Opening a subsidiary in the United States of America accesses the world’s largest economy. The subsidiary is a 100% local entity and will be liable to the same registration, taxation and employment laws as local companies, but does give the infrastructure to manage expansion and do business with other US companies.
The advantages for companies expanding by this route include enhancing international credibility and breaking into the remainder of the US market. But setting up a subsidiary in the US brings a daunting workload, particularly as companies have to deal with federal and individual state laws.
Payroll processing, tax filing, workforce management, human resources consultation and complying with every aspect of federal and state regulations will eat up time and costs – not the best use of your resources.
Companies can shift this workload by partnering with an Employer of Record (EOR) company such as Bradford Jacobs. Initially we source your new staff in the USA through our Professional Employer Organization (PEO) international recruitment specialists and then our EOR experts handle all legalities and compliance. Instead of the expense and inevitable delays of going solo, companies can be up-and-running with a presence in their new territory within days rather than months.
How to set up a USA Subsidiary
- Subsidiaries are typically either an LLC (Limited Liability Company and the least complex) or a C-Corporation (subject to corporation taxes on dividends to shareholders)
- Select which of the 50 states to be incorporated in, which does not have to be the same state where the business is located. However, companies must still register in the state they are located, wherever they are incorporated
- Companies must set up a US bank account for their subsidiary. Research and choose a bank that is familiar with your sector, to facilitate trade with US customers
- US tax laws are based on federal and state regulations, are easily misinterpreted, frequently change and pose the risk of sanctions and financial penalties for non-compliance. Outsourcing payroll to experts is the sensible option
- Once companies have acted on this basic checklist, they face various registration requirements of hiring and recruiting. These include:
- Ensuring potential employees have the necessary documentation to work in the USA
- Register for forwarding withholding taxes to the Internal Revenue Service
- Employees’ details must be registered with the relevant state’s Labor Agency
- Register for Workers’ Compensation Insurance
USA Subsidiary Laws
- Subsidiaries are incorporated under US, state or District of Columbia laws
- Register the subsidiary in the state where the office is located
- Obtain a Tax Identification Number (TIN) issued either by the Social Security Administration (SSA) or by the IRS.
- No minimum share capital needed to set up a subsidiary either as an LLC (Limited Liability Company) or a C-Corporation
- LLCs and C-Corps can have unlimited number of shareholders, who generally have no liability
- C-Corps are taxed on corporate earnings and shareholders are taxed on dividends. LLCs are not taxed unless they elect to do so, profits and losses flow through to members
- C-Corp chartered documentation essentially includes Articles of Association, corporation bylaws, board of directors’ resolutions, stock certificates, stocks ledger. LLCs’ chartered documentation includes articles of organization, certificate of formation, operating agreement
- C-Corp directors have overall management responsibility; LLC’s operating agreement sets out how the company is to be managed
The operations are governed by individual state corporate laws
Benefits of setting up a USA Subsidiary
A clear benefit of setting up a limited liability subsidiary in the United States of America is it expands brand recognition into the largest economy in the world with the potential of opening new revenue streams. The subsidiary is free to diversify activities from those of the parent company and can independently adjust to the business culture of the new territory, while increasing global credibility.
The subsidiary limits the liabilities of the parent company and there are also potential tax benefits. In some states, subsidiaries are taxed only on their profits in that state.
The temptation to create a subsidiary is balanced by negotiating the requirements of both federal and state laws. This time-consuming and expensive exercise does not guarantee a successful transition. The alternative is to use a Professional Employer Organization (PEO) such as Bradford Jacobs so that staff can be sourced in-country, placed in their roles and be up-and-running within days, rather than months. In addition, all the difficulties of payroll, taxation and compliance will be under control thanks to our Employer of Record (EOR) services.
What you need to do to set up a Subsidiary in the USA
Companies setting up a subsidiary in the United States of America need to follow a structured process.
- The parent company should authorize the formation of the subsidiary
- Choose either a LLC (Limited Liability Company) or a corporation as these both have independent legal status. However, they have different taxation consequences which should be carefully assessed
- 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. Raising funds through a stock offering requires following applicable Securities and Exchange Commission (SEC) laws
- 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
Working with Bradford Jacobs in the USA
The effective and economic option to establishing a subsidiary in the USA is to partner a Professional Employer Organization (PEO) such as Bradford Jacobs. Our global recruitment expertise and Employer of Record (EOR) solutions can locate employees in the States and have them fully compliant with federal and state laws. Your company can therefore be operational within days, rather than the months it will take to establish a legally compliant subsidiary.