In 2024, the US took sixth place in the Best Countries Ranking—a list of the best countries in the world for incorporating a company. That same year, the US was crowned World’s Most Startup-Friendly Country by CEOWORLD Magazine. German entrepreneurs looking to establish a business in the US should make sure they understand the different legal formations available. Doing so can help entrepreneurs find the company type that’s right for their business. One of the most popular legal formations is the incorporated company, abbreviated with “Inc.”

This article explains what “Inc.” means, its equivalent in Germany, and how you can set one up from Germany. We also provide an overview of the different types of companies in the US, explain what a corporation is, and detail how it differs from a partnership.

What’s in this article?

• What do “Inc.” and “Incorporated” mean?
  
• What is a corporation?
  
• What are the differences between partnerships and corporations?
  
• What types of companies exist in the US?
  
• What is the German equivalent of an “Inc.”?
  
• How can you set up an “Inc.” from Germany?
  
• How Stripe Atlas can help
  

What do “Inc.” and “Incorporated” mean?

In the US, the term “Incorporated” (“Inc.”) is used for a corporation, as defined under US law. The incorporated company is an independent legal entity separate from its owners. It can sue and be sued, conclude contracts, and own property independently of the natural persons acting on its behalf.

In practice, there are two primary types of incorporated companies: the C corporation (C corp) and the S corporation (S corp). Both constitute an incorporated company, but there are differences between the two, especially regarding taxes. C corps are managed at the company and shareholder levels as classic corporations. Under the right conditions, S corps can take advantage of tax perks by applying so-called “pass-through taxation.” That said, if a company is not explicitly registered as an S corp, then it is treated as a C corp by default.

Although the details vary from state to state, the incorporated company legal formation is largely defined by the following characteristics:

• Liability restricted to the business’s assets
  
• Taxation at the company level and also at the shareholder level with regard to dividends
  
• Management by a shareholder-appointed director or board of directors who make important decisions for the business
  
• Possibility of issuing different classes of shares with different voting and property rights, plus no limit on number of shareholders
  
• Capital acquired by issuing shares, taking on debt, access to large capital markets when floated
  
• Business continuity regardless of resignation or death of individual shareholders
  

What is a corporation?

A corporation (Kapitalgesellschaften) is an independent legal entity that conducts business independently of its shareholders. As a rule, owners’ liability is limited to their capital contribution (i.e., the business’s assets) and does not affect their personal assets. Corporations are well-suited for companies looking to limit liability risks and attract investors.

In Germany, the most common types of corporations include the limited liability company (GmbH), public limited company (AG), and limited liability entrepreneurial company (UG). Key features of these companies include their minimum capital requirements, fixed organizational structures, and stringent bookkeeping and disclosure obligations. In Germany, corporations are liable for corporate income tax, solidarity surcharge, and trade tax.

In addition to incorporated companies, there are also hybrid legal formations in the US, such as the limited liability company (LLC) and the limited liability partnership (LLP). These formations have a high degree of legal and tax flexibility.

What are the differences between partnerships and corporations?

The primary differences between partnerships and corporations lie in the legal status of their partners or shareholders, their liabilities, and their treatment for tax purposes. In Germany, the most common forms of partnership include the general partnership (OHG), limited partnership (KG), and civil law partnership (GbR). In the US, there are two types of partnerships—general partnerships and limited partnerships—which differ in areas such as liability.

Legal status

Unlike a corporation, a partnership does not usually constitute an independent legal entity. From a legal standpoint, its partners act on their own behalf or jointly on behalf of the company. They are usually directors or are, at least, directly involved in running the company. The shareholders of a corporation, on the other hand, are legally separate from the business, do not act in a personal capacity in external dealings, and are not automatically involved in running the business.

Liability

In a partnership, partners are directly and personally liable for the company’s obligations, without limitation. Depending on the specific legal formation, all or some of the partners bear this liability. This is a fundamental difference between a partnership and a corporation. In a corporation, personal liability is generally excluded.

Taxes

A partnership is tax transparent. Profits are allocated directly to the partners, who are then taxed individually. By contrast, a corporation is its own tax entity and pays corporate income tax on its profits. Dividends paid to shareholders are subject to income tax on top of this, resulting in double taxation.

What types of companies exist in the US?

US corporate law offers entrepreneurs a variety of legal formations. Their differences include liability, taxation, and prerequisites for incorporation. Not all formations make sense for German founders who are not residents of the US, and some even require founders to be domiciled in the country. In addition to an incorporated company, it is also important to be familiar with the following types of companies:

Sole proprietorship

A US sole proprietorship is equivalent to a sole proprietorship (Einzelunternehmen) in Germany. There is no separation between private and business assets. There is also no limitation on owners’ liabilities, and their personal assets are at risk. Profits are taxed directly as personal income. In general, a sole proprietorship can only be set up by persons who are domiciled or have legal residency in the US.

General partnership

A general partnership is a partnership formed by at least two persons. All partners bear liability without limitation, and their personal assets are at risk. Profits are distributed to the partners proportionally and taxed individually. This legal formation also usually requires partners to be domiciled in the US.

LLP

LLPs are particularly prevalent among self-employed entities, such as attorneys, architecture firms, tax advisors, or auditing companies. A key feature of LLPs is that liability is limited to individual partners who are only liable for their own misconduct or obligations. All partners can be directly involved in running an LLP and share in the business’s profits and losses accordingly. The company itself does not pay income tax. Instead, each partner is taxed individually according to their share of the profits.

German entrepreneurs can set up LLPs without traveling to the US. However, LLPs do require a registered agent—a point of contact who resides in the state of incorporation and receives legal documents and communication from public authorities.

LLC

Unlike an LLP, an LLC provides both limitation of liability and greater taxation freedoms. An LLC can choose to be taxed as either a partnership or a corporation. The structure of its management is equally flexible. The owners themselves can run the business, or they can bring on external directors. In addition, LLCs are not limited to specific groups of professionals; they can be used for all sorts of businesses.

Similar to an LLP, German founders need a registered agent in the US to incorporate LLCs.

What is the German equivalent of an “Inc.”?

There’s no direct equivalent in Germany to the “Inc.” The closest is an AG (Aktiengesellschaft). Both are corporations with their own legal identities, and the liabilities of both are limited to the assets of the businesses. They have clear management structures, with a director or board of directors taking responsibility for running the business. Both can also issue shares as a way of raising capital. Their profits are taxed at the company level and then again at the shareholder level when dividends are paid out.

However, there are differences between an “Inc.” and an AG. These include the process of incorporation, their capital resources, and their reporting and disclosure obligations. From a financial and legal standpoint, though, the two are very similar.

How can you set up an “Inc.” from Germany?

Here are the steps to set up an “Inc.” from Germany:

Select state and company name

Start by deciding in which US state you want to set up your business. Pay attention to the differences between states regarding setup costs, general tax conditions, and reporting obligations. Then, choose a name for your company. Your name must include “Inc.,” “Corp.,” or “Corporation.”

The name must not have been previously claimed, and many states prohibit the inclusion of protected or misleading terms, such as “Bank” or “Insurance.” If you want to do business under a different name than the one under which you registered, then you must provide a “Doing Business As” (DBA) registration in many states.

File articles of incorporation

To formally incorporate your “Inc.,” you need to complete the articles of incorporation and file them with the Secretary of State in your chosen state. This document contains key information, such as the name and headquarters of the corporation, purpose of the business, number of shares that can be issued, and details about the company’s founders or governing bodies. Once your application has been reviewed, the relevant office will issue a certificate of incorporation, making your corporation official.

Appoint a registered agent

Appoint a registered agent with an address in the state of incorporation. The agent acts as an official point of contact for public authorities and courts.

Hold an inaugural meeting

Once you have received your certificate of incorporation, call your first board or shareholder meeting. Use this meeting to establish who will sit on the board of directors, adopt other incorporation documents, and more. In the case of a single-owner corporation, this is usually a formality.

Apply for an Employer Identification Number (EIN)

Apply for an EIN from the US Internal Revenue Service (IRS). You will need this national tax ID to open a business account, conclude contracts, pay taxes, hire employees, and more.

Open a business account

When you receive an EIN, you should open a separate business account in the name of your incorporated company. This account must be managed separately from your private assets for the company to have limitation of liability.

Check licenses, permits, and visas

Depending on the industry, you might require additional permits, such as professional registrations, export licenses, and local business licenses. If German founders or team members intend to work in the US, they will need appropriate immigration and work visas.

Clarify taxation in Germany

German citizens who set up incorporated companies in the US might be subject to tax obligations in Germany. Therefore, it is important to talk to an experienced tax advisor about tax issues.

How Stripe Atlas can help

Stripe Atlas sets up your company’s legal foundations so you can fundraise, open a bank account, and accept payments within two business days from anywhere in the world.

Join 75K+ companies incorporated using Atlas, including startups backed by top investors like Y Combinator, a16z, and General Catalyst.

Applying to Atlas

Applying to form a company with Atlas takes less than 10 minutes. You’ll choose your company structure, instantly confirm whether your company name is available, and add up to four cofounders. You’ll also decide how to split equity, reserve a pool of equity for future investors and employees, appoint officers, and then e-sign all your documents. Any cofounders will receive emails inviting them to e-sign their documents, too.

Accepting payments and banking before your EIN arrives

After forming your company, Atlas files for your EIN. Founders with a US Social Security number, address, and cell phone number are eligible for IRS expedited processing, while others will receive standard processing, which can take a little longer. Additionally, Atlas enables pre-EIN payments and banking, so you can start accepting payments and making transactions before your EIN arrives.

Cashless founder stock purchase

Founders can purchase initial shares using their intellectual property (e.g., copyrights or patents) instead of cash, with proof of purchase stored in your Atlas Dashboard. Your IP must be valued at $100 or less to use this feature; if you own IP above that value, consult a lawyer before proceeding.

Automatic 83(b) tax election filing

Founders can file an 83(b) tax election to reduce personal income taxes. Atlas will file it for you—whether you are a US or non-US founder—with USPS Certified Mail and tracking. You’ll receive a signed 83(b) election and proof of filing directly in your Stripe Dashboard.

World-class company legal documents

Atlas provides all the legal documents you need to start running your company. Atlas C corp documents are built in collaboration with Cooley, one of the world’s leading venture capital law firms. These documents are designed to help you fundraise immediately and ensure your company is legally protected, covering aspects like ownership structure, equity distribution, and tax compliance.

A free year of Stripe Payments, plus $50K in partner credits and discounts

Atlas collaborates with top-tier partners to give founders exclusive discounts and credits. These include discounts on essential tools for engineering, tax, finance, compliance, and operations from industry leaders like AWS, Carta, and Perplexity. We also provide you with your required Delaware registered agent for free in your first year. Plus, as an Atlas user, you’ll access additional Stripe benefits, including up to a year of free payment processing for up to $100K in payments volume.

Learn more about how Atlas can help you set up your new business quickly and easily, and get started today.