Following the recent appointment of partner Tracey Ginn, a highly experienced dual-qualified California and Scots corporate lawyer, MBM Commercial offers sophisticated US law capability alongside our UK law advice, to help when expanding into US markets, transacting with US businesses or selling to a US buyer. We provide expertise in navigating the complex US legal environment and market knowledge of the US market, working locally to support clients globally in corporate and commercial transactions. Our experience ranges from advising technology start-ups and other entrepreneurial businesses to larger international transactions.
US Legal Advice for UK Businesses
Our dual-qualified US lawyer in Edinburgh advises on:-
- Business structures in the US
- New office set up and start-ups in the US
- Investment by US parties
- Joint ventures with US parties
- Sales to US entities
- Acquisitions of US businesses
- Contracting with US parties
Scottish & UK Legal Advice for American Businesses
If you are expanding into US markets, transacting with US businesses or selling to a US buyer we are keen to help you. Please get in touch on 01312268200 .
Legal Guides for UK Companies Doing Business in the US
This following guide from our US-UK dual qualified attorney/solicitor describes issues to consider regarding your business’ interactions with the US. Doing business in the US can be a complex and daunting process. MBM Commercial offers sophisticated US law capability to help when expanding into US markets or transacting with US businesses. We work locally to support clients globally in corporate and commercial transactions.
The US is a pro-business environment with a large potential consumer base and business support services. This provides great opportunities and options for UK businesses and can facilitate start-ups established businesses and growing quickly from day one. On the other hand, the US is also a rigid, highly regulated and litigious environment. While the business and legal words are broadly similar to the UK, there are many important differences and potential pitfalls.
One of the factors which contributes to the highly regulated environment is that US law is made at several levels, principally at federal and state levels, but also at local city and county levels – municipalities may have their own sets of rules and regulations applicable to particular local areas and issues. Each of the 50 US states has its own law and, while uniform laws have been adopted by many states, each state’s law is distinct. While the business set-up process is similar for US residents and non-residents, there are additional complications to be aware of. Given the complex regulatory regime and potential pitfalls, it is important to prepare and plan ahead before entering the US market and to protect your business.
Is the US the right market for your business?
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:
- Liability protection, tax and market profile.
- The business’ level of dealings in the US, current and projected.
- The business’ target market or customer base in the US.
- The business’ need for “boots on the ground” in the US.
- The business’ need for marketing, supply chain and other support services in the US.
- Plans for investment from the US.
Routes to enter the US Market
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
How should our business enter the US market?
Once a business has decided to enter the US market, there are multiple decisions to be made, including:
- Where should we 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
More detail on the routes to the US market is below:
No Physical Presence in US
Physical Presence in US
The following guide describes practical steps and issues to consider when setting up a U.S. entity to conduct your business’ U.S. operations. Doing business in the States can be a complex and daunting process. MBM Commercial offers sophisticated U.S. law capability to help when expanding into U.S. markets or transacting with U.S. businesses. We work locally to support clients globally in corporate and commercial transactions.
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.
MBM Commercial has 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.
MBM Commercial provides this material for informational purposes only and specific advice should be sought for each state in which business will be conducted. The above information 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.