How to Form a U.S. Subsidiary: A Strategic Guide for International Companies
In an increasingly globalized economy, many international companies look to expand their operations to the United States. For companies eying the vast American market, establishing a U.S. subsidiary could be a helpful strategic move to achieve this goal. This article highlights key items to consider when looking to form a U.S. subsidiary.
Benefits of Forming a U.S. Subsidiary
When entering the U.S. market, international businesses often choose between establishing a subsidiary or a branch. A U.S. subsidiary operates as a separate legal entity, providing a shield for the parent company against liabilities incurred by the subsidiary. In contrast, a branch is an extension of the parent company, which may expose the parent to greater liability. The structure as a subsidiary not only limits financial risks but can also enhance the subsidiary’s credibility in the U.S. market.
Legal Framework for U.S. Subsidiaries
Choosing the Right State
Choosing the state of formation involves considering taxation and regulatory requirements, as well as operational costs. Delaware is popular for its business-friendly laws and established legal precedents, but it may be worth examining the forming an entity in the state where the business intends to operate as well.
Choosing the Right Entity
The U.S. offers a flexible legal framework for international entities looking to form a subsidiary. The choice of entity type, such as a Limited Liability Company (LLC) or a Corporation (C-Corp), is crucial, each offering distinct advantages in liability protection, tax treatment, and operational flexibility. Understanding these options is the first step toward making an informed decision that aligns with your business objectives.
Steps to Forming a U.S. Subsidiary
Once the state of formation and the business entity are selected, the incorporation process involves:
- Registering the entity with the state’s Secretary of State
- Establishing corporate governance and management practices
- Obtaining an Employer Identification Number (EIN)
- Opening a U.S. bank account
- Complying with applicable local, state, and federal regulations
Compliance with ongoing legal and regulatory obligations, including tax filings and corporate governance, is essential for maintaining good standing in the U.S.
Particularly, it is crucial to maintain the “corporate veil”, a legal concept that separate the subsidiary’s liabilities from the parent company, by ensuring the subsidiary operates independently, with its own bank accounts, records, and governance. Failure to do so might lead to “piercing the corporate veil,” where courts hold the parent company liable for the subsidiary’s obligations.
Conclusion
Navigating the U.S. legal landscape requires a nuanced understanding of federal, state, and local regulations. Engaging with local legal experts is often indispensable for successfully establishing and operating a U.S. subsidiary.
Don’t navigate this complex legal landscape alone. Engage with our team of legal experts who can provide the guidance and support you need to ensure compliance and achieve long-term success.
Disclaimer: This article is for informational purposes only and does not constitute legal advice or establish an attorney-client relationship. This article should not be used as a substitute for obtaining legal advice from an attorney. For personalized legal guidance, consult a qualified attorney.