How To Register A US Business From Mexico

The United States is the largest economy in the world and is—by far—the biggest market for startup funding and growth opportunities. By incorporating a business in the United States, teams based in Mexico may take advantage of the prospects offered right next door.

Many companies based in Latin American countries have benefited from substantial foreign investment in the form of VC funding US investment firms. More money was raised by startups there in 2021 than in the previous ten years combined, making the area the world's fastest-growing destination for venture capital investment.

So how can founders from Mexico maximize their chances of receiving potential investment from US-based VC funds?

By incorporating a business in the US. In the great state of Delaware, to be precise.

It may sound difficult, but registering a business in the United States from Mexico is actually pretty easy, and in this article we’ll go over how to do that and in what circumstances it actually makes sense.

You’ll learn:

• What are the benefits of registering a company in the US
• The process of registering a company in the US from anywhere in the world
• Getting a registered agent in the US
• What is the Delaware Flip and the process of turning Mexican company into an American one
• Everything you need to know about visas, taxes and hiring

Registering your company to do business in the US if you’re based in a Latin American country can be beneficial for a number of reasons:

• More access to venture capital markets and startup investors
• Better access to more partnership and business opportunities
• Increased chances of acquisition
• Tax and corporate structures that are more efficient and familiar to potential investors, strategic partners, employees, and acquirers.
• It will be easier to accept payments and form business partnerships if you have customers in the United States.

Registering a US company may be reasonable for the companies that seek sustainable financing options that go beyond pre-seed and Series A, and are determined to operate in the US market.

That doesn’t necessarily relate to companies that:

1. Focus their business exclusively on the Latin American market
2. Are not looking for venture capital financing

Many startups operating in Latin America have a somewhat complex legal structure if they want to access capital from investors in the United States. This is sometimes called the “Cayman-Delaware Sandwich” or “Cayman-LLC Sandwich” or just “Cayman Sandwich” and, unfortunately, it’s a legal structure and not a tasty Caribbean sandwich.

Notedly, this term does not refer to the famous Scrapple sandwiches (the “tastiness” of which is subject to debate amongst the Capbase staff members who have been to Delaware) that are sold at the Delaware State Fair every year.

Here are the basics of sandwich structure:

• The Latin American startup has a domestic corporation in their home country and any other Latin American country in which they operate
• A Delaware LLC wholly owns the assets of the Latin American entities, serving as the operating company
• A Cayman Islands holding company owns the Delaware LLC and gives individuals (such as founders, employees, and advisors) and investors the ability to hold equity stakes (and raise money by selling more equity) through the Cayman Islands holding company.

How does a founder from Latin America (for the sake of example, we’ll say Brazil) find themselves running a Cayman Sandwich-structured company? Let’s see by way of illustrative example:

1. An entrepreneur and her cofounder form a limitada company in Brazil, which is structurally similar to an LLC. The cofounders and their team build their product and launch a small business.
2. The founders realize that in order to scale their business they need to raise money. They approach local angel investors and pre-seed funds in Brazil and successfully raise some startup capital for the limitada.
3. Down the road, they realize they want to raise from investors outside of Brazil. Many investors aren’t familiar with the legal and regulatory landscape of Brazil so they require the creation of a Delaware entity, to which ownership and operational control of the Brazilian foreign business activity is transferred. Because these investors don’t want to risk double taxation on proceeds from any possible acquisition of the Brazilian subsidiary (which would be recognized as profit by the Delaware entity) they advocate for an LLC—a pass-through entity, for tax purposes—instead of a corporation, which is subject to corporate income tax before profits are distributed to shareholders who in turn pay taxes on that distribution.
4. The founders raise money on SAFEs for the Delaware LLC. However, this presents a problem for investors. Even though LLCs can raise money, they can’t issue preferred shares, which usually go to investors and carry additional rights and privileges that aren’t extended to regular old common shares held by founders and employees.
5. When an event occurs which triggers the conversion of SAFEs into preferred shares, a Cayman Islands holding company is spun up, to which the equity and financial interests of the Delaware LLC is transferred and subsequently converted to preferred and common shares.

This is how jurisdiction hopping works. The founders started with (and kept) a Brazilian entity, then created a Delaware LLC and shifted control to Delaware, and then finally spun up a Cayman Islands holding company which is under Cayman jurisdiction.

In theory, this structure has some significant tax and governance advantages. The Delaware LLC acts as a pass-through entity, which means it’s not exposed to corporate income taxes, and Cayman Islands holding companies are also exempt from many taxes. Cayman Islands has no corporate income tax; they make their tax revenue from higher-than-average franchise taxes instead. Since corporate income isn’t taxed, proceeds from the sale of a Latin American subsidiary—which pass through the Delaware LLC—aren’t taxed even though it’s recognized as profit. Instead, shareholders are taxed according to the rules in their local jurisdiction. So, a California-based venture capital firm would be taxed on the proceeds of an M&A transaction involving a Brazil-based portfolio company according to United States and California tax code.

The Delaware LLC also serves as a privacy shield for the Cayman Islands holding company. Using a hypothetical example to illustrate: let’s say Brazilian regulators wish to pursue legal action against a company operating in Brazil that’s owned by a Delaware LLC. Regulators would be able to see that the company is owned by the Delaware entity, but because Delaware LLCs are not obligated to disclose their beneficial ownership structure, Brazilian regulators would have no way of knowing that the financial interests in the company are actually owned by the Cayman Islands holding company.

On paper, this structure also opens up opportunities for more flexible mergers and acquisitions terms. A startup could elect to sell one of its local subsidiaries, or sell the whole company by transferring ownership of the Cayman Islands holding company to the acquiring entity.

However, the Delaware-Cayman Sandwich can present a few problems for startups:

• Due to the association of Cayman Islands entities with money laundering and other shady dealing, some investors do not invest into Cayman Islands companies.
• Some M&A transactions may require “flipping” the Cayman Islands entity into a Delaware Corporation for tax and compliance purposes, which can be quite costly for a law firm to facilitate
• The Cayman Islands were added to the European Union’s anti-money laundering “blacklist” which may limit fundraising opportunities for companies utilizing the Cayman sandwich structure.

Latin American founders should consider adopting their investors’ preferred legal structure to raise money, but the Cayman-Delaware sandwich structure may be more trouble than it’s worth. It may be more straightforward and “cleaner” from a legal perspective to incorporate a Delaware corporation (instead of an LLC) to serve as the operating company for wholly-owned subsidiaries in Latin America.

To set up your US company from any country in Latin America, you have to follow these five steps:

1. Select the entity type. The general consensus is that startups seeking venture capital and startup investors should form as C Corporations rather than LLCs. (More information can be found in our article C Corporation or LLC: Which entity is best for your startup?) A limited liability company (LLC) will not be suitable if you intend to issue equity to employees, advisors, and other stakeholders, in addition to making it more difficult to raise funds from investors because LLCs can’t issue preferred shares.
2. Choose the state in which you want to register your business. A Delaware C Corporation is the best option. The vast majority of technology companies, as well as 70% of Fortune 1000 companies, are registered in Delaware. Why? Because of the state's legal and tax advantages, investors strongly prefer Delaware for company incorporation. Do you want to learn more? Read our article explaining why startups should incorporate in Delaware rather than other US states.
3. Fill out and submit your articles of incorporation. Capbase makes this very easy, and the process of incorporating your US company takes only ten minutes. Capbase's annual flat fee includes the cost.
4. Register with the IRS. The Internal Revenue Service (IRS)—the US federal tax authority—can provide an employer with an employer identification number (EIN), also known as a tax ID. This will be required in order for you to open a bank account in the United States. Registering with the IRS also allows your business to pay taxes. (Capbase obtains an EIN for you.) For more information, check out our article about how to obtain your EIN.
5. Open a bank account in the United States. If you’re doing business in the United States, you should probably get a US bank account for your startup. Once you have your EIN, you can open a bank account. Capbase has collaborations with several startup-focused US banking solutions, including Mercury (not a bank).
6. To keep your company in good standing, file necessary reports. In Delaware, you must file an annual report every year. The deadline for filing is March 1st. Capbase includes tools to help you keep up with compliance requirements at all times.

To start a business in the US, you don't need to reside there, but you will require a registered agent. A registered agent is a person who accepts mail on behalf of your business. They have a physical address in the state where you register, allowing you to send them formal mail.

This includes the following:

• Notices of compliance regarding reporting or other requirements
• Revenue or tax department documents from the state
• Process services (notices of lawsuits against your company)

Your company's legal address cannot be the same as that of your registered agent. Your residence must be your registered address in the country you reside in.

Capbase serves as your Delaware registered agent when you utilize Capbase to establish your business in Delaware.

Let’s say you’ve already incorporated your startup in Mexico. You can fairly easily employ the “Delaware Flip” strategy to move your Mexican operation to the United States. (For more details, see our article about the "Delaware Flip").

Any stage of an existing business can be registered in Delaware, but it's most straightforward when there aren't many outside shareholders. Or, to put it another way, it is advisable to begin with a Delaware C Corporation. However, it is better to convert your Latin American startup to a US company registration sooner rather than later.

Similar to US corporations registered in Delaware, Latin American corporations have a similar corporate governance structure. You will need to choose a company name while registering a C Corporation in Delaware. The name you choose for your LatAm company might, in certain situations, already be in use in Delaware, in which case you would need to register with a different, distinctive company name.

You must first submit the articles of company formation for a Delaware C Corporation (which includes corporate bylaws and other documents), then you must buy and create a subsidiary of your Latin American firm in order to complete the Delaware flip and transfer your business to the US.

1. Work with accountants and attorneys native to your country to guarantee that your business has all required regulatory approvals. Additionally, you'll need to settle any unpaid debt and equity.
2. Establish a Delaware C corporation. This comprises assigning shares as well as electing executives and directors. (Using Capbase, you can file your articles of incorporation in about 10 minutes.)
3. Your Latin American Limited Company's shareholders agree to transfer to the new US Corporation all of the Latin American Company's shares, cash, and intellectual property, transforming the Latin American Company into a subsidiary. In order to avoid paying income tax on the amount they get from you, you may want to utilize a clearance letter. This implies a share repurchase (buyback).
4. Following the incorporation process, you must submit a yearly report to the Delaware Secretary of State. Additionally, every corporation is required to submit an annual tax return to the IRS.

The Latin American company will then be acquired by your newly formed US-registered corporation as a wholly-owned subsidiary.

Your personal tax residency is unaffected by registering your business in the US. As a distinct legal entity, your corporation will be required to pay taxes in the United States. As a citizen or resident of any Latin American country, you will continue to pay personal taxes here.

To register your business in the US, you are not need to have a visa. You will need one, though, if you choose to move to the US to conduct your business. You cannot obtain an immigrant visa or green card just by forming a company as a non-resident, but you may be eligible to apply for special visas for founders and individuals conducting business in the USA. There are many work visas available for Latin American nationals, including the E-1, E-2, EB-5, L-1, and O-1 visas.

There’s another visa available to citizens of Mexico through the North American Free Trade Agreement (NAFTA). TN visas permit citizens of those countries to do business in the USA. For more information on TN visas, check out the USCIS webpage on the topic.

Read our in-depth guide to US immigration visas for startup founders for further details.

• You can raise money from American venture capitalists, angel investors, and syndicates by establishing a US firm, which offers you access to the greatest startup capital market in the world.
• A Delaware corporation can be created without a US location, but you must appoint a registered agent who resides in Delaware.
• You won't need a work visa if you plan to work from anywhere in Latin America because your personal tax situation won't change (your corporation will continue to pay taxes in the US).
• You must either set up a LatAm subsidiary or use an employer of record (EOR) provider like our partner Deel in order to hire LatAm workers for your US firm.