Pros & Cons: Forming a US Company

A US company: yes or no? If you want to do e-commerce and dropshipping in the USA, sooner or later you will ask whether to form a US company. It is not strictly necessary. You can sell in the States without an American business. In many cases, though, a US company makes a lot of sense. On this page we have summed up the pros and cons of forming a company for dropshipping and e-commerce.

1Advantages of a US company for e-commerce & dropshipping

Let's start with the advantages of forming a company in the USA. Whether you are just starting out in business or planning to move to the States yourself, there are plenty of legal and tax reasons that clearly favor a US company. These include:

Risk & liability

The main reason to form a company in the States for e-commerce and dropshipping is risk and personal liability. Damage claims and product liability lawsuits are an everyday occurrence in the States. With a US company you can easily ring-fence this risk and make sure that you, and your company at home, stay untouched. Choosing the right legal form matters, of course: the C Corporation or the LLC, for example, protect you if something goes wrong.

How customers see you

If you want to take off with your e-commerce or dropshipping business in the USA, your customers will naturally be in the States too. Depending on your industry, a US company helps when selling to an American audience, because it looks more trustworthy than a business with contact details in Europe. A foreign company raises doubts about long delivery times and possible customs fees, while an American company conveys trust and credibility.

How investors see you

A US company doesn't just impress customers, it also impresses investors and potential buyers. An American company or subsidiary increases the value of your business and often makes finding investors, especially in the USA, many times easier. So if you might sell your e-commerce or dropshipping business one day, a presence in the States literally pays off.

Taxation

A US company can also be a plus for your e-commerce and dropshipping business from a tax point of view. This point is highly individual, though, so always consult your tax advisor about the best structure for your case.

Personal reasons

If you want to move to the USA yourself or simply build a second pillar, a US business has advantages here too. You are prepared, flexible in your personal planning and ready for whatever comes.

2Disadvantages of a US company for e-commerce & dropshipping

So you can see the full picture and make an informed decision for or against a US company, here are the potential downsides too. They mainly apply to entrepreneurs who already run an established (European) company and would rather expand into the USA with it.

Costs

Depending on the US state and the legal form you choose (e.g. C Corporation, LP or LLC), forming a company in the USA comes with costs. These include fees for the formation itself, but also expenses for legal advice, payroll and other government charges.

Taxation

US companies are generally subject to tax in the States, but foreign companies are not automatically. As long as there is no permanent establishment in the US, no US tax is due; our sister firm zerotax.llc specializes in exactly these structures without a US permanent establishment. If you sell your goods via e-commerce or dropshipping exclusively through third-party platforms, you keep paying your taxes in your home country. The exception is sales tax, where the rules and laws of each US state on nexus and certain revenue or transaction thresholds apply. If one of the criteria is met, foreign companies can register for sales tax without any trouble.

Administrative effort

A new company also brings plenty of paperwork and extra admin. Besides the formation documents, there is ongoing bookkeeping as well as annual reports and more, each regulated individually by every state. You avoid this extra work too if you run your e-commerce or dropshipping business in the States through an existing company.

3Which option is right for your e-commerce & dropshipping business

Which route you take depends above all on your individual situation. Forming a US company is not strictly necessary, but in many cases it brings real advantages. Equally, there is nothing wrong with expanding with your established business: that is possible and legal from both a legal and a tax point of view. Our pros and cons list helps you work out what makes the most sense for you. If you need more advice, we are happy to help in a personal consultation. For an overview of all articles in this series, see our E-Commerce & Dropshipping page; how dropshipping in the USA works in practice is explained in Dropshipping in the USA.

Everything you need to know about dropshipping in the EU is here.

In short

• A US company is not required for e-commerce and dropshipping in the USA, but in many cases it brings advantages.
• The main reason is liability: a C Corporation or LLC ring-fences the risk of damage claims and product liability lawsuits.
• A US company looks more trustworthy to American customers and investors and can increase the value of your business.
• On the other side are formation and ongoing costs, plus bookkeeping and annual reports. A foreign company without a permanent establishment in the USA pays no US income tax there, but sales tax still applies.

How we help you

• US Company FormationLLC, Inc or LP in Delaware, Florida, California, New York, Texas or Wyoming.
• Form a CorporationThe US corporation (Inc) for growth, investors and your visa.
• Form an LLCThe US LLC with a permanent establishment, turnkey in six states.
• Tax structureA clean structure between parent company and US subsidiary, or between you and your US company, coordinated with your accountant.
• Company formation consultationEntity type, state and tax consequences, before you commit.