Which states allow B companies
Doing Business in the United States: An Overview for Overseas Businesses
As the country with the largest economy in the world, the United States offers some of the world's best business opportunities. The following outline of the US legal system and some of the laws relevant to trade with and within the US is designed to help businesses take advantage of these opportunities.
I. United States Legal System
The United States has a federal system of government. This means that laws are enacted at the national (federal), state and local levels. “Local” laws are enacted by cities and rural districts and are only effective in these regions. All 50 states (plus US territories and the District of Columbia) have their own state and local laws that apply in those respective jurisdictions. Some areas of law, such as patent and copyright law, are exclusively subject to federal competence and are regulated by federal law. Other laws, including contract, labor and commercial law, are subject to state competence and are primarily enacted by the individual states. Many other areas of law are governed by both federal and state laws. Foreign companies that conduct economic activities in the USA should be well aware of the existence of these parallel legal systems that differ from state to state.
II. Choice of legal form
A foreign company planning to enter the US market must first choose the right legal form for its US business. The most common types of company are Corporations (comparable to the German AG), Limited Liability Companies –LLC (Limited Liability Company) and Partnerships (comparable to the German open trading company). Each type of company has its advantages and disadvantages and the choice of legal form must be made depending on the legal and economic factors specific to the case. The formation formalities are based on the respective laws of the state in which the formation is to take place. With the exception of Partnerships All forms of company require formal founding documents, which must be submitted to the relevant state government.
A. Branch. However, a foreign company is generally not obliged to conduct its business activities in the USA in the form of a US company, but can instead open an independent branch or permanent establishment. This is usually not advisable for tax and liability reasons, since a branch, in contrast to a subsidiary, is not an independent legal branch of the parent company. A branch is treated as if the foreign company is doing business in the United States. When a foreign company sets up an office and does business in the United States, the entire company is considered to be operating in the United States. Thus, the entire foreign company becomes taxable in the US and must declare worldwide income for taxation in the US instead of limiting taxation to the income of the branch. In addition, the foreign company is fully liable for the branch's liabilities. As a rule, therefore, it is not advisable to set up an independent branch, unless this is appropriate for specific reasons. Choosing one of the independent company forms described below is usually more advantageous than the dependent branch.
B. Corporation (comparable to the stock corporation). Many foreign companies do business in the US as a Corporations. These are organized according to state law, with each state having its own rules for the establishment and operation of Corporations Has. In the US, a Corporation are established under the law of one state but have their main place of business in another state. A logical choice is to incorporate in the state in which it is intended to do business. However, there are some states that are more advantageous than founding states for foreign companies and that are suitable for this.
A certificate of incorporation (Certificate of Incorporation) at the Secretary of State of the respective founding country, which can usually be done online. In most states, the owners of a company (also called "Shareholder"Or" shareholders ") the directors or board members ("Directors"Or"Board of Directors"), Which determine the company policy and in turn the so-called"Officers“Order according to the President, Vice-Presidents, Secretary and Treasurer.
With regard to corporate governance, American company law provides for a concept that differs greatly from the German system. The "Board of Directors " In contrast to the German supervisory board, it has more extensive functions and tasks. The "Officers " only take on the tasks of day-to-day management. There is no strict separation between the two organs, so that the "Officers " quite often the position of a "Directors " of society.
The "Directors"A USCorporation may be foreign nationals, which must be natural and non-legal persons. The management of the company is determined by the by-laws to be adopted Corporation. The internal structure and statutes of the Corporation are regulated similarly in the individual states, but can be adapted to the specific needs of a company.
The most widespread form of society is the so-called C Corporation. C Corporations are taxed separately from the company owners according to the corporate tax rate. This means that profit distributions to the shareholders are taxed twice - first at the company level and then at the shareholder level. This double taxation can be avoided by US companies by applying as a S Corporation -so-called "Flow-through“-Companies for tax purposes- treated and only taxed at the shareholder level. However, a foreign company cannot have the status of a S Corporation claim, which is why, for tax reasons, it may only be possible to choose the form of LLC described below.
Corporations are legal entities under US law, with which they, just like natural persons, conclude contracts, sue and are sued and enter into their own liabilities. The shareholders of a Corporation are not personally liable for any liabilities or actions of the company. In the event of bankruptcy, the Corporation Filing for bankruptcy without endangering the private assets of the shareholders. In order to guarantee such a liability exclusion of the shareholders, however, they must strictly follow legal formalities, ensure sufficient capitalization and maintain a strict separation between the personal affairs of the shareholders and the company.
Unlike in many European and Asian countries, in most US states no minimum capital is required. However, if the paid-in capital or capital reserves are too low for the company's activities, a court can deny the company a legal personality independent of the shareholders and the shareholders are personally liable for the company's debts (Piercing the Corporate Veil). Sufficient capital reimbursement is therefore essential.
The creditors can only have direct access to the assets of the shareholders and board members if all formalities are complied with. The protection against personal liability of board members and owners is one of the most important features of a Corporation.
C. Limited Liability Company (Company with limited liability). Another possible type of company is Limited Liability Company (LLC). As with the Corporation for the formation of the LLC is the registration with Secretary of State of the respective founding state required. Just like that Corporation the LLC is subject to the respective laws of the country of incorporation. An LLC must have at least one partner, who does not have to be a natural person.
The form the LLC offers compared to the Corporation more flexibility in terms of corporate governance and financial decisions. It is recommended that the shareholders of an LLC, the so-called "Members", A articles of association or articles of association, the so-called"Operating Agreement“, Which governs the business and organization of the LLC. However, it is not absolutely necessary to conclude a partnership agreement. According to the law applicable in Washington, for example, the shareholders are not obliged to do so, if such is not the case, the statutory standard regulations of the state of Washington apply. These standard regulations also apply if the articles of association do not conclusively regulate certain areas.
In contrast to Corporations LLCs have the option of being taxed as a corporation or at the shareholder level. Many overseas corporations prefer their US corporation to be taxed at the corporate level to avoid having distributions to members reflected on personal tax returns.
As a Corporation the LLC has its own legal personality that is independent of the shareholders. The personal liability of the shareholders is therefore limited to their investments. Similar to the Corporation Creditors have access to the private assets of the shareholders only under limited circumstances. This is only the case if the shareholders ignore the LLC's own business identity, allow undercapitalization, or simply use it as a pretext to avoid parent company's liability.
D. Partnerships. A foreign company can also use a so-called "Partnership“Establish a business or investment company with another partner or company with the aim of doing business together and making a profit in the USA. Although a written agreement is not required to get a Partnership For reasons of security of evidence, it is always advisable to conclude a written partnership agreement. Partnerships do not offer the same shareholder disclaimer benefits as Corporations and LLCs. Foreign companies should also know that partnerships can come about through verbal agreements or implicitly through a certain occurrence, without having to submit foundation documents. In some cases, a partnership can come about through an informal agreement, or even independently of the will of the people involved, through a specific deal with another party. Foreign companies should seek advice early on when working with US companies to avoid possible misunderstandings.
It can be difficult for a foreign company with no presence in the US to open a bank account there. Even when a foreign person or corporation has set up a US company, it is not uncommon for US banks to provide money to US companies rather than their foreign competitors. Once a foreign company has operated successfully in the US for a period of time, US banks often improve their access to capital.
IV. Immigration Law
All foreigners who come to work in the USA must obtain permission in the form of a visa. US visa laws are complicated and governed solely at the national level. The individual states have no regulatory authority and they also do not issue visas. Rather, these are issued by the US embassy or consulate responsible in the respective foreign country. Many types of visas, including most types of work visas, require approval by the US Citizenship and Immigration Service.
It is important for foreign nationals to choose the right visa for their stay in the United States. Depending on the employment relationship, there are numerous categories for an entry visa to the USA as well as special categories for investors and business travelers. Companies wishing to do business in the United States should seek advice from an immigration lawyer on choosing the right type of visa.
Each of the numerous types of visas have different requirements and allow a specific length of stay. For example, in order to be eligible for an E-2 non-immigrant visa, the applicant must be a citizen of a country that has a corresponding agreement with the USA ("Investor Treaty“) And make a substantial cash investment in a US company. The applicant must be entered with the aim of building and running the US foreign capital investment-supported company. Separate visas can be issued for employees and family members of the E-2 visa holder. The holder of an E-2 visa can initially stay in the USA for a period of 2 years and applications for extensions of stay can be granted for periods of two years at a time.
It is critical for overseas entrepreneurs and their employees to comply with the specific terms of their specific visa as failure to do so could result in deportation from the US or refusal to return to the US at a later date.
V. Contract Law
Contract law is the competence of the individual states. When parties reach a written agreement, a court will generally first use the wording of the agreement and then the behavior of the parties, relevant trade customs and applicable laws for its interpretation. However, the laws of all 50 states are based on the model law enacted at the federal level Uniform Commercial Code (UCC), which generally applies to all contracts for the sale of goods worth over $ 500. When interpreting the contract, the courts use the individual standards of the UCC to fill in gaps that the parties failed to consider in their agreement.
Not all legal systems know the necessity of agreeing a consideration for the effective conclusion of a contract, but in the USA a contract without consideration ("consideration“) Ineffective. A performance or promise of performance must be negotiated between the parties in order to be considered consideration. Consideration in return can be, for example, money, the provision of a service, the failure to act or the modification of a legal claim.
A. Contract Negotiations and the Role of the Attorney. It is common practice in the US to seek legal advice early on in negotiations and drafting contracts. The lawyers of both parties usually create and edit numerous red pencil versions of the contract before a final agreement is reached. Foreign companies should get used to this dynamic when working with US companies and of course benefit from seeking legal advice on important negotiation points before an agreement is reached.
B. Applicable law and place of jurisdiction. Since US contracts are regulated by the laws of the individual states, a choice of law clause should always be included for the interpretation of the contract. The contract should also contain a jurisdiction clause which determines the jurisdiction of the courts appointed to enforce the contract. Such contractual clauses guarantee predictability and avoid litigation in unknown or distant legal systems.
Given the complexity of US tax law, careful planning and advice on tax matters is of great importance for all companies operating in the United States. U.S. corporations are taxed separately at the federal, state, and local levels. The Federal Government raises through the Internal Revenue Service (IRS) the income tax, capital gains tax, dividend tax, as well as taxes on interest and other passive income and wage tax. Companies are also used as tax subjects in the country in which they operate.
A. Apply for an "EIN". A company new to the US market must first obtain a Employer Identification Number Apply for (EIN).The EIN is required for tax filing and identification purposes. This number is usually required before a company can conduct business in the USA or open a bank account. An EIN can be applied for by completing the “SS-4” form online (www.irs.gov), by mail, or by fax. Foreigners who don't already have one Individual Taxpayer Identification Number (ITIN), but cannot choose the online service and processing the EIN takes longer. International applications for an EIN can be made by calling 267-941-1099. The person making the call must be authorized to receive the EIN and answer questions regarding the SS-4 form.
B. International Tax Treaties. The USA has bilateral tax treaties with numerous foreign countries. If your home country has a tax treaty with the US, this should be considered primarily for tax planning. Although these agreements differ significantly from one another, they usually aim to avoid double taxation and tax evasion and to facilitate trade between the countries involved. Many of these agreements set out the requirements for the US office of a foreign company to be a "permanent establishment" (a so-called "Permanent establishment“) In the US, which in turn determines whether the company is subject to federal income tax. If a relevant tax treaty shows that a foreign company will have to pay less tax, this must be stated on the US tax return form, stating the standard of the relevant treaty. Failure to provide such notification can result in significant fines being imposed. Doing business through an independent US company, such as the Corporation In contrast to the dependent branch, it prevents the risk of double taxation, which foreign companies with their own business in the USA can otherwise only solve with the aid of said tax treaties.
C. Corporate Income Tax. A Corporation, which is incorporated in the United States, is subject to federal income tax on its worldwide income. The tax is levied on the taxable net income, which results from the gross income minus allowable deductions. Taxpayers are given a variety of deduction options, but the rules for doing this are very complex. Companies in certain sectors can also be entitled to tax credits, which are often provided by law to create incentives to invest in certain emerging industries, such as for renewable energies. Tax credits are especially valuable when compared to deductions because they directly reduce a company's tax burden.
D. Transfer pricing (Transfer pricing). Foreign companies with business operations in the United States cannot transfer profits to a foreign parent company in order to avoid domestic taxes. "Transfer pricing“Occurs when a foreign parent company charges the US subsidiary exorbitant prices for goods or services, such as B. Inventory or management services to move amounts abroad tax-free. The IRS can order tax audits to detect such practices and impose sensitive penalties for violations detected. A US tax audit is expensive and time consuming - on top of the cost of the violations. Any short-term benefits of such illegal practices are outweighed by the risk of tax auditing and exposure by the IRS.
E. Personal Income Tax. US citizens or US residents are liable to US tax on their worldwide income regardless of where they work or live. In principle, a natural person is considered to be a tax resident in the USA if they have either obtained legal permanent residence status or if they are in the USA for at least 183 days in the current tax year. Even if an individual is a non-US citizen or permanent resident, he or she must still pay federal income tax on income earned in the United States.
In any of these cases, a foreign individual will benefit greatly from proactive tax planning with a U.S. tax advisor. He knows numerous deduction options, exceptions and tax credits in order to reduce the tax liability within the legal framework. As in the case of corporate tax, individuals can face severe penalties for failing to pay US taxes.
F. Foreign Investment in Real Property Tax Act (FIRPTA). Foreign persons and companies with business activities in the USA are also subject to the Foreign Investment in Real Property Tax Act (FIRPTA). This law imposes a tax on the sale of real estate in the United States, regardless of whether the taxpayer is a US resident or a permanent establishment in the US. This tax applies whenever a person or company purchases or sells shares in real estate in the United States.
VII. Commercial legal protection
The USA has strict laws for the protection of intellectual property and intangible assets, which create added value for companies or highlight brands and products. There are four basic forms of intellectual property in the United States: patents, copyrights, trademarks, and trade secrets.
A. Patents. A patent protects the functional and structural aspects of an invention. To secure a patent, the invention has to be new, innovative and not obvious. New, original, and decorative designs for an item of manufacture can also be patented in the United States. As soon as a patent is granted by the American Patent Office (USPTO), the patent owner has the right to prohibit third parties from making, using, selling and importing the invention or design in the USA for a period of 20 years from the filing date. A foreign company doing business in the US must not infringe the patent rights of a US company. If the patent proprietor suspects a violation of their protected rights, they can file a patent infringement suit in federal court and seek damages and an injunction for injunctive relief.
Businesses should be aware that foreign patents are not enforceable in the United States. A foreign company wishing to launch a novel product on the US market can protect its invention with a US patent, provided that the invention has not yet been marketed or sold in another country. Registration of a US patent must be sought through a US patent attorney and can be time consuming and expensive.
B. Trademarks. Trademark rights in the United States apply to business use of a word, name, symbol, design, or combination thereof that the public perceives as an indication of the origin of goods or services. The protection of a trademark at the federal level is ensured by registering the trademark with the USPTO. A registered trademark owner can sue competitors whose brands deceive or confuse customers or reduce the value of their brand. Trademark owners can also register their trademarks at the state level, but state registration gives fewer rights than federal registration. Foreign companies should consider trademark protection for company and product names by registering with the USPTO.
Like foreign patents, foreign trademarks are not enforceable in the United States. Rather, trademarks are territorial and must be registered in every country in which protection is sought. However, the Madrid Agreement makes it easier to register a trademark in several countries. By filing an application with the USPTO, US applicants can obtain trademark protection in up to 84 countries at the same time.
In addition to USPTO registration, a trademark user can obtain certain common law trademark rights by using the trademark in US commerce. However, these rights are limited and far less clearly defined than those granted through formal registration.
C. Copyrights. US copyright law grants the author of a work exclusive rights to his work for the life of the author plus an additional 70 years (for works created on or after January 1, 1978). Copyright protection is available for literary, musical, architectural, artistic and graphic works, sound recordings and other works that are written down or otherwise captured in a tangible medium. The exclusion rights granted to the copyright holder include the right to reproduce, to create derivative works based on the original, to distribute copies of the work, to display the work in public, and to display it. Both published and unpublished works are protected by copyright.
Copyright protection is automatically ensured when the author creates the work. Registration is not required for protection. This protection applies to unpublished works regardless of the nationality or residence of the author. Due to various international treaties to which the USA is a signatory, works written by US foreigners can also be protected by US copyright law if certain conditions are presented. While registration is not required, there are significant benefits to doing so at the federal level, including the ability to assert the author's rights in court and enforce additional action in the event of a violation. Registration is easy with the US Copyright Office.
D. Trade Secrets. A trade secret is any information that creates added value for a company or gives the owner a competitive advantage because it is not known to third parties. A trade secret could be a formula, a device, a collection of data, or a manufacturing technique, for example. Trade secrets are largely protected by state law in all 50 states. Since the adoption of the Defend Trade Secrets Act in May 2016 these are also protected at the federal level. To ensure continued protection, the owner of a trade secret must use reasonable efforts to protect the secret. This can protect intellectual property which, although not patentable, is of crucial importance for a company's business or product. Companies typically require employees to sign trade secret contractual clauses.
VIII. Labor Law
Foreign firms doing business in the United States must comply with local law when hiring employees in the United States. US law distinguishes between employees ("Employees") And freelancers ("IndependentContractors) ". Employees are subject to the obligation to withhold tax and are protected by federal labor law. Freelance workers, on the other hand, are not obliged to withhold tax and are not covered by many labor laws, such as the minimum wage regulations at federal level. A freelancer has a higher degree of self-determination and financial autonomy than an employee. Companies operating in the United States must observe these distinctions and correctly classify workers. If an authority or a court determines that an employee is actually to be classified as an employee and not as a freelancer, the employer can be held liable retrospectively for back tax payments and civil law claims.
A. Employment contracts. Employment contracts between overseas owners in the United States and overseas employees in the United States are governed by U.S. law. Many companies enter into employment contracts with their key employees or key employees, such as executives, directors, top managers and others whose technical or commercial skills are of crucial importance to the company. These employment contracts can specify the scope and duration of the employment as well as the conditions under which the parties can terminate the employment relationship. If there is no such express agreement, an employee is deemed to be "at-will"(" At will ") and the employment relationship can be terminated in almost all US states by the employer or employee for any legitimate reason without further consequences and without notice.
Employers must also comply with local wage and hour laws when entering into contracts with their U.S. employees. So are employers after Fair Labor Standards Act (FLSA) is obliged to pay the employer at least the statutory minimum wage and 1.5 times the amount for each overtime hour beyond the 40-hour week. If an employee is in a state with a higher state minimum wage, the employer must pay that higher minimum wage. Employers must also comply with the regulations of the Family Medical Leave Act (FMLA), which defines regulations for the absence of employees due to permissible health or family reasons. According to the FMLA, employees are granted 12 weeks of unpaid maternity leave.
B. Intellectual Property and Inventions. Under US law, discoveries and inventions made by employees during their working hours generally belong to the employer. However, it is customary for employment contracts to expressly transfer the rights to them to the employer and to require the employee's cooperation with regard to the legal registration of intellectual property. Employment contracts can also be used to expand the scope of the employer's rights to include any and all discoveries and inventions related to the company or made with resources during the employment relationship. Employment contracts can also restrict the ability of employees to derive inventions from their knowledge of proprietary systems or information.
C. Non-disclosure agreements (Non-Disclosure Agreements). Many US employers have employees sign extensive nondisclosure agreements to prevent them from disclosing proprietary information or other valuable, adverse, or otherwise sensitive information to competitors. Nondisclosure agreements are also common prior to business negotiations that involve the exchange of sensitive information.
D. Non-compete agreements (Non-Compete Agreements). Non-compete agreements that restrict a former employee's activity for a competing company are not readily permitted under US law. Such agreements are simply not enforceable in some states and are narrowly interpreted by the courts. However, they are often desired and completed by employers and can be effective in some cases. As far as they are permitted, these agreements must withstand an appropriateness test in terms of scope, time and spatial aspects and must not make it impossible for the former employee to earn a living from a job in his industry.
E. Employee handbooks. Employee handbooks are widely used to provide guidance on how to orient new employees and explain company policies. Employee manuals are not a substitute for an employment contract and cannot be interpreted as such, even if the manual is signed by the employee. However, explanations in the manual can, under certain circumstances, be interpreted as changing existing working conditions. Accordingly, it is important for employers in the United States to draft the manual carefully and not to use misleading language that creates false expectations of continued or permanent employment for an employee "at will“Could justify.
F. Anti-Discrimination Laws. Federal and state laws, in the broadest sense, prohibit discrimination based on ethnicity, skin color, national origin, religion, age, gender, disability, marital status, and veteran status of an employee or potential employee. Employers are also prohibited from discriminating against employees who report discrimination. These anti-discrimination laws must be observed at all stages of the employment relationship, including hiring, promotion and termination. Many states and municipalities have passed additional laws that provide further protection based on e.g.sexual orientation or gender identity. This is an evolving area of law in the United States.
To ensure compliance with all anti-discrimination laws, companies usually write anti-discrimination guidelines in the employee handbook and inform managers and supervisors about these laws. An employer who knowingly allows an employee to behave in a discriminatory manner may be held responsible for that employee's actions, even if company policies prohibit the discrimination.
IX. Product liability
The US product liability laws are very different from those in other countries. Unlike in many other countries, a majority of the US states have the principle of strict product liability ("Strict Liability in Tort“) Provided by law. The statutory anchoring of such product hazard liability has expanded the group of legal entities liable for damage incurred and reduced the scope of the evidence required for such liability. In the case of strict liability, a company can be held liable anywhere in the production chain (manufacturer, distributor, dealer) if a product is sold to the end user in a defective condition which is "unreasonably dangerous" for them. This also applies if the seller was not negligent (i.e. exercised reasonable care) and even if the consumer did not enter into a contractual relationship with the seller. The focus of the investigation is the product and not the behavior of the seller.
A company could also be held liable on the basis of a separate allegation of negligence or for breach of guarantee by an injured consumer. A company is negligent if it fails to exercise the normal level of care that a responsible company should have exercised under the circumstances, such as: B. in the design or manufacture of the product. A company could also be found negligent for failing to warn consumers about the dangers of a product. Guarantee claims arise from a contractual relationship between the injured party and the seller of the product. In the United States, warranties may be express or implied.
Unlike in many other countries, product liability claims are often decided by juries and can include compensation for all direct and indirect accident-related damage. This means that the compensation for damages in product liability cases can be very high.
Because the entire production chain could potentially be held liable for damage caused by a product, it is important for companies to include compensation provisions in U.S. sales contracts. By means of such a indemnification or indemnification clause, one party can undertake to reimburse the other for certain costs and expenses. With a typical indemnification clause, the debtor (the party paying the indemnification) undertakes to indemnify or compensate the obligee (the recipient of the damages) for any loss, liability, claim or cause of action due to the infringement by the respective product or related claims . to be released. Furthermore, defense clauses can be negotiated, according to which one of the parties agrees to defend the other party against claims by harmed third parties.
In addition to negotiating compensation and defense clauses, foreign companies with business activities in the USA should definitely obtain adequate insurance protection against product liability claims.
AUTHOR'S NOTE:This article provides an informative outline of some of the laws relevant to doing business in the United States, but cannot and is not intended to replace legal advice on a case-by-case basis. Harris Bricken is a boutique law firm based in Seattle with offices in Portland, San Francisco, Barcelona and Beijing. Harris Bricken supports clients worldwide in their international and American business.
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