While the United States welcomes international business, U.S. subsidiary setup can be a complicated process. The steps can vary based on several factors, including the state you choose as your company’s headquarters. Each state has unique legal requirements that you’ll need to keep track of in addition to the federal laws. Knowing what to expect as you set up a subsidiary can help you avoid fines and ensure that the process is as smooth as possible.
How to set up a U.S. subsidiary
Establishing a U.S. subsidiary is often a time-consuming and tricky process. The employer must understand the business goals and choose the location of the company. Location will impact the applicable subsidiary laws, as different cities and locations may have their own regulations.
To set up a subsidiary in the United States, companies should take the following steps:
- Decide whether you want to be a corporation or a limited liability company (LLC). Both types of entities come with advantages and setbacks, so it’s up to the employer to choose the one that makes the most sense for their ownership structure.
- Choose a state of incorporation. There are 50 states in the U.S. and 5 permanently inhabited territories, and some of them are more conducive to business than others. Each state has its own laws for businesses, so companies should familiarize themselves on what that means for them before setting up a subsidiary.
- Choose a local registered agent who will handle legal papers on behalf of the new company.
- Obtain local legal representative to be appointed as director of the new company. International team members can be appointed. However, a visa may be required in certain instances and the appointee may be subject to personal tax liabilities.
- Draft and execut the new company’s incorporation documentation, which must be prepared by a local attorney.
- Apply for a EIN (Employer Identification Number) to pay the taxes in the chosen U.S. state.
- Establish a corporate bank account. It can be challenging for international businesses to set up a bank account in the United States, but it’s easier with a U.S. subsidiary. Partnering with a U.S. bank will make it less difficult to run payroll.
Accounting and tax laws in the U.S. can be complicated. Most international businesses also hire a U.S. accountant during the process of setting up a U.S. subsidiary.
U.S. subsidiary laws
U.S. subsidiary laws vary by state and whether a company is a corporation or an LLC. However, some laws apply to all businesses and subsidiaries in the U.S. For example, every company is legally required to obtain a taxpayer identification number from the Internal Revenue Service (IRS).
In some states, businesses also need to comply with a variety of state and local laws and licensing regulations. Companies may need to register their subsidiary with the local tax authority.
As there are not many standard laws for subsidiaries across the United States, many international businesses hire a U.S. attorney to help them comply with the legal requirements of setting up a U.S. subsidiary.
Benefits of setting up a U.S. subsidiary
If you set up a U.S. subsidiary, you’ll be fully in control of your business and the risks that come with it. As a result, establishing a subsidiary when you’re not familiar with the country’s laws can be challenging.
Other important considerations
It takes a considerable amount of time, money, and other resources to set up a subsidiary in an unfamiliar country, and the U.S. is no exception.
You’ll need to register your business name and type of entity with the state. You’ll also have to open a corporate bank account in the U.S. and find a registered or even a physical office space for your business. However, G-P can take the hassle out of setting up a subsidiary by hiring employees on your behalf in compliance with local subsidiary laws so that you can start working faster.
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