Setting up business in the U.S. —- By: Mike Patterson, Partner at Spencer Fane LLP
Posted On 07/01/2019 By admin
Setting up business in the U.S. can be a complex and daunting process. U.S. law is made at federal and state levels, and each level of government has overall jurisdiction in its area. Each of the 50 states has its own law and, while uniform acts have been adopted by many states, each state’s law is distinct. Local municipalities may also have their own sets of rules and regulations applicable to particular local areas and issues.
DOING BUSINESS IN THE U.S.
Business Type: Consider the appropriate business type for your business, using legal and tax advisors.
- Distribution or licensing: Appointing one or more distributors, sales representatives, or licensees for products in the U.S. is often the “entry level” for businesses. Consider variables in distribution and licensing arrangements, including exclusivity, territory, pricing, manufacturing, packaging, and limitations on termination.
- Establish a branch: If direct sales are made into the U.S., some non-U.S. entities establish branch operations in the U.S. and register as a foreign corporation in the states where business is conducted. In the absence of a treaty exemption, however, the income generated by the branch will be subject to U.S. tax, including branch profits tax. The non-U.S. entity may be exposed to the liabilities of the U.S. branch, including product and tax liabilities.
- Form a new entity: Consider forming a U.S. entity to do business in the U.S. for limited liability, tax and market profile reasons. Determine what type of entity is appropriate.
Entity Type: Identify the appropriate entity for your U.S. business. Set up the new entity in compliance with the laws of the state of formation. This may be:
- Partnership: Owned by its partners; partners are personally liable; transparent for tax purposes; a partnership may be general or limited. Not commonly used except in certain industries.
- Corporation: This is treated as a separate legal person from its directors and shareholders; liability is limited to the corporation’s assets, subject to adequate capitalization and respecting corporate formalities; taxation is at corporate and individual levels. Corporations may be for profit or not-for-profit.
- Limited liability company (LLC): A “hybrid” of a corporation and a partnership; may be transparent for tax purposes. A single member LLC may be disregarded for U.S. tax purposes and essentially treated as a branch. Review tax treaties to confirm tax impact locally and in the U.S.
COMPANY SET UP
- Compliance: Once a new entity has been formed, issue corporate stock or LLC interests in compliance with, or exemption from, federal and state securities laws.
- Employer Identification Number: Obtain federal employer identification number (EIN) or taxpayer identification number (TIN).
- Filings and Registrations: Determine states and cities in which to do business. File registrations and any fictitious business names (DBAs). Obtain appropriate county and city business licenses.
- Records: Prepare bylaws, or operating or partnership agreements. Maintain corporate records up to date.
Employees: Employment in the U.S. differs from many other jurisdictions. Note that employment is generally at-will. Overly broad non-compete provisions may be illegal in certain states.
- Immigration: Consider immigration issues for non-U.S. citizens.
- Pre-Employment Checks: Conduct background checks and verify the right to work, in compliance with the law.
- Hiring: Determine hiring policies; understand rules for classification as exempt or nonexempt employees; consider independent contractor agreements.
- Document: Review employment documents for compliance with local laws, including any employee agreements, handbooks and confidentiality agreements.
- Compliance: Comply with state and federal laws and regulations relating to wage payments, benefits, and anti- discrimination.
Contracts: Sales, distribution, sales representative, license, ecommerce, and consultancy agreements, and online privacy policies, may need to be localized to comply with applicable state and federal laws.
- Import/Export: Comply with U.S. import regulations when shipping products or parts into the U.S. If exporting from the U.S. to other markets, comply with U.S. export control regulations, as well as anti-corruption laws relating to sales outside the U.S.
- Industry regulations: Determine if your industry is subject to local, state or federal regulations in the U.S. Also consider franchising regulations, which are heavily regulated at state and federal levels.
- Insurance: Obtain insurance, e.g., for general liability, cybersecurity, workers’ compensation, directors, officers and employment practices.
- Intellectual Property Protection: Register trademarks and copyrights and file for patents. Protect trade secrets with non-disclosure agreements and make sure to keep information confidential.
- Property: Review leases for premises or contracts for purchased property; consider zoning, permitting, and environmental law issues.
- Taxes: Taxes may be payable at the state and federal level and local taxes may also be payable. Taxes include income, payroll, property, excise, business license, sales and use taxes. There is no Value Added Tax (“VAT”) in the U.S. Consider any foreign tax reporting requirements. Review tax treaties to avoid dual taxation.
- Transfer Pricing: Consider regulations on transfer pricing among corporate affiliates to ensure arms-length pricing and avoid taxes on profit-shifting. If there are inter- company transactions, inter-company agreements and a timely transfer pricing study would be prudent.
Author: Mike Patterson, Partner at Spencer Fane LLP
Spencer Fane LLP
2415 E. Camelback Road, Suite 600
Phoenix, AZ 85016
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