Setting up business in this country 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. The following is a summary of issues to consider regarding your business’ U.S. operations.
Step 1 – Doing Business in the U.S.
Business Type – Consider what is appropriate for your business. Take legal and tax advice on the appropriate business structure for you. This may be:
Distribution or licensing: Appointing one or more distributors or licensees for products in the U.S. is often the “entry level” for businesses. Consider variables in distribution and licensing arrangements, including as to exclusivity, territory, pricing, manufacturing and packaging.
Establish a branch: If direct sales are made into the U.S., consider establishing branch operations in the U.S. and registering as a foreign corporation in the states where business is conducted. In the absence of a treaty exemption, 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: If a U.S. entity is to be formed, determine what type of entity is appropriate. This is often done for liability, tax and market profile reasons.
Entity Type – Identify the appropriate entity for your U.S. business. This may be:
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 will be disregarded for U.S. tax purposes and essentially treated as a branch.
Partnership: Owned by its partners; partners are personally liable; transparent for tax purposes. A partnership may be general or limited.
Step 2 – Set up
Formation – Determine the state in which to form the entity and file formation documents. Set up the new entity in compliance with the laws of the state of formation.
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.
Records – Prepare bylaws, or operating or partnership agreements. Maintain corporate records up to date.
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.
Employer Identification Number – Obtain federal employer identification number (EIN) or taxpayer identification number (TIN).
Step 3 – Operations
Employees – Employment in the U.S. is heavily regulated and differs from many other jurisdictions. Note that employment is generally at-will and noncompete provisions may be illegal in certain states.
Immigration – Consider any immigration issues for non-U.S. citizens.
Pre-Employment Checks – Conduct background checks and verify the right to work.
Hiring – Determine hiring policies; consider classification as exempt or nonexempt employees; consider any independent contractors.
Document – Review employment documents for compliance with local laws, including any employee agreements, handbooks and confidentiality agreements.
Contracts – Sales, distribution, license and consultancy agreements may need to be localized to comply with applicable state and federal laws.
Intellectual Property Protection – Register trademarks and copyrights and file for patents.
Industry regulations – Determine if your industry is subject to local, state or federal regulations in the U.S., such as franchising, which is heavily regulated at state and federal levels.
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. Consider any foreign tax reporting requirements.
Transfer pricing – Consider regulations on transfer pricing among corporate affiliates to ensure arms-length pricing and avoid profit-shifting. If there are inter-company transactions, a timely transfer pricing study would be prudent.
Property – Review leases for premises or purchased property; consider zoning, permitting, and environmental law issues.
Insurance – Obtain insurance, e.g., for general liability, workers’ compensation, directors, officers and employment practices.
For More Information
Specific advice should be sought for each state in which a business will be conducted. Polsinelli Shughart’s attorneys have experience in guiding businesses through the process of setting up new operations in the U.S. and we value the opportunity to work with growing businesses and the new relationships and opportunities they open up for us.
For more information, contact:
• Tracey M. Ginn at 310.203.5304 or firstname.lastname@example.org
• Susan F. Klein (Taxation) at 312.873.3658 or email@example.com
Polsinelli Shughart provides this material for informational purposes only. The material provided herein is general and is not intended to be legal advice. Nothing herein should be relied upon or used without consulting a lawyer to consider your specific circumstances, possible changes to applicable laws, rules and regulations and other legal issues. Receipt of this material does not establish an attorney-client relationship.
Copyright © 2012 Polsinelli Shughart PC. In California, Polsinelli Shughart LLP.