Foreign companies looking to do business in the United States generally find the U.S. legal system too complex and confusing, and often delay or, worse, abandon their plans prematurely. Although the U.S. legal system differs significantly from other jurisdictions – especially those in the Middle East and the far east – the U.S. economy remains the single largest market consisting of over 320 million consumers with similar purchasing habits. Undoubtedly, for foreign companies, this is a tremendous incentive for expanding their reach to the United States. But, what should foreign executives consider before making an entry into the U.S. market?
First, foreign companies should always prepare their business plans before engaging in any discussions regarding the items that will follow. Without a well thought out business plan, any proposed legal and financial structure would be incomplete and prone to error. Although, foreign executives, at times, may erroneously start working on their companies’ legal structures first, this approach is often misguided and unnecessarily exposes new companies to much uncertainty and business turbulence in the future. At the end of the day, a business must generate income to operate. And, a good understanding of where those revenue streams will originate should comprise an important part of this decision-making process.
Second, once a business plan is in place, companies should turn their attention to engaging a law firm that can assist them with forming their legal structure in the United States. It is often thought that such services can easily be provided by cookie cutter websites. Indeed, it is true that certain online service providers can assist business owners when forming entities in various states; however, such services are usually limited to the procedural act of filing the documents for the formation. That process omits the entire pre-formation phase where important legal and tax considerations are discussed, weighed, and ultimately decided by the business owners.
Third, once counsel is retained, and with their assistance, foreign companies should engage in a detailed analysis regarding the legal location of their U.S. entities; whether they should be formed as a limited liability company or as a corporation; whether they should be entirely owned by the foreign holding company; or if they should be owned by individual owners who may also have an ownership interest in the holding company are some of the questions that will need to be answered. There will also be a complex examination of each option’s tax benefits and consequences. At this point, counsel should engage the services of a certified public accountant (“CPA”) or, in more complex transactions, a law firm specializing in tax matters for assistance.
Fourth, once an acceptable legal structure is agreed on, foreign companies should proceed to the actual formation of their U.S. entities. In this step, counsel should assist them with the preparation of the incorporation documents and the agreements that will govern the internal workings of company. Equity holders should decide whether written agreements to govern their relationship with one another are necessary.
Fifth, following formation, newly established companies should turn their attention to acquiring an employment identification number (“EIN”) from the Internal Revenue Service (“IRS”). Without it, companies cannot open U.S. bank accounts. Executives of these companies should remember that the acquisition of an EIN number through a non-U.S. person may take up to 15 days, and should plan ahead. If, however, these entities can name U.S. persons as responsible party under applicable law, obtaining an EIN can be accomplished within minutes. As such, it is instrumental for foreign companies to take this into account when deciding on staffing.
Finally, when an EIN has been obtained, foreign companies can start conducting business through their U.S. entities. At this point, the execution of the relevant corporate agreements should have been fully completed and recorded.
Now that the company is formed, has controlling agreements, and is able to send a receive money through a bank account, there may be need for other professional services. These may include assistance with immigration, corporate, and intellectual property matters. Since some of these areas require specific knowledge, it is advisable that foreign companies work with attorneys who have subject matter expertise. At Breeding Carter, we assist foreign companies with a wide variety of matters. We also maintain a wide network of well-respected and experienced professionals who can assist us with any issue a company may face. This unique feature allows us to continue to act as your counsel in charge of all pending matters, while relieving you or your executives of the stressful task of working with and managing multiple attorneys all at once.
If you are a foreign individual thinking about doing business in the United States, please contact us to discuss your options. Breeding Carter represents companies of all sizes from around the world. We are here to assist you.
