Whether you're a US company looking to expand into new and emerging markets, or a non-US business looking to expand into the United States, going global can be the key to moving from good to great, from turning a lifestyle business into a transformational business. Given the myriad of considerations for any company looking to do cross borders into new markets, you will need to grow new muscles to succeed, including new team members and advisors.
For those considering expanding into the United States, it is important to legally set up your business on a sustainable basis. You are entering a new stream of commerce with an entirely new set of regulations. There are a host of issues that must be addressed up front, such as legal and financial structure, IP protections, employment, contractors, distributors, manufacturing, product liability, federal, state and local income, sales and payroll taxes.
When setting up a business in the United States, you have choices in the way your structure your business:
- Going Direct - You have the option to do business directly in the United States through your corporate entity. Going direct can present problems as you are exposing your non-US revenues to the long-arm of the US legal and tax jurisdiction. For example, your home country operations and revenues would be exposed to US product liability laws and US federal, state and local tax authorities. This option is often expedient for one off transactions, but inadvisable for a strategy to penetrate US markets.
- Setting Up a Branch, Subsidiary or Affiliated Entity - Other options include establishing a local entity still affiliated with your corporate entity. This is a better option when looking to do business in the US long term as it provides better protections for your existing business. Depending on the type of business you operate and the type of business you seek to penetrate in the US, it might be most efficient to set up a wholly owned US subsidiary in the State of Delaware (or elsewhere), sister company owned by the same stakeholders but held independently of the home country entity, or a branch pursuant to multi-jurisdictional treaty.
- Partnering with Local Entity or Establishing Joint Venture - Other options include contracting with a qualified and compliant local entity through which your business can do business. This is a good option when looking to do business in a highly regulated industry or jurisdiction where costs to register or qualify to do business are too high to justify going it alone.
These same considerations apply in reverse. For example, it has long been the case that US companies doing business in the People's Republic of China should consider partnering with a local PRC company to pursue PRC markets.
Local law requirements in the US can implicate critical considerations, as well as the laws of any specific states in which you will be doing business. Do you have to have a local shareholder or director? Do you need a joint venture partner? What are the regulations surrounding the transfer of IP? What are the regulations surrounding citizenship requirements or permission to work? These are all issues that must be addressed. The same applies for US businesses going abroad.
How will you direct human capital to advance your goals? Which entity can employ personnel or engage independent contractors? What are the payroll taxing considerations? How will you maintain compliance with laws and regulations governing human capital and taxes?
Today, going global is imperative to maximize success, but it is also imperative that you don't go it alone. These are incredibly complex issues that require working with expert advisors who can guide you from the beginning. So, who do you engage to help? A trusted lawyer with significant experience in helping non-US companies enter the US market can make all the difference. This will help you to navigate the many local requirements and set your company up for success to do business in the US.
By the same token, a well-seasoned legal advisor who is sophisticated in helping US businesses expand globally will know who to engage, where, when and for how much, and architect a winning strategy.
Originally published 16 August 2021.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.