Forming a business in the United States is easier than ever thanks to online services. But it’s also easy to make costly mistakes if you don’t know what to watch out for.
Whether you’re a non-US resident, a foreign entrepreneur, or a US citizen living abroad, this guide will help you avoid the top 5 mistakes people make when forming an LLC online.
Let’s dive in.
1. Choosing the wrong US State to register your LLC
Not all states are created equal when it comes to LLC formation.
Many founders default to Delaware or California because they’re well-known, but that doesn’t mean they’re the best fit for you.
- Delaware is great for large startups and investors, but comes with $300/year franchise tax.
- California hits you with an $800 annual LLC tax, regardless of income.
- Wyoming often offers lower fees, better privacy, and simpler compliance.
Pro Tip: If you’re running a remote business with no US office, Wyoming is often the most cost-effective and founder-friendly option.
2. Selecting the wrong entity type (LLC is not the only option)
Here’s a big one: Most people assume LLC is the only choice, but that’s not always true.
Depending on your situation, a different entity might make more sense:
- LLC: Great for flexibility, remote businesses, and low-maintenance operations. Can be tax-free in the US for certain businesses, e.g. online service providers.
- C Corporation: May be more appropriate for startups seeking outside investment. Often also a better choice for international entrepreneurs with a US e-commerce business.
- S Corporation: Only available to US citizens. Can help you save on self-employment taxes, but be aware of local tax implications in your residency country.
Not sure which company type is best for you?
3. Overlooking the hidden costs and fees of running a US business
That $0 LLC deal you saw on Instagram? It’s probably not the whole story.
Many online services promote low upfront pricing but bury the full costs in small print. Additional costs often include:
- Registered agent renewals
- Annual state reports or franchise taxes
- Mail forwarding and virtual address services
- EIN application fees
- Tax filing preparation
If you’re not prepared, these “surprise” expenses can easily double or triple your startup budget.
Want the full breakdown? Check out our detailed guide: The costs of starting an LLC in the US – Hidden fees explained.
4. Forgetting about ongoing compliance
Forming your LLC is just the start.
Many new business owners forget that they’ll need to file US tax returns and annual reports, pay franchise taxes, and maintain a registered agent to keep their LLC in good standing.
Failure to do so can result in:
- Penalties and late fees
- Your LLC being dissolved by the state
- Losing access to your US bank account or Stripe account
Set calendar reminders for all key dates, or work with a partner like Entity Inc. who can handle compliance automatically.
5. Using the wrong address for banking and legal notices
When forming your LLC online, your business address matters, especially for:
- Opening a US business bank account
- Applying for an EIN or ITIN
- Receiving legal mail or tax documents
Using a friend’s address, a temporary PO box, or a service that doesn’t forward mail properly can cause major delays or rejected applications.
Solution: Use a professional virtual business address service that scans and forwards mail reliably. Many of our clients use Traveling Mailbox.
Mistakes when setting up an LLC online are easily avoidable
The US is one of the best countries to start a business for non-residents. But skipping steps or rushing into online services can cost you time, money, and legal headaches down the line.
Before getting started, make a list of all things you need for your US business. Make sure you understand the implications of the choices, like state and entity type, you make along the process. Get a full picture of all costs.
Armed with this knowledge you can select the best service provider for you. And by avoiding these 5 common mistakes, you’ll set your business up for long-term success.
Ready to form your US LLC the right way?
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