When you are looking at entering the US market or expanding your business’ reach in the US, there are many questions to consider; it’s a vast market. In order to understand if US expansion is right for your business, you need to:
- Validate the opportunity – is the US the right market to establish and grow your presence?
- Liability protection, tax and market profile.
- Level of dealings in the US, current and projected.
- Target market or customer base in the US.
- The business’ Need for “boots on the ground” in the US. See our blog: Building a US Sales Team
- Need for marketing, supply chain and other support services in the US.
- Plans for investment from the US.
- Identify the market - determine which market represents the best strategic opportunity – the US is not a single homogenous market; break it down such as by region, state or market sector.
- Think like a local - Become familiar with local laws, taxation and cultural differences, to minimize significant long-term overhead and regulatory burden
- Become a local - Create a local legal entity for your business – this can send a positive message to customers and suppliers that you are serious about being part of the local business community. Whether a frequent business visitor to the US or in order to transfer staff to the US, developing a US immigration strategy is key.
When you are looking at entering the US market or expanding your business’ reach in the US, there are many questions to consider; it’s a vast market. Initial factors to consider in determining whether setting up a US business include:
Business structures in the US
Entering the US market is often achieved on a gradual basis, starting with increased sales to the US, perhaps a distribution arrangement with a US party before setting up shop there. The table below summarises the common routes to entering the US market:
No Physical Presence in US
Physical Presence in US
Import/Distribution - Contractual arrangements with a third party
Branch – an office of your UK business in the US
Sales Representative/Agent/ Consultant
Joint Venture between your business and a US party
Form a new entity – for liability protection, tax and market profile reasons
Limited liability company (LLC)
Owned by its partners; partners are personally liable; transparent for tax purposes. A partnership may be general or limited.
Investment in U.S. entity
Having validated the decision to enter the US market, there are further considerations to be made, including:
Where to locate the US business?
- Factors include location of customer base; ease of recruiting qualified staff; costs of staff, property and utilities; tax, incentives; connectivity, infrastructure, quality of life and cost of living.
Where should we form our US entity?
- Delaware is a common choice but there may be other appropriate options.
- Factors include future capital raising and geographical reach of business.
- Do we recruit locally or transfer staff?
- Employment laws in the US differ quite significantly from the UK; good legal advice is crucial
- Employment is generally at-will with no or limited notice requirements
- Employees are classified as “exempt” or non-exempt classification, which has implications for overtime payments and compliance
- If it is intended that UK employees will work in the US, visas will be required
- How do we protect our intellectual property?
- Consider registering a US trademark and copyrights; file for patents and make sure to protect your intellectual property.
- Beware of “oversharing” – enter into Non-Disclosure/Confidentiality Agreements and consider your approach to due diligence, including the information shared and timing of release of information.
- What licenses do we need?
- Local business licenses are often required, some specific to the particular industry.
- How do we protect the business?
- Consider limited liability protection such as creating a separate entity (see more on this below)
- Federal, state and local laws and industry-specific regulations leads to multi-level compliance requirements, so legal advice is key
- Obtain insurance for US operations
- Localize sales, distribution, license and consultancy agreements to comply with US law
- Take advice on accounting, tax and transfer pricing issues
Once you have decided that a U.S. entity is appropriate for your business, the principal steps involved in establishing a new U.S. entity are as follows:
- Determine the appropriate form of U.S. entity, which is likely to be a corporation or a limited liability company (LLC).
- Corporations are similar to U.K. limited companies and have shareholders and directors. LLCs have a “flatter” structure and are owned by members and managed by members or managers. LLCs have fewer record-keeping requirements but may not be the appropriate choice for a U.K. parent company.
- Determine the appropriate state of formation for the U.S. entity. Entities are formed at state (rather than federal) level. An entity may be established in the state where the principal business will be conducted or in a “business friendly” state such as Delaware or Nevada.
- Determine the capitalization of the corporation (how many shares will be issued, at what price, whether any loans will be made and how much each shareholder will contribute to the corporation as its capital contribution). Similarly in the case of an LLC, determine the membership interests to be issued and the amount of any loans. The U.S. entity should be adequately capitalised and the financing structure between the UK and U.S. entities put in place.
- Determine who will be the shareholders, officers and directors of the corporation, or members and managers in the case of an LLC.
- Determine the roles and responsibilities of the corporation’s officers and directors (or LLC’s members and managers).
To form the U.S. entity:
- File Articles of Incorporation (or equivalent) in the appropriate state.
- You don’t need a U.S. address to incorporate a business in the U.S. but you will need to name a registered agent in your state of incorporation with a physical address in the state of incorporation (and any states in which the entity is registered to do business). The registered agent is responsible for important legal and tax documents on behalf of entities.
Once a new entity has been formed, the next steps include:
- Hold an organizational meeting, appointing the officers and directors, issuing shares to the shareholders and taking such other actions as necessary. In the case of an LLC, appoint manager(s) as appropriate.
- Issue corporate stock or LLC interests in compliance with, or exemption from, federal and state securities laws.
- Obtain federal employer identification number (EIN) or taxpayer identification number (TIN). This is required to open a U.S. bank account.
- Open a bank account.
- Buy, lease or rent office space, hire employees, market the products, etc.
- Determine states and cities in which to do business. File registrations and any fictitious business names (DBAs). Obtain appropriate county and city business licenses.
- Prepare bylaws and shareholders agreement (for corporations) or operating agreement (for LLCs).
- Inter-company agreements may be appropriate between the UK and U.S. entities regarding financing, licensing and the provision of services.
- Corporate records and minute books should be maintained up to date and annual meetings or written resolutions prepared recoding corporate actions.
- On an annual basis from the anniversary of its incorporation a corporation is generally required to make annual filings with the Secretary of State. LLCs typically require less formal record-keeping but state filings are required.
- In general, the public disclosure requirements are generally less than in the U.K. For example, details are not generally required of a corporation’s shareholders or members of an LLC.
- Private businesses are not required to publicly disclose the results of their financial operations. Based on their own requirements, banks and other lending institutions may require financial statements.
- Additional filings may also be required. For example, the U.S. Department of Commerce, through the Bureau of Economic Analysis requires certain U.S. entities (such as investment funds or their portfolio companies) to file annual reports of foreign direct investments with the BEA.
The United States remains the world’s largest economy, with a pro-business market that is very attractive to many U.K. enterprises looking to grow overseas. The requirements and risks of expanding to the United States are complex, but with the experience and expertise of professional counsel, the path is manageable.
Our U.S. Immigration Consultant has extensive experience counselling businesses in accessing the U.S. market. If you are looking to enter the U.S. market or if you have already entered and need support with visas or immigration compliance, we can assist.
Here are a few examples of our services.
- Advising on use of the Visa Waiver Program (ESTA) and/or B-1 visas for early stage development
- Transitioning directors and employees to a nonimmigrant work visa as and when necessary
- Renewing or changing visas to ensure continuity of employment
- Supporting established U.S. entities in sponsoring foreign workers for U.S. lawful permanent residence
- Assisting clients in I-9 compliance – advising on requirements, E-Verify set-up, and audit procedures
- Advising on inadmissibility and waivers where an individual has an eligibility concern (e.g., prior visa refusal)
In addition, we are able to provide up-to-date information about the limitations on travel to the United States (such as recent changes related to the global pandemic) and we can support practical business planning.