BUSINESS TIPS
5 Mistakes Non-Residents Make When Starting a US Business (and How to Avoid Them)
Published October 2026 · 6 min read
Starting a US business as a non-resident is straightforward — but only if you avoid the pitfalls that trip up most first-timers. After helping entrepreneurs from dozens of countries set up US LLCs, here are the five most common mistakes we see.
Mistake 1: Choosing the Wrong State
Many non-residents default to Delaware because they’ve heard it’s “the best state for business.” Delaware is excellent for venture-backed startups and large corporations — but for a single-member LLC owned by a non-resident, Wyoming is almost always the better choice.
Why Wyoming wins for non-residents:
- No state income tax — Delaware has a franchise tax
- Strong privacy protections — no public ownership disclosure
- Low annual fees — $60/year annual report vs. Delaware’s $300 minimum franchise tax
- No requirement to file in another state — if you have no physical presence in any US state
Mistake 2: Confusing EIN and ITIN
These two IRS numbers serve completely different purposes, and mixing them up causes delays and compliance problems:
- EIN (Employer Identification Number): Your company’s tax ID. Required to open a US bank account, file business taxes, and hire employees. Every LLC needs one.
- ITIN (Individual Taxpayer Identification Number): Your personal tax ID as a non-resident individual. Required to file your personal US tax return. Not all non-resident LLC owners need one immediately.
Common mistake: trying to use an ITIN to open a business bank account (it won’t work — you need an EIN) or assuming you need an ITIN before you can get an EIN (you don’t).
Mistake 3: Skipping the Operating Agreement
An Operating Agreement isn’t required to be filed with the state, but it’s essential. It’s the document that defines how your LLC is managed, who owns it, and how profits are distributed. Without one:
- Banks may refuse to open your business account
- Payment processors may reject your application
- You lose liability protection in some jurisdictions
- Multi-member LLCs have no documented agreement on ownership splits
Every LegalSway formation package includes a custom Operating Agreement. It’s not optional in our process.
Mistake 4: Using a Personal Address as Business Address
Your LLC needs a registered agent address in the state of formation and a mailing address for IRS correspondence. Some non-residents use a friend’s address or a residential address — this creates problems:
- Friends move or become unreliable — missed legal notices can result in your LLC being dissolved
- Banks and payment processors often verify your business address — a residential address that doesn’t match your industry raises flags
- Your registered agent address is public record
Solution: use a professional registered agent service (included in our packages) and a virtual mailbox for your business correspondence.
Mistake 5: Ignoring US Tax Obligations
The biggest misconception: “I’m not in the US, so I don’t owe US taxes.” This isn’t always true. As a non-resident LLC owner, you may still need to:
- File Form 5472: Required for any foreign-owned single-member LLC, even with zero US income. Penalty for not filing: $25,000.
- File a pro-forma 1120: Filed alongside Form 5472 for informational purposes
- Report effectively connected income (ECI): If your LLC has income connected to a US trade or business, it may be taxable
- State-level obligations: Some states require annual reports and fees regardless of income
This is exactly why LegalSway offers ongoing tax compliance services. The formation is the easy part — staying compliant year after year is where most non-residents need help.
Get It Right from the Start
Every one of these mistakes is avoidable with the right guidance upfront. That’s what our free consultation is for — we’ll walk you through the formation process, recommend the right structure, and make sure your compliance is set up from day one.