Entering the USA Market

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Entering the USA Market 

Foreign companies who wish to expand into the USA will be met with an attractive business hub that includes a highly educated workforce, attractive tax rates and incentives, as well as low labor and administration costs.

However, setting up shop in an unfamiliar place comes with its own challenges. Foreign businesses must comply with employment, tax, payroll, and corporate legislation whilst ensuring that their employees are working productively and efficiently.

Work alongside our Professional Employer Organization (PEO) recruitment specialists, then our Employer of Record (EOR) in-country experts to handle every aspect of compliance. Employers can depend on our in-depth knowledge of the US, its work culture and business practices.

Here we have written out some basic summaries of what you need to make the transition into America’s market, no matter the industry you are in.

Starting a Business in the US

The usual choice for companies establishing a subsidiary in the US is to establish a limited liability company. This is a separate legal entity to the parent company by having its own capital and administration. Another advantage is that the parent company generally has no responsibility for the liabilities or debts of the subsidiary.

Set procedures include the following steps:

  • Select a state to locate the new company, which can be different to where the subsidiary is incorporated
  • Select a unique name for the company, confirm the business address
  • File the new business with the Secretary of State’s office, download and complete authorized templates for Articles of Association and pay fees due
  • Capitalize the subsidiary by transferring funds from the parent company, although there is no legal requirement to initially deposit share capital
  • Compile an agreement indemnifying management from company liabilities. Specify how the parent company can appoint or change directors of the subsidiary, prohibiting changes without the parent company’s permission
  • Draw up the Operating Agreement and install the manager or directors who will manage the subsidiary as an independent entity

Once the company has been cleared to operate, in order to employ and payroll staff other procedures must be followed, including:

  • Ensuring employees have correct documentation, including Form I-9, allowing them to work in the US
  • Completing Form W-4 for remitting employees’ tax payments to the authorities
  • Registering the employee with the relevant state’s Labor Agency
  • Putting worker’s compensation insurance in place, requirements can vary between states

Expanding Business into the US

As the strongest economy in the world, the United States of America is a major target for companies planning international expansion. The US market is innovative and inventive with 50 states each offering opportunities in manufacturing, industry, services, and hi-tech sectors.

Main industrial areas feature petroleum, natural gas, automotive, aerospace, telecoms, electronics, food processing, pharmaceutics, consumer goods, mining, defense manufacturing, healthcare, information technology, construction, retail, real estate, and financial services.

Generally, companies expanding into the US take the route of opening a subsidiary as either an LLC (Limited Liability Company) or a C-Corporation, but both represent a complicated journey which involves complying with federal and state laws as they apply to hiring and recruitment, payroll, paying taxes, compensation, and benefits plus every other aspect of employment.

The simple alternative? By considering their plans in partnership with a Professional Employer Organization (PEO) and Employer of Record (EOR) such as Bradford Jacobs, companies can plot a time-efficient and cost-effective path to locating and employing staff in the US.

US Business Facts

  • Capital City – Washington DC
  • Population – 333 million approximately
  • Regions – 50 states plus Washington DC. Economic regions include New England, the Mideast, Southeast, the Great Lakes, the Plains, Southwest, the Rocky Mountains, and the Far West
  • Official Language – many States have declared English as their official language, although there is no official language at federal level
  • Economy – US$ 22 trillion, the world’s largest economy
  • Leading Sectors – petroleum, automotive, aerospace, telecommunications, lumber, mining, construction, and financial services
  • Main exports – include refined petroleum, aircraft, helicopter and spacecraft, cars, crude petroleum, integrated circuits
  • Main imports – include cars, crude petroleum, broadcasting and electrical equipment, computers, pharmaceuticals
  • Main trading partners – Mexico, China, Canada, Japan, UK, and Germany
  • Government – a federation of states, a federal republic, democracy, and presidential system
  • Currency – US$

Advantages and Challenges of the US Market

Advantages of expanding into the US market include:

  • Logistics: The US is equipped to supply markets nationally and globally through air, sea, rail and road networks and features half of the world’s top 10 airports for moving cargo
  • Market: The US is the world’s largest economy, with the greatest private sector and consumer numbers
  • Legal: Low regulatory barriers to setting up a business; US Patent Office strictly enforces Intellectual Property rights
  • Staffing: The US’s 5,000-plus universities and colleges are a production line for well-educated and skilled workers to enter the employment market
  • Business: All US-based businesses are treated equally, whether foreign-owned or not, plus all 50 states are committed to attracting investment
  • Locations: Expanding companies have seemingly unlimited choices and can benefit from a variety of geographical and climate characteristics that can best suit their line of business
  • Attitudes: Innovation and new ideas are encouraged, and lines of personal communication are open and direct
  • Benefits: Foreign companies can attract incentives, such as tax credits, and lower commercial real estate prices

Challenges of entering the US market include:

  • Workforce: The multi-ethnicity of the workforce can create challenges for incoming companies as the cultural diversity is very different from the largely culturally homogenous European employment market
  • Taxation: The Internal Revenue Service strictly applies federal taxes, plus there are also tax collection authorities at state and local level
  • Recruitment: The multinational corporations tend to choose the best of the best of the employment market, making it very competitive to find the right fit for you
  • Bureaucracy: The steps needed to obtain property in the States involves multiple documentation procedures. For example, electricity connections can take up to two months to sort out.

Limited Company / Subsidiary or Branch in the US?

International companies targeting the US for expansion will generally choose a limited liability company (LLC) subsidiary, as they have independent legal status from the parent company, which is generally free from responsibility for any debts or liabilities of the subsidiaries. Subsidiaries can have a totally different name from the parent company, pursue different business activities and form their own contracts.

Branches, in comparison, are an extension of the parent company and are not generally a popular choice for expanding into the US.

Main characteristics of a subsidiary:

  • Entirely independent legal entity from the parent company
  • Managed by the members or an appointed manager
  • Members can structure the subsidiary independently of the parent company
  • Any liabilities of the subsidiary are not the responsibility of the owning parent company
  • The subsidiary can manage its own tax affairs and take advantage of any incentives in the jurisdiction it operates.

Main characteristics of a branch:

  • Branches are not separate legal entities from the parent company, but an extension of the parent company and follow the same business practices
  • The parent company is not protected from any liabilities or debts of the branch

Legal Structure for US Market Entry

The US Constitution allows companies to incorporate in any state of their choice, regardless of where their headquarters are based. Federal law lays down minimum requirements for trading and governance, generally based on the 1933 Securities Act and the 1934 Securities and Exchange Act.

However, states and local authorities also have their own corporate laws, adding to the complexities of launching a subsidiary. The typical choice is to form a Limited Liability Company (LLC), which follows these general guidelines.

The legal structure for a limited liability company:

  • The legal structure for a subsidiary allows it to operate independently from the parent company, under its own name and able to follow its own commercial and business activities. 
  • The subsidiary can have an unlimited number of members who generally have no liability beyond their share contributions. 
  • The Operating Agreement sets out how the business is to be managed and a manager can be designated to handle day-to-day operations. 
  • There is no requirement for annual meetings of members or managers, whose activities are defined by the Operating Agreement. Corporations, however, are required to hold shareholder annual meetings.

The legal structure for a branch:

  • A branch is not a separate legal entity from the owning foreign parent company and carries on the same business under the same name as the parent company. 
  • The initial legal step is to register with the Secretary of State’s office in the state where the branch will operate. 
  • The branch must provide Articles of Association of the parent company, the planned business activities of the branch and the designated representative to deal with official and legal affairs.

Opening a Business Bank Account in the US

There are more than 5,000 banking institutions to choose from in the US. So, some research is necessary, and choice will depend on services and facilities (business loans and ATM availability), the fees charged, initial deposit and benefits offered according to your business needs.

To open a corporate bank account, the business must be registered in the US. The bank will ask for a number of documents including proof of registration. For new clients, it is usual to take the paperwork along when opening the account, due to ‘Know Your Customer’ and due diligence policies. Although some banks will allow clients to start the procedure online.

A company requires a business bank account for its everyday transactions e.g., purchasing goods from suppliers to paying for services. Even small companies, who may feel they do not require an account in the early stages, need to keep their personal banking separate from their business – for tax purposes and money laundering concerns. It is also a more professional way to do business and allows for expansion.

Here are some of the documents required to open a business account, but some banks are more circumspect than others:

  • Photo ID of the named ‘responsible manager’ opening the account, plus signature and proof of home address
  • Paperwork showing manager to be legal in US
  • Articles of Association or incorporation - documents are to prove registration and type of business being undertaken
  • Business license (if applicable – depends on products and services supplied)
  • An EIN (Employer Identification Number) which is needed for paying and taxing employees
  • Proof of business address as some banks prefer clients to be based in the same state or location

There’s no legal issue with opening a bank account in the US as a non-resident. However, for a company account, businesses must be registered in America and have an EIN.

Company formation in the US

The US Constitution allows companies to incorporate in any state of their choice, regardless of where their headquarters are based. Federal law lays down minimum requirements for trading and governance, generally based on the 1933 Securities Act and the 1934 Securities and Exchange Act.

The main company categories include, but registration and incorporation procedures can vary between states:

  • C Corporations
  • S Corporations
  • Limited Liability Companies
  • Sole Proprietorships

Foreign companies expanding into the US typically select an LLC. Registration procedures, which can vary between states, generally include the following:

  • Select a state to locate the new company, which does not have to be the same state where the subsidiary is incorporated
  • Select a unique name for the company, confirm the business address
  • File the new business via the Secretary of State’s office, download and complete authorized templates for Articles of Association and pay the due fees
  • Capitalize the subsidiary by transferring funds from the parent company, although there is no legal requirement to deposit share capital
  • Compile an agreement indemnifying management from company liabilities. Specify how the parent company can appoint or change directors of the subsidiary, prohibiting changes without the parent company’s permission
  • Draw up the Operating Agreement and install the manager or directors who will manage the subsidiary as an independent entity

Once the subsidiary is cleared to operate, other responsibilities include:

  • Ensuring employee has correct documentation, including Form I-9, allowing them to work in the US
  • Completing Form W-4 for remitting employees’ tax payments to the authorities
  • Registering the employee with the relevant state’s Labor Agency
  • Ensuring the employer has worker’s compensation insurance in place, which can vary between states
  • Paying employees, paying payroll tax to the Internal Revenue Service (IRS) and the state’s tax agency, if applicable, and filing tax returns

Finding an office in US

Most of the 50 states have their own culture, rules, regulations, and state laws. Companies need to carefully research which region of the US complements their business requirements. Finding the right location is paramount. 

Today, we are only a click away from sourcing information and required capital, ordering goods and services, and using technology remotely. Maybe the power of being competitive lies in local knowledge, networking and business relationships which facilitate like-minded entrepreneurs operating within ‘cluster’ communities which offer:

  • Free support, helping growth on the international stage
  • Coaching, guidance, and networking opportunities creating trust and synergy
  • Maximized ideas, knowledge, research, and development opportunities more efficiently and generating new partnerships
  • Innovative ideas which can transform into marketable solutions and services

Here are a few iconic places:

  • California: Small and medium-sized enterprises (SMEs) are prominent in digital and technology sectors – for example, the world-famous Silicon Valley is home to hundreds of innovative start-ups establishing their operation centers, such as Apple, Adobe, HP, and Google.

  • New York City: The most densely populated city is renowned for financial services, Manhattan being the biggest financial hub in the world. START-UP NY is an incentive program offering 10-year tax breaks to new and expanding businesses.

  • Chicago: A hot bed for sectors in printing, metal and food manufacturing, transportation, information technology and financial services.

  • Detroit: Heavily industrial with focus on automobile manufacturing, but also features life sciences, IT, and advanced manufacturing.

  • Houston: From energy and life sciences to manufacturing and aerospace, offers a dynamic infrastructure to support these thriving, core industries and with over 500 oil and gas exploration companies.

  • San Francisco: This area is home to an ever-expanding number of innovative global technology companies, which is one of the fastest growing industries of the last few decades.

  • Seattle: A west coast powerhouse in Washington State and a massive industrial hub. Manufacturing is a large sector in Seattle. Home to Boeing, hub for global aerospace and tech giants.

  • Boston: Life sciences capital of the world due to research and commercial clusters.

After choosing where in this huge country to locate, the next step is the type of office needed – whether you are looking for space sharing, an enterprise suite with shared facilities or the ‘bricks and mortar’ of a private rented or leased workplace. Some points to consider:

  • Is it necessary to be near to manufacturers or distributors?
  • Are business hubs or clusters relevant to your business?
  • Demographics of potential employees, ease of travel and good transport links
  • Does it need to be attractive and functional for your workforce?
  • Is it within budget, and does it have room for expansion?
  • Is the locale around the office desirable, clean, good for mental health and provides good services and accommodation?
  • What local support, government grants or tax breaks are available in the area?

In other words, is your office ‘good for doing business?’

Finding a Manufacturer in US

When creating a product, developing an idea is very important, but so is its production. Most businesses trying to turn ideas and prototypes into a tangible product need the help of a manufacturing facility, especially when producing in bulk. In this case, expanding companies may need to partner with local manufacturers.

Here are some relevant questions to ask during your search for US manufacturers:

  • Do they hold relevant quality certificates?
  • What experience do they have and who are current clients?
  • Can they deliver direct to customers?
  • Can they keep up with demand? Or do they outsource?
  • Can they source materials?
  • Are they financially sound?
  • What is their minimum order quantity?
  • Discuss possible penalties for poor quality or late deliveries
  • Payment options

It is also advisable to consider these steps in your product creation and manufacturing research:

  • Market research to avoid manufacturing a product in a saturated market
  • Licensing to a company that can handle manufacturing, marketing, and distribution
  • Can the manufacturer build and test a prototype?
  • Protecting a company’s intellectual property

If a company decides upon a US manufacturer, research and check their reputation and explore links on social media for the appropriate industry, speak with fellow entrepreneurs, go to trade shows, and use online supplier databases. Reach out to local business groups and check out local business directories. Some ideas:

Finding a Distributor in US

The US has 50 states, plus Washington DC, within a 900 million km2 area and eight economic regions, which include New England, the Mideast, Southeast, the Great Lakes, the Plains, Southwest, the Rocky Mountains, and the Far West. 

The Bureau of Economic Analysis (BEA) uses these regions to compare economic data. It may be wise to focus first on one region in the US. This requires a sound distribution strategy; for services, it would be good to have representation in each of these regions. 

Alternatively, concentrate with more high-end products in the major cities. With the population in the US at approximately 333 million, 83% of those people live in the cities.

After setting up your office, developing and manufacturing your product, it is vital that you find a top-line distributor. It may be easy to find one, but not easy to find the best for you and your company!

Finding the perfect partner is vital to achieving your objectives. They need to be in this for the long haul; the US is a vast country, and you will need someone who knows your distribution channels. They can help you formulate goals and long-term business plans using the ‘know-how’ of their business to help expand yours.

You may also find that your home country’s Department of International Trade or equivalent will run trade missions to the US, knowing the ideal conferences and trade fairs where face-to-face-meeting are more likely. Social media and LinkedIn can also provide networking platforms.

Or a better option would be to partner first with a facilitator such as Bradford Jacobs who have the know-how and can save you trawling through the information when you should be on to the next step!

Some useful links:

At Bradford Jacobs we mean business!

Treat Bradford Jacobs as your business consultant when planning your move into the US. Our in-country specialists will steer you towards the frontline manufacturers and distributors and help you locate your offices in prime locations for your specific business activities. We find the staff and we get them working, your company will be up and running. We are ready - call us now!