarded entity wholly owned by a foreign person files a pro forma Form 1120 with Form 5472 attached, to a dedicated address, and the IRS instructions state the penalty plainly: "A penalty of $25,000 will be assessed on any reporting corporation that fails to file Form 5472 when due and in the manner prescribed." (Instructions for Form 5472.) It applies with no income and with no customers, because forming and funding the company is itself a reportable transaction. If any owner is not a US person, this is the paragraph to take to an accountant.

Banking. US owners open accounts in days. Non-resident-owned companies are commonly reported as taking days to several weeks of review after the formation documents and EIN letter are both in hand.

What changed, and what half the internet still says

Articles written in 2024 say every new company must file a beneficial ownership report with FinCEN within 30 or 90 days. For companies formed in the United States that is no longer true. A March 2025 interim final rule redefined "reporting company" to mean only entities formed under foreign law and registered to do business in a US state, exempting all domestic entities and their owners. (FinCEN, beneficial ownership information.) Entities formed abroad and registered in a US state are still in scope.

The dangerous article is not the one that is wrong. It is the one that was right eighteen months ago, still ranks, and still reads as authoritative. Check the agency's own page before acting on any compliance article, including this one.

The timeline nobody quotes

Filing takes an afternoon. Being able to accept a dollar takes three to eight weeks, because four organisations each need the output of the previous one: the state issues documents, the IRS issues the EIN, the bank wants both, and the payment processor wants the bank.

Every one of those is a queue, not a task. A task shrinks when you work harder at it and a queue does not. The founding mistake worth naming is refreshing portals and rewriting applications, going to bed feeling the company was worked on, while the work that does shrink under effort goes untouched.

Blocked by the EIN: the bank account, payment processing, most payroll platforms. Blocked by the bank account: receiving money, and only that. Blocked by nothing at all: talking to buyers, writing the offer, setting the price, publishing terms, building the delivery process. That last list is most of the work.

What to do this week

1. Write the five-year state cost as a single number. Filing fee, five years of whatever recurs, five years of registered agent. If those figures take more than ten minutes to find on the Secretary of State's own site, that tells you something about the state.

2. Answer one question in writing: outside investors within three years, yes or no? A genuine yes points to Delaware. A no removes the main argument for it.

3. Check what the operating state requires of an out-of-state LLC. Before filing elsewhere, not after. It is the only item here that can cost thousands.

4. Get the EIN directly from the IRS. It is free. Paying a website for it is a $50 to $300 lesson.

5. Start the longest queue, then close the tab and spend the waiting weeks on the offer and the buyers, which are the only parts that respond to effort.

The entity is a container. Whether anything goes into it is decided somewhere else entirely.