A 4-Step Checklist for Foreign Companies Launching Their Startups in the U.S.
If you own an international business, you may want to access markets in the U.S. for your goods and services. Although you may sell into the U.S. without establishing a U.S.-based company, doing so may provide you with many benefits including increased credibility with U.S. consumers, a diverse and talented workforce, access to investor capital and enhanced protection for your intellectual property, to name a few. Once you decide to establish your U.S. presence, here is a 4-step checklist of things you should consider.
1. What type of company should I establish?
Although there are many different types of companies that you can establish, you want to create a separate legal entity for the purpose of instituting limited liability which will protect you from personal responsibility from potential business liabilities. For example, if your business is liable for a breach of contract after a lawsuit, you want to make sure that your personal assets are not at risk. For a foreign company operating in the U.S., your choice will be between a corporation and a limited liability company. There are many different considerations in making this important decision that need to be considered with your unique goals and plans in mind. Areas of consideration include tax planning, flexibility in company operations, access to capital, reporting requirements, company management and many others. This important decision should only be undertaken with guidance from both an experienced lawyer and accountant.
2. Where should I establish my company?
In the U.S., company formation is done on the state level. Once again, there are many different considerations in making this decision, but there are some common approaches to consider. First, if you intend on operating a physical office in one particular state, it would make sense to form your company in that state. To the extent that you have employees and transactions occurring in that one state, in addition to federal law, you may be subject to a wide variety of state and local laws from that state. A few examples include tax law, employment law and zoning laws. If you were to form your company in a different state from where you operate your business, you may have to not only form your company in one state, but then register your company in the state you are operating in as a foreign entity, which will add expense and additional administrative burdens for you on an ongoing basis.
However, there are many companies that will still opt to form their companies in the State of Delaware for example, to avail themselves to state corporate laws that are more favorable to corporations when engaged in disputes, may require less burdensome regulation and reporting, and are generally considered desirable to potential investors.
3. Formation compliance
Depending on the type of business entity you decide to form, there are several mandatory steps in launching your company that differ from state to state.
Corporations: When forming a Corporation, you will need to file a charter with the state to form the company (i.e. Certificate of Incorporation), and for internal corporate governance, draft and adopt a set of bylaws, which define how the corporation will operate, appoint directors for the Corporation and provide for meetings for both directors and shareholders of the Corporation.
Limited Liability Companies: When forming a Limited Liability Company, you will need to file a charter with the state to form the company (i.e. Articles of Organization) and draft and adopt an LLC Operating Agreement, which defines how the LLC will operate for things like voting rights, transferability of membership interests and the roles and responsibilities of the members. Moreover, in some states, the newly-formed LLC must comply with a state publishing mandate which may require the LLC to publish legal notices in periodicals of the LLC Formation.
4. Setting up your company finances
Setting up your company finances requires you to:
- Get a Federal Tax Identification Number, which can be done for free online.
- Open a US Bank Account.
- Implement a Taxation Strategy for collecting taxes from your customers and establish your tax payment accounts with federal, state and local taxing authorities to remit the sales tax that you have collected.
- Identify and comply with import/export controls and duties for shipping and selling products internationally.
In conclusion, although the steps for creating a business entity for a foreign company are not overly difficult, there are many choices and decisions to be made that will impact the future success of the entity. Accordingly, it is important to engage an experienced business lawyer and accountant in the U.S. who can help optimize these important choices when considering the unique elements and goals of your specific business.
This article was written by Michael J. Wieser, Lawyer Member at SeedLawyers.
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