The United States’ economy is the most powerful globally, valued at over $22 trillion, serving more than 320 million in a nation that spans six time zones and comprises 50 individual states. The US employment market is probably the most ‘savvy’ on the planet.
Innovation, invention and excellence are key words behind the success of US industry, which supplies one of the world’s largest consumer markets as well as being in the front rank of exporters alongside Germany, China and Japan. The US stands alone as the world’s largest importer.
However, the power of the US economy creates a challenge for foreign companies planning to open subsidiaries in this vast nation, as standards are high and they will have to be matched by newcomers, along with compliance to labor, registration, tax and payroll regulations which apply at both federal and state level.
The alternative and sensible solution is to work alongside a Professional Employer Organization (PEO) such as Bradford Jacobs, then employ our Employer of Record (EOR) in-country experts to handle every aspect of compliance. Employers can depend on our specialists’ in-depth knowledge of the United States, its varied culture, customs and business practices. Here we have set out some basic summaries of what you need to make the transition into the USA market, whichever industry you are in.
Starting a Business in the USA
The World Bank ranks the USA only 55th in the world, out of 190 nations, for ease of ‘starting a business’ though it jumps to eighth for ‘ease of doing business’, highlighting that the main issues revolve around getting up-and-running. The necessary steps include:
- Decide carefully between an LLC (Limited Liability Company) or a C-Corporation, which has tax implications
- Decide which state to incorporate in, which does not have to be the same as where the company is located
- Companies must set up a US bank account
- Ensure the new employees have the necessary documentation, visas and permits allowing them to work in the US
- Register with the Internal Revenue Service for withheld taxes
- Register employees’ details with the relevant state’s Labor Agency
- Register for Workers’ Compensation Insurance
Expanding Business into the USA
As the strongest economy in the world, the United States of America is a major target for companies planning international expansion. The 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, defence 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.
USA Business Facts
- Capital City – Washington DC
- Population – 328 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 – $GDP 22 trillion. The world’s largest economy
- Leading Sectors – Petroleum, automotive, aerospace, telecommunications, lumber, mining, construction and financial services
- Main exports – refined petroleum, aircraft, helicopter and spacecraft, cars, crude petroleum, integrated circuits
- Main imports – 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 Disadvantages of the US Market
Close to six million Americans are employed by foreign companies established in the country, with a $400 billion annual payroll.
- The USA is the world’s largest economic market with the greatest private sector
- Low regulatory barriers to setting up a business
- Minimal language barriers
- The higher education system creates skilled workers
- Foreign companies can attract incentives, such as tax credits, lower commercial real estate prices
- All US-based businesses are treated equally, whether foreign-owned or not
- All 50 states are committed to attracting investment and incoming companies have virtually unlimited locations and can choose geographical and climate characteristics that suit
- The US’s 4,000 universities and colleges are a production line for well-educated and skilled workers to enter the employment market as a hard-working and dedicated employee base
- The US’s logistics 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
- The US Patent Office stringently enforces intellectual property rights
- Innovation and new ideas are encouraged and lines of personal communication are open and direct
Potential disadvantages of entering the US market include:
- 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
- The Internal Revenue Service strictly applies federal taxes, plus there are also tax collection authorities at state and local level
- The multinational corporations can take the cream of the employment market, while at the other end of the scale outsourcing cheap manufacturing services can make competing with them daunting
- The bureaucratic steps needed to obtain property in the States involves multiple documentation procedures. Electricity connections can take up to two months
Why Companies like doing business in the USA
The World Bank’s ‘Doing Business’ report ranks the US first among nations with populations of more than 100 million for ease of establishing start-ups and trading globally.
Free enterprise and economic growth also attract new business with the freedom to choose location, and business structure and become established by following a reasonably straightforward procedure.
Establishing Limited Company/Subsidiary or Branch in the USA
The steps for setting up a branch include developing a business plan, completing a legally correct relationship between parent company and branch, opening a business bank account and obtaining any required visas or permits.
The procedure for setting up a subsidiary is more protracted. After deciding what company form the subsidiary should take, deciding in which state to locate and setting up a bank account, further steps include:
- Ensuring potential employees have the legal documentation to work in the USA
- Registering for forwarding withholding taxes to the Internal Revenue Service
- Employees’ details must be registered with the relevant state’s Labor Agency
- Registering for Workers’ Compensation Insurance
- Registering the subsidiary in chosen state
- Obtaining a Tax Identification Number (TIN) and Employer Identification Number (EIN), to establish tax relationship with the Internal Revenue Service (IRS)
Although setting up a subsidiary is a more complex process, there are key benefits. The parent company is free of any liabilities incurred by the subsidiary, which is also free to pursue new markets, contracts and develop business independently of the parent company.
By contrast a branch is an extension of the owning company and follows the same business model. Also, the parent company’s owners can be responsible for the debts and liabilities of the branch.
Legal Structures for USA Market Entry
The most common legal structures are Sole Proprietorship, Partnerships, C-Corporations, S-Corporations and Limited Liability Companies (LLC). The LLC is the most popular choice for foreign companies launching a subsidiary. Generally businesses need an Employer Identification Number (EIN).
USA Business Taxes
Resident corporations are taxed at 21%.
Opening a business bank account in the USA
The company must prove it is registered in the USA. The account must be separate from any personal banking. Depending on the company’s size or turnover, banks have specific conditions and fees will vary depending on usage. The following documents and procedures are required:
- Photo ID for the director opening the account and proof of business address
- Proof the company has been legally registered with articles of incorporation
- EIN (Federal Employer Identification Number) confirmation letter for tax purposes
The application process can usually be started online.
Registering a Company in the USA
- Choose either a LLC (Limited Liability Company) or a corporation as these both have independent legal status.
- 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.
- 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
- Install the board of directors who will manage the subsidiary as an independent entity
Locating your company in the USA
Most of the 50 states have their own culture, rules, regulations and state laws. Companies will need to carefully research which region of the USA complements their business requirements. Finding the right location for a company is paramount.
Here are just a few iconic places to consider:
• 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
• New York City. The most densely populated city is renowned for financial services, Manhattan being the biggest financial hub in the world
• 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. Home to an ever-expanding array of innovative, global technology companies. With technology being 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
• Massachusetts. Life sciences capital of the world due to research and commercial clusters
Finding a USA Manufacturer
Companies may need to partner manufacturers in the United States. Developing an idea for a product is meaningless if it does not become reality. Most businesses trying to turn ideas and prototypes into a tangible product, will need the help of a manufacturing facility, especially when producing in bulk.
- Do they hold relevant quality certificates?
- What experience do they have and 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
- 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 USA 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:
- Maker’s Row - American Made, end-to-end manufacturing process https://makersrow.com/
- Global Sourcing Specialists – Product development and manufacturing sourcing for start-up companies http://www.productgss.com/
- MFG – Find the best manufacturer https://www.mfg.com/
- Thomas.net – Commercial and industrial suppliers https://www.thomasnet.com/suppliers/
- Industrial Net – The industrial marketplace https://www.industrynet.com/
Source for wholesalers, distributors, importers and manufacturers https://www.wholesalecentral.com/index.htm
Finding a Distributor in the USA
The USA has 50 states 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 US. This requires a sound distribution strategy; for services, it would be good to have representation in each of these regions.
Alternately, concentrate with more high-end products in the major cities. With a population of approximately 328 million 81% of people live in the cities.
- National Association of Wholesale Distribution https://www.naw.org/who-we-serve/
- Marketing Mentor. List of trade associations and trade https://www.marketing-mentor.com/pages/trade-list
Some useful links:
• Globaltrade.net is one of the pre-eminent international trade directories on the web with the latest distributors and agents https://www.globaltrade.net/expert-service-provider.html
• The FITA (Federation of International Trade Associations) directory of trade associations in North America www.fita.org
• Globality. Smart sourcing https://www.globality.com/en-us
• The International Business Directory. Dozens of international business categories and regions to search either option https://internationalbusinessdirectory.com/
• Trade Key. Top quality directory https://www.tradekey.com/
• Connecting companies to global markets https://www.trade.gov/export-solutions
• The source for wholesalers, distributors, importers and manufacturers https://www.wholesalecentral.com/index.htm
Enter new Markets with Bradford Jacobs
Bradford Jacobs open the door for companies like yours seeking to explore new markets in the United States and worldwide by recruiting the staff for your expansion plans. Our Professional Employer Organization (PEO) specialist teams have in-depth global knowledge of how to recruit in new territories. Our Employer of Record (EOR) services guarantee your company complies with laws relating to employment, registration, taxation and payroll at both the federal and state level.
Bradford Jacobs provide ongoing consultation on human resources based on our understanding of individual cultures and customs of every country being targeted for global expansion. Work with Bradford Jacobs to expand into the USA and put the brightest and most talented staff in place.