Published by Benjamin S. Thompson - February 4, 2014 - Business & Corporate

The process to setup a foreign business in the United States involves various areas of business law and intellectual property. While the overall work can be fairly complicated, requiring an experienced business lawyer at nearly every stage of the transaction, the result can lead to significant benefits for a foreign corporation wishing to expand its business to the United States market, raise local venture capital and otherwise expand its global presence.

Setting Up a US Subsidiary for the Foreign Business

The first step in the process, as recommended by nearly every business lawyer, is the formation of a subsidiary entity to do business in the United States.

While most foreign businesses do have the opportunity to simply “qualify” their foreign entity to do business in various States, the incorporation of a local subsidiary entity provides several advantages with respect to corporate governance, venture capital, taxation and even employee immigration issues.

With respect to corporate governance and venture capital, it is simply axiomatic that a foreign business would have a simpler and less expensive experience managing its various US-based dealings when its local business lawyer and accounting teams are responsible solely for business transactions that fall under US law. On the most basic level, this would avoid the expense of maintaining constant communication between the company’s US business lawyer and foreign counsel on dealings that may or may not implicate the company under various regulations in its foreign home.

Thus, having your business lawyer form a new entity in one of the popular US States for business matters (e.g., Delaware or New York) and then structuring a shareholder transaction that would make the local business fully owned by the foreign “parent” company would be the ideal process for establishing a foreign corporation in the United States.

Likewise, managing corporate governance and venture capital transactions locally could help avoid implicating potentially burdensome foreign rules.

Licensing Foreign Intellectual Property

Once the local entity is established, the next step would be for the foreign parent company to license various assets to the local subsidiary so that the new US-based entity could exploit those assets as part of local business operations.

For example, a foreign manufacturing company that establishes a US subsidiary to distribute its products would sign a distribution agreement with its US subsidiary to allow it to sell the goods and provide for the relevant split of resulting revenue. A software company, on the other hand, would enter a licensing agreement with its subsidiary providing the US entity with the right to sublicense the software copyrights and, again, providing for the relevant revenue split between the entities.

Additionally, intellectual property assets such as trademarks, patents and even copyrights would require protection in the United States. These assets could be filed and owned by either the foreign company or the US subsidiary depending on how the relevant licensing agreements are structured.

Local ownership of major intellectual property assets would simplify the due diligence requirements of a typical venture capital transaction.

Tax and Immigration Issues

While the tax and immigration issues relevant to establishing a foreign business in the United States are beyond the limited scope of this article, it should be noted that various advantageous tax benefits may be available to companies whose parent entities reside in countries that are members of various tax treaties with the United States.

Likewise, US immigration law provides several avenues for bringing key corporate personnel of foreign parent companies to work at the US subsidiary. As always, consultation with an experience business lawyer is recommended.

Contact

If you have questions about foreign business or other corporate matters, please contact Benjamin S. Thompson or any member of the Thompson Bukher Business & Corporate Practice at (212) 920-6050.

Contact

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