Setting Up Your Business in the US:
Fried, Frank, Harris, Shriver & Jacobson LLP
Bob Mollen (robert.mollen@friedfrank.com)
Setting Up Your Business in the US:
Legal Considerations
Bob Mollen (robert.mollen@friedfrank.com)
March 6, 2014
tech.friedfrank.com / @friedfranktech
US Establishment
Business/Entity Structure/Tax
Employee/Contractor Issues
Liability and Risk Management
US Business/Entity Structure
Establishment of a US subsidiary or branch
Subsidiary or Branch? A subsidiary!
Subsidiary or Branch? A subsidiary!
If subsidiary, you have to consider:
Jurisdiction of formation: Entity type:
3 Jurisdiction of formation:
Choices among US states often Delaware. Why
--But you can still do business in other US states if you qualify your business in these states as a “foreign” corporation or LLC
Entity type:
Most likely choices: Corporation, LLC (or LLP)
US Business/Entity Structure (cont’d.)
Advantages of Corporation (Inc.): Widely recognized
Widely recognized More legal precedent
Automatically non-tax transparent (no need to “check the box”) Advantages of Limited Liability Company (LLC):
Flexibility
Avoids need for certain corporate formalities Avoids need for certain corporate formalities
Automatically US tax transparent (no need to “check the box”)
May elect US non-tax transparent status with “check the box” (and flexibility permits tailoring to ensure non-tax transparency from a UK standpoint)
Business Entity Structure/Don’t Forget Tax!
Types of Taxes
Federal income tax (income, withholding, branch profits) State income tax and similar state taxes
State income tax and similar state taxes
State franchise tax/annual fees (i.e., Delaware franchise tax, foreign corporation fees)
Payroll and self-employment tax
Sales tax
Property tax (real and personal)
Import/Duty tax
Of the above list, the only US tax types explicitly covered by tax treaty are federal income taxes Each US state imposes its own rules, which may vary considerably from state to state, and may or
may not follow US federal income tax concepts; seek specialist state tax advice
tech.friedfrank.com / @friedfranktech
may not follow US federal income tax concepts; seek specialist state tax advice
Tax structure requires careful consideration; appropriate arm’s length structuring of arrangements
between UK parent and US subsidiaries is critical!
Annual Accounts - no separate filing or audit requirement, unless listed company
Local Hires vs. Secondments from UK
Local Hire Considerations
Need to provide for US type terms and conditions Need to provide for US type terms and conditions
Need to arrange for US benefit packages, including health insurance
Need to arrange for US payroll services, withholding of employee taxes, etc. Greater control issues/risks associated with new hires in a foreign market Secondment Considerations
Immigration/Visa issues Immigration/Visa issues Pre-entry planning critical
Tax planning – in two jurisdictions Expat packages?
Family issues – schools, etc.
US Employee Matters: “At Will” Employment
vs. Employment Contracts
“At Will” Employment (most US states permit it)
No contract = flexibility
No contract = flexibility
Terminate at any time without liability, unless an agreement to the contrary
Make sure that there is no agreement
embedded in plan or written policy
Still need to address confidentiality/trade secrets/IP, etc.
Employment Contracts
Key talent – sign them up!
Key talent – sign them up! Scope Term $$$ Termination Restrictive covenants 7 tech.friedfrank.com / @friedfranktech
US Employee Matters: Non-Compete Obligation
Non-Competition Clauses and Other Restrictions “Post-employment” considerations
“Post-employment” considerations
General rule: reasonable (time, scope and geography) and not unduly restrictive Enforceability differs across the US – employee non-competes not enforceable in
California (and employee non-solicits of other employees/customers highly problematic)
Other US Employee Matters
Employees Investing in the Company’s Equity
Federal and state law considerations to be taken into account Federal and state law considerations to be taken into account
Federal law:
Every offer and sale of a security must be registered with the SEC unless exempt
Exemptions
Blue Sky laws
Each state has its own securities laws
Violation of the laws Rescission right (the employee can get his money back)
9
Liability and Risk Management
The US is highly litigious
Civil, criminal and regulatory actions, class action claims (incl. product liability)
Civil, criminal and regulatory actions, class action claims (incl. product liability)
US litigation generally is not “loser pays”
Filing a lawsuit can be relatively inexpensive
“Discovery” can make it expensive to defend a lawsuit
Prevalence of jury trials creates uncertainty of outcome Result
Litigation threat often used as negotiation tool
Litigation threat often used as negotiation tool
Most litigation resolved pursuant to out-of-court settlement agreement Risk mitigation
Well-drafted, unambiguous contracts
Initial IP Considerations
US trademark clearance search: Company name and other key brands Scope of patentable subject matter
Scope of patentable subject matter Domain name: .co.uk? .com? .us? US form of standard T’s & C’s
Which state?
Employment agreements
Confidentiality and IP transfer Contractor (developer) agreements Contractor (developer) agreements
Unique IP transfer rules
Commercial Partnerships / Strategic Alliances
Confidentiality term limits and joint IP ownership
IP infringement indemnification
11
Coming to America: The Legal Basics
“Coming to America: The Legal Basics,” is now available as a free download on iTunes (search available as a free download on iTunes (search keywords “Coming to America”).
The guide is also available as an eReader file and as a PDF through our microsite,
tech.friedfrank.com.
The guide summarizes key legal issues that companies looking to expand to the US should consider, including sections on US tax, IP,
consider, including sections on US tax, IP, employment, immigration, corporate, financing and litigation considerations.
