Setting up business operations in the United States?
- Before your business can expand to the United States, you'll need to make a number of key decisions.
- These 5 considerations will help you in navigating the myriad of cross-border business, regulatory, operational, personnel, and compliance issues.
- Work with your professional advisors to help you untangle the web of regulations and requirements you'll need to consider before you commence your U.S. operations.
You’ve decided to expand your business into the United States. The location has been selected. Perhaps you already know the state regulations you’ll need to follow. You may even feel confident in your tax planning strategy. Now what?
Prepare for more decisions. Let’s think about key considerations, from initial entity setup tasks to employee hiring considerations. And remember, having a plan and experienced advisors is critical.
Create your U.S. entity
You’ll need to select your legal entity type. You’ll also need to determine the state in which it will be formed — and you may form your legal entity in any state. In fact, the state of formation may be different from the state(s) in which your U.S. entity will conduct business.
Just remember your legal entity will be governed by the laws of the state where it is formed. Delaware is a common choice for state of formation because Delaware has well-developed corporate laws and favorable treatment of business entities, but there may be reasons to select other states.
You will also need to clear the name you’ve selected for your legal entity, if it’s intended to be used in a public-facing manner, to confirm it does not infringe on the rights of other parties.
Your U.S. legal entity will be established by filing documents in the state of formation and paying the filing fee.
However, before your U.S. entity can be truly ready to commence operations, you’ll need to consider a few more initial entity setup tasks.
Capitalize the U.S. entity
You may decide to capitalize your U.S. entity with either equity or debt, which can include raising capital. Some states require a certain minimum paid-in capital.
Determine your accounting year-end, then obtain a Federal Employer Identification Number (FEIN)
Your U.S. entity will need a FEIN to establish a U.S. bank account. Apply online for a FEIN and identify an individual with a valid Taxpayer Identification Number, which could include a Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN). Typically, this application must identify a “responsible party,” which is someone who controls, manages, or directs the applicant entity and the disposition of its funds and assets — such as an officer, director, owner, general partner, or trustor.
If you have responsible parties that do not have an SSN or ITIN, consult with a qualified advisor as there may be other ways to apply for a FEIN.
Register and qualify in the appropriate states
You may also need to register your entity in the state or states where you are doing business. The states in which qualification is necessary is based primarily on the business activities that you will conduct in certain state(s). File documents in those states and pay the required filing fees.
For example, if you form a Delaware corporation, but plan to have your office in San Francisco, you’ll need to register as a foreign corporation with the California Secretary of State and pay the appropriate filing and annual fees. These rules and regulations can be complex, so consult your professional advisor.
Open a U.S. bank account
Among other requirements to open a U.S. bank account, your U.S. entity will need a physical address in the United States, a FEIN, and completed Know Your Customer (KYC) requirements.
Obtain required business licenses and permits
You’ll also need to plan for required licenses and permits. Again, these can vary from state to state. If your business plan includes import and export, you’ll need to consult qualified advisors to meet U.S. import and export requirements and, if applicable, security compliance laws and regulations.
Review your worldwide insurance policy to determine any gaps for operating in the United States
The U.S. legal system can lead to significant liability exposure. Insurance is available to cover many of those risks, but an insurance policy that is applicable to risks in other countries may not apply to the United States.
Typical lines of coverage in the United States include workers’ compensation, comprehensive general liability, employers’ liability, cyber/data protection, and (where applicable) professional liability. Consult with your insurance and other advisors to determine appropriate and cost-effective insurance solutions for your U.S. entity.
Get your U.S. address
Each type of corporate address has a specific function, and the appropriate choice will depend on your specific circumstances. A registered agent address is not the same as a mailing address or a principal business address — it serves a specific purpose: to handle legal documents. Registered agents give the state a place to serve notices of lawsuits and other official documents. Legal documents are often served in person and may require signatures, which is why the registered agent needs to be available in the physical office location during regular business hours.
On the other hand, the principal place of business is the “nerve center” of your business, where you carry out the everyday work of the organization and where the decision-making power is concentrated. It does not necessarily need to be located in the state of incorporation. Many organizations also establish a separate mailing address, such as a P.O. box or virtual office.
If you do not have a place of business in the United States, virtual mailboxes can be a great option. Some virtual mailboxes offer a P.O. box address, while others provide a real physical street address — which is often required for many banks and official government correspondence.
Consider accounting needs
Your entity’s accounting needs will vary depending upon your circumstances, including the type and size of your entity, your relationships with lenders, and other factors. Consult with a qualified accounting and consulting firm to help define reporting and ongoing bookkeeping needs, determine software solutions, and implement appropriate accounting processes and procedures.
Prepare for U.S. tax compliance
Expanding your business operations to the United States may involve taking steps to comply with federal, state, local, and international tax laws — and these can be complex. Remember that state and local taxes are generally not covered by or preempted by international tax treaties.
Consider the following relative to tax planning:
- Income tax obligations, including multistate taxation
- Sales tax on merchandise and services sold in specific states
- Employment and payroll taxes
- Property taxes
- Import, export, customs duties, excise, and other administrative taxes
- Franchise or gross receipts tax in certain states
- Taxes and withholding requirements that may apply to dividends and distributions to the foreign parent company
- Anticipated intercompany transactions (to determine withholding tax and transfer pricing considerations)
Register with the IRS using the Electronic Federal Tax Payment System (EFTPS)
You’ll need this to pay employee income tax withholding and payroll taxes.
Consider employment needs
Employment laws in the United States likely differ significantly from employment laws in your home jurisdiction. Employment in the United States is governed by federal, state, and local laws — and they are highly technical, covering recruiting, interviewing, hiring, background checks, compensation, employee benefits, anti-discrimination, and termination. Develop practices and procedures to comply with U.S. employment laws.
When employing individuals in the United States, consider factors including the following:
- Creating appropriate offer letters and onboarding procedures and documents
- Where appropriate and enforceable, requiring employees to enter non-disclosure and/or non-compete and intellectual property assignment agreements at the outset of employment
- Drafting employment agreements for key executives
- Creating an employee handbook that contains the employment policies applicable to your U.S. employees
- Evaluating the income, franchise, sales and use, payroll, and other tax implications of having employees work within a particular U.S. jurisdiction
- Determining which employees qualify as “exempt” from overtime and minimum wage requirements
If you decide to utilize independent contractors, be careful to correctly classify these individuals as independent contractors rather than “employees” and put independent contractor agreements in place to reflect those relationships.
Prepare U.S. terms and conditions and commercial agreements
You’ll likely need separate U.S. terms and conditions of sale and U.S. terms and conditions of purchase for U.S. transactions. Consult your U.S. lawyers to adapt your template foreign parent company agreements for transacting commercial activities in the United States.
Consider U.S. privacy and data security requirements
In many countries, personal data is governed by a single, comprehensive data protection law. In the United States, there is a patchwork of state and federal laws that govern the privacy and security of personal information — from collection, use, and disclosure to retention and destruction. Many federal privacy laws are sector-specific, yet requirements may vary by data type, even within a given industry.
U.S. data management laws can be less restrictive than those of other countries; however, since the passage of the General Data Protection Regulation in the European Union, many U.S. states, including California and Nevada, have been increasingly focused on consumer data rights and regulating information treatment by companies. Other states are already following this trend with proposed legislation.
In addition, all U.S. states and most U.S. territories have data breach notice laws with a wide range of notification requirements. Many state laws also include minimum data security requirements for protecting personal data. Consequently, treat information security and data exposing incidents seriously.
Outsourcing arrangements can help you balance risk as you delegate obligations to specialized service providers. For example, websites with ecommerce functionality entail more regulation and complexity, leading many online retailers and service providers to retain a third-party payment platform vendor to handle transactions. Draft specific protective language in contracts with vendors who handle certain transactions or personal data.
How we can help
Expanding your company into the United States can be a great way to create opportunities, but you need a solid plan and experienced team.
CLA’s global advisory and outsourcing team is familiar with the challenges of growing your business across borders and can help you navigate international finance and business complexities worldwide.
Bringing your business into the United States? Consider these additional key elements for navigating complexities in this market.