The United States presents an unparalleled opportunity for business expansion and growth to many European ventures. However, to exploit these opportunities companies must establish a thorough understanding of the U.S. market and its operating requirements. For example, one needs to comply with various laws, whether they are imposed at a local, state or federal level.
The first step in managing administrative and regulatory challenges is to create a solid back office for your U.S. subsidiary. In this blogpost, you will learn how to set up your back office in the United States. We will look at key steps and components needed to complete this process successfully.
Step 1- Set up your U.S. entity
The first step in establishing an U.S. entity is deciding on a corporate structure and company name. It is important to have a solid legal foundation in place that protects your parent company from the liabilities of its subsidiary and will minimize unintended tax exposure to the parent company. Although there are definitely valid reasons to choose for a Limited Liability Company (LLC), the vast majority of U.S. subsidiaries with foreign parents are incorporated as C-corporations under Delaware law.
Nevertheless, this does not require you to actually operate from Delaware. Therefore, you should not limit your search of an available company name to Delaware only. Instead you should also include the states where you most likely will have business operations. Namely, after the legal entity is established in Delaware you have to apply for foreign authority in the states where you expect to do a significant amount of business, warehouse or have people on the payroll.
Step 2 – Apply for an Employer Identification number
Creating the legal entity in itself is generally quite fast. However, the next step in setting up a back office for foreign companies has become trickier in recent years. Every business requires a tax ID, also called an Employer Identification (EIN) number. Normally a business applies for an EIN number with a social security number (SSN) of a responsible party who needs to be a natural person. If that person does not have an SSN, an Individual Tax ID Number (ITIN) should first be applied for that person. Although the application process is not very complicated, it can be extremely time consuming.
This lengthy EIN process can cause inconvenient delays, as an EIN is required for many things to get your company operational. It directly affects your ability of opening a bank account and setting up your payroll. Therefore, to not lose valuable time it is key to start the EIN process as soon as possible.
Step 3 – Opening a U.S. bank account
There are multiple banks in the U.S. that accept businesses with foreign ownership. Nevertheless, it is important to check how tolerant a bank is towards foreign ownership. Namely, there are some U.S. banks that will close accounts for being foreign owned. Depending on your need for cash management, it may be worthwhile looking into smaller banks as personal contact with your banker is more important in the U.S.
Getting the first three steps right is key for moving to the following stage of setting up your back office in the United States. We will discuss the next steps, how to set up your U.S. payroll and bookkeeping, in our upcoming blogpost: How to set up your back office in the United States as an European Entity – Part II. Follow us on LinkedIn to make sure you are the first one to know.
This blog was written by TABS Inc., a trusted partner of AxelaRx. Our partners help you start, do business and accelerate in the U.S. market. View all our services here.