US Expansion – Setting up the Right Way

By Daniel Glazer

Daniel Glazer will be speaking about US Expansion Strategies at the Global Expansion Summit in 2017. 

US Expansion – Setting up the Right Way

Establishing US operations presents various administrative challenges.  It makes sense to address as many of these as possible before you land, so you can focus on building your business when you’re on the ground.

None of this is particularly complicated, but it pays to be proactive.  The US has a more complex legal and tax environment than most non-US jurisdictions, and the enforcement and liability risks are higher if something goes wrong.

Here is a checklist of ten key areas you’ll want to address:

1. LEGAL

  • Corporate.  Confirm your corporate structure.  It typically will make sense to set up a US subsidiary to separate the US and non-US businesses, both for tax and liability reasons.  Your US subsidiary also will need to appoint a registered agent, and “qualify to do business,” in every state in which you have an office or other similar presence.
  • Intellectual Property.  Address US trademark issues defensively (confirming that no one else has prior registered or unregistered rights to your name and key brands) and offensively (by filing a US trademark application).  Depending on your business, you may also need to address patent issues.
  • Contractual Terms and Conditions.  Your contractual terms and conditions will need to be converted to the laws of a US state, for both legal and commercial reasons.
  • Employment.   You will need US employment advice.  Most US employees do not have employment contracts, but you should have confidentiality and IP assignment agreements with all employees.  You’ll also be bound by offer letter terms, employee manuals and other undertakings.  Employment-related litigation is a substantial risk in the US – while US employees can theoretically be fired “at will” without notice or cause, and there is no statutory redundancy, the risk of discrimination, harassment or other claims and litigation means that terminations require delicate handling.

2. TAX STRUCTURING AND COMPLIANCE

Establish appropriate arm’s-length arrangements between your non-US parent and its US subsidiary, in order to keep separate your non-US and US taxable income.  This is particularly important since US corporate tax rates (federal and state), totalling about 40%, are typically 2x the level in the UK and 3x the level in Ireland.  You also should put in place appropriate compliance procedures to address federal and state corporate income tax, as well as other potentially relevant tax regimes (sales tax, personal property tax, etc.), particularly at the state and local level.  With care as to your choice of tax provider, this can be handled cost-effectively.  If you send over personnel from outside the US, they will need expat tax advice and support. 

3. BACK OFFICE SUPPORT

You will need help with book-keeping, employee tax withholding, HR and mandatory employee insurance and benefits, and similar matters.  All of this can be out-sourced to companies experienced in working with high-growth companies. 

4. BANKING

It can be difficult for a non-US company to set up banking for its US subsidiary.  Some banks are particularly focused on banking high-growth companies on a trans-Atlantic basis, which can help ease the process. 

5. IMMIGRATION

If you’re sending over personnel outside the US to staff your US office, they will require visas permitting them to work.  You should allow three to four months to sort this out. 

6. INSURANCE

The US is a high-risk environment.  Get an insurance broker with trans-Atlantic experience to confirm your insurance arrangements (types of cover as well as terms and limits) are appropriate. 

7. RECRUITMENT

The hardest part about setting up in the US is finding the right people.   Obtaining recommendations from people whom you know and trust (such as your VC or angel investors, advisors, or other good friends) is likely to be the best way.  If that’s not an option, however, you’ll need advice from a trustworthy source and will need to do appropriate diligence.  Cross-cultural recruitment is hard; beware of the gap between “talking the talk and walking the walk” (especially with US sales people). 

8. LOCATION

The US is a big place!  Beware of pre-conceptions (e.g., that you must go to Silicon Valley).  There are many markets in the US, from both a customer and investor standpoint, and you will need to assess a variety of factors, including the area of focus of your business, locations of potential investors, costs of doing business and, for UK, Irish and other European companies, the greater difficulties of managing operations on the West Coast (8 – 9 time zones; 11 – 12hour flight) vs. the East Coast (5-6 time zones; 6 – 8 hour flight).  Once you’ve determined location, you’ll then need to address property issues – whether to go into a network of co-working spaces (like WeWork), accommodation offices (like Regus) or rent your own premises. 

9. INCENTIVES AND SUPPORT

Government agencies (UKTI, Enterprise Ireland, the US Commercial Service, and state and local development agencies) and international chambers of commerce can provide very useful support.  State and local incentives for investment and job creation also may be available. 

10. INVESTORS

If part of your reason for US establishment is to secure US investment, allow for the time it will take to build US investor trust.  US investors will want to see that you have a sensible US-focused business plan and are committed to, and achieving traction in, the US market.  Also, make sure your investor pitch materials are appropriate for the US market – sophisticated early stage US investors are more focused on prospects than existing revenues, and your materials need to convey convincingly why your business will generate blow-out returns.

US market entry can be daunting, but the basic steps required for establishment don’t need to be difficult.  Just get appropriate, cost-effective advice and do it right from the start.

This blog was originally published here.