USA

Starting an iGaming business in the US comes with a unique challenge: navigating state-specific regulations. Unlike countries with national licences, the US regulates iGaming at the state level. This means that each state sets its own rules and requirements. Rob Palmer from Fundz.net explains:

"In the US, regulation takes place at the state level. New Jersey, Pennsylvania, and Michigan permit iGaming, while Texas and Utah don't."

Understanding this structure is essential before beginning the incorporation process. The state you choose will influence everything from licensing requirements to operational restrictions. Here’s a breakdown of the key steps to incorporate your iGaming business in the USA.

Step 1: Define Your Legal Structure and Business Goals

The first step is deciding where to incorporate and selecting the right corporate structure. Start by identifying a state where iGaming is legally allowed. For instance, states like New Jersey, Pennsylvania, and Michigan have established frameworks for iGaming. On the other hand, states like Texas and Utah prohibit such operations.

Once you've chosen a state, determine the best corporate structure for your business. Most iGaming companies opt for a Limited Liability Company (LLC) or a Corporation (C-Corp), depending on their goals. These structures differ in terms of tax obligations, liability protection, and operational flexibility, so choose the one that aligns with your business strategy.

Additionally, research the local market to understand trends and competition. A strong business strategy that demonstrates market viability can help you gain regulatory approval.

Step 2: Prepare and Submit Documents

With your legal structure and goals in place, the next step is preparing the necessary documentation. Regulators will expect a detailed business plan that outlines your key personnel, ownership structure, and funding sources. This plan should show that your business has the expertise, capital, and insight to operate responsibly.

Compliance policies are critical, especially for anti-money laundering (AML) and know your customer (KYC) procedures. For example, the Bank Secrecy Act (BSA) applies to US casinos with annual gaming revenues exceeding $1 million. Non-compliance can lead to hefty penalties, so your policies must be thorough and well-documented.

You'll also need technical documentation for your platform. This includes details about the games and software you’ll offer, any required certifications, and measures to promote responsible gambling. Lastly, gather personal documentation for all owners and key employees, as background checks are a standard part of the regulatory process.

Step 3: Complete Registration and Setup

Once you’ve received regulatory approval, it’s time to set up your operations. Start by establishing strong banking relationships and opening dedicated US business accounts for operations, player deposits, and regulatory reserves.

Next, implement robust compliance systems. These should include automated tools for identity verification, transaction monitoring, and reporting suspicious activities. Records must be maintained for at least five years to meet regulatory standards.

Ensure that your servers and critical operational systems are based in your chosen state. This is not just a legal requirement but also a step toward ensuring reliable operations.

Finally, set up ongoing compliance monitoring. The regulatory environment is constantly changing. In 2024, the global gambling industry faced £67,097,966 ($86.2 million) in fines for non-compliance. Additionally, casinos’ AML compliance budgets have risen by 74% over five years. Investing in regulatory technology can streamline processes like transaction monitoring and reporting, helping you stay ahead of evolving standards.

Choosing the right business entity is a key step for iGaming operators after familiarising themselves with the incorporation process. The most common options include Limited Liability Companies (LLCs), Corporations (C-Corps), and Partnerships. Each structure comes with its own set of benefits, tailored to different business strategies, funding needs, and operational preferences.

Limited Liability Company (LLC)

An LLC is often the go-to choice for iGaming start-ups due to its strong liability protection and flexible operations. It safeguards personal assets from business liabilities and offers tax advantages through pass-through taxation, where profits and losses are reported on the owners' personal tax returns. As your business grows, you can opt for S-Corp or C-Corp taxation to explore additional tax planning opportunities.

"This flexibility in business formation makes an LLC a great choice for many small businesses, especially game developers." - Zachary Strebeck, Attorney

Setting up an LLC typically costs around US$100. For iGaming businesses with moderate growth ambitions, starting with pass-through taxation and later transitioning to S-Corp status can optimise tax benefits as revenues stabilise. LLCs also require fewer formalities than corporations and allow for either member-managed or manager-managed structures, giving you control over decision-making and profit allocation. If you're aiming for significant investments and long-term expansion, however, a corporation might be worth considering.

Corporation (C-Corp)

For iGaming businesses targeting large-scale growth and investment, a C-Corp is often the preferred structure. C-Corps are particularly suited for companies planning to raise extensive capital, attract investors, or even go public. They offer robust liability protection and allow for unlimited shareholders, which simplifies issuing stock and securing funding.

As Jonathan Lazarow, a gaming industry expert, explains:

"Choosing to organise your business as a corporation may have benefits over other entity structures. It really depends on the business you are operating, how you are going to be funded/financed, the number of shareholders, governance and tax." - Jonathan Lazarow, Partner at Ambrose Lazarow

However, C-Corps do come with a downside: double taxation. Both corporate profits and shareholder dividends are taxed separately. Additionally, this structure involves more complexity, including strict record-keeping, board meetings, and other formalities. For foreign iGaming entrepreneurs, the separation of corporate profits from personal income can be advantageous, as it may eliminate the need to file U.S. personal income tax returns.

Partnership

For collaborative efforts in the iGaming industry, a Partnership might be the ideal structure. Partnerships are particularly effective for joint ventures where multiple parties share responsibilities, skills, and profits. This setup allows for flexible profit-sharing arrangements and shared decision-making, making it appealing for collaborative gaming projects.

General partnerships are straightforward and benefit from pass-through taxation, but they expose all partners to unlimited personal liability. Limited partnerships, on the other hand, protect limited partners from liability while limiting their involvement in daily operations. This structure is especially useful for passive investors who want to avoid operational risks. For tax purposes, partnerships file Form 1065, and those with foreign partners must withhold U.S. tax on their share of income at rates up to 35% for corporations and 39.6% for individuals.

The U.S. Small Business Administration highlights the importance of choosing the right structure:

"The business structure you choose influences everything from day-to-day operations, to taxes and how much of your personal assets are at risk. You should choose a business structure that gives you the right balance of legal protections and benefits."

Given the complex regulations and high stakes in the iGaming sector, consulting experienced legal and tax advisors is critical. They can help ensure your entity choice aligns with your business objectives and risk tolerance.