This post describes practical steps and issues to consider when setting up a U.S. entity to conduct your business’ U.S. operations. Doing business in the U.S. can be a complex and daunting process. MBM Commercial offers sophisticated U.S. law capability to help when expanding into U.S. markets or transacting with U.S. businesses. We work locally to support clients globally in corporate and commercial transactions.
Once you have decided that a U.S. entity is appropriate for your business (see “Doing Business in the U.S.”), the principal steps involved in establishing a new U.S. entity are as follows:
- Initial determinations:
- Determine the appropriate form of U.S. entity, which is likely to be a corporation or a limited liability company (LLC).
- Corporations are similar to U.K. limited companies and have shareholders and directors. LLCs have a “flatter” structure and are owned by members and managed by members or managers. LLCs have fewer record-keeping requirements but may not be the appropriate choice for a U.K. parent company.
- Determine the appropriate state of formation for the U.S. entity. Entities are formed at state (rather than federal) level. An entity may be established in the state where the principal business will be conducted or in a “business friendly” state such as Delaware or Nevada.
- Determine the capitalization of the corporation (how many shares will be issued, at what price, whether any loans will be made and how much each shareholder will contribute to the corporation as its capital contribution). Similarly, in the case of an LLC, determine the membership interests to be issued and the amount of any loans. The U.S. entity should be adequately capitalised and the financing structure between the UK and U.S. entities put in place.
- Determine who will be the shareholders, officers and directors of the corporation or members and managers in the case of an LLC.
- Determine the roles and responsibilities of the corporation’s officers and directors (or LLC’s members and managers).
- To form the U.S. entity:
- File Articles of Incorporation (or equivalent) in the appropriate state.
- You don’t need a U.S. address to incorporate a business in the U.S. but you will need to name a registered agent in your state of incorporation with a physical address in the state of incorporation (and any states in which the entity is registered to do business). The registered agent is responsible for important legal and tax documents on behalf of entities.
- Once a new entity has been formed, the next steps include:
- Hold an organisational meeting, appointing the officers and directors, issuing shares to the shareholders and taking such other actions as necessary. In the case of an LLC, appoint a manager(s) as appropriate.
- Issue corporate stock or LLC interests in compliance with, or exemption from, federal and state securities laws.
- Obtain federal employer identification number (EIN) or Taxpayer Identification Number (TIN). This is required to open a U.S. bank account.
- Open a bank account.
- Buy, lease or rent office space, hire employees, market the products, etc.
- Determine states and cities in which to do business. File registrations and any fictitious business names (DBAs). Obtain appropriate county and city business licenses.
- Prepare bylaws and shareholders agreement (for corporations) or operating agreement (for LLCs).
- Inter-company agreements may be appropriate between the UK and U.S. entities regarding financing, licensing and the provision of services.
- Ongoing Filings
- Corporate records and minute books should be maintained up to date and annual meetings or written resolutions prepared recoding corporate actions.
- On an annual basis from the anniversary of its incorporation, a corporation is generally required to make annual filings with the Secretary of State. LLCs typically require less formal record-keeping but state filings are required.
- In general, the public disclosure requirements are generally less than in the U.K. For example, details are not generally required of a corporation’s shareholders or members of an LLC.
- Private businesses are not required to publicly disclose the results of their financial operations. Based on their own requirements, banks and other lending institutions may require financial statements.
- Additional filings may also be required. For example, the U.S. Department of Commerce, through the Bureau of Economic Analysis requires certain U.S. entities (such as investment funds or their portfolio companies) to file annual reports of foreign direct investments with the BEA.
MBM Commercial has experience in guiding businesses through the process of setting up new operations in the U.S and we value the opportunity to work with growing businesses and the new relationships and opportunities they open up for us.
MBM Commercial provides this material for informational purposes only and specific advice should be sought for each state in which business will be conducted. The above information is general and is not intended to be legal advice. Nothing herein should be relied upon or used without consulting a lawyer to consider your specific circumstances, possible changes to applicable laws, rules and regulations and other legal issues.