Are you thinking about moving all or part of your business to the U.S.? What types of entities do you need to set up, and what are the legal procedures involved? This article will go over a few common ways for foreign entrepreneurs to operate in the U.S.
U.S. Subsidiary
If you plan on establishing business operations in the U.S., such as production, manufacturing, marketing, or sales operations, then a subsidiary company might be the best way to go. This involves forming a corporation or limited liability company (LLC) that your foreign parent company would be a majority equity holder. Depending on how you want to structure the U.S. subsidiary company, you could either have accounting merged with the parent company, with assets and liabilities counted as those of the parent company, or you could keep your books and records separate.
You may also want to think about how much equity to give to the parent company. Will the parent company hold all, a simple majority, or just less than half of the equity of the subsidiary company? Do you intend to bring other shareholders and investors to the subsidiary company in addition to the parent company? Will the parent company have full control over the management of the subsidiary company, or will the subsidiary company be somewhat independent? Based on your business strategy, your attorney can suggest a legal structure that best fits what you want for the parent-subsidiary relationship.
Depending on how you want to fundraise for the subsidiary company in the U.S., you may want to set up a corporation as opposed to an LLC. Investors generally prefer corporations because corporations can easily issue preferred classes of shares containing special rights for investors, such as liquidation preferences, anti-dilution rights, and conversion rights. Most LLCs set up their equity as a percentage interest as opposed to a fixed number of shares, which makes issuing preferred classes of equity more difficult.
Special Purpose Vehicle
If you want to raise money from U.S. investors without actually having business operations in the U.S., you may consider setting up a special purpose vehicle (SPV) that would invest in the parent company. An SPV is an investment vehicle that invests in a single project or company, which makes it much cheaper to set up than traditional venture capital funds, which invest in a portfolio of projects or companies.
Why use an SPV? It’s easier to use a U.S. entity to raise money from U.S. investors than to use the parent company directly. The Securities and Exchange filing rules are much more straightforward. Investors can also bypass complicated international laws to benefit from domestic contracts and documents. There are no restrictions on SPVs investing in foreign companies, which means that as long as you can onboard willing U.S. investors, U.S. laws won’t prohibit you from investing the money into the parent company.
Partnership Agreement
Another option for you to move your business to the U.S. is to set up an entirely separate company and draft a partnership agreement between your U.S. entity and your foreign company. The partnership agreement would detail the working relationship between your teams abroad and in the U.S. and the scope and content of projects the teams would collaborate on. Compared with setting up a subsidiary company, this model would create a larger separation between your U.S. entity and your foreign company, which could be beneficial for asset and liability management.
This model would be particularly useful if you want to separate the management of your U.S. entity and your foreign company. For example, if you were to simply set up a subsidiary company, then the entire board of the parent company would influence the decision-making of the subsidiary company. If you are the only person from your foreign company with sway over your U.S. entity, then you can keep the rest of the board of your foreign company out, which could make decision-making simpler.
Sum up
The U.S. is an exceptionally open country in that foreigners from around the world can set up a business within just a few days. With that said, you may want to be strategic about how you want to position yourself in the U.S. market. Depending on your business strategy, there are several ways that you can set up shop here. In addition to the models mentioned above, you may want to consult an attorney to go finer into the details, such as designing the internal entity structure of your subsidiary company or SPV.
