When should an international tech startup establish a US company?

One of the most common questions non-US technology start-ups and other non-US startups building their tech companies ask is when, or if to establish a separate US company, if entering the US market is infact part of the company’s plans. The US market offers huge expansion opportunities for tech companies, with a population exceeding 400 million and heavy penetration of technology infrastructure, the opportunities for growth are unparalleled.

If US expansion is indeed an objective, there are a couple of considerations to take into account. A US entity offers a better position than entering the market with a purely digital presence. Below are various indicators that it’s time to strongly consider setting up a US entity.

Employees

If you’re hiring US-based employees, you’ll generally want to employ them through a US entity.
US and international employment laws are very different, and you should avoid uncertainty as to which applies. Employing US hires directly from a non-US company also increases the risk of US and international tax authorities making competing claims on the same US revenue and of the non-US company being exposed to US litigation.

Immigration

If you’re planning to send employees to work in the States, keep in mind that certain types of US visas require a US entity. The E2 investor visa offers the best option to get this entity established and also affords you the opportunity to send non-US employees over to the US in managerial positions to administer the US entity from within the US.
To learn more about the E2 investment visa, download our ‘E1 Treaty Trader & E2 Investor Visa Overview ‘ white paper at https://yondaa.com/e1-e2-investor-visa-overview/

Revenues

If your internationally based tech entity is generating revenue from the US, it may be tax-efficient to operate that portion of the business through a US entity and/or allocate to a US entity certain revenues and costs. This makes sense for US tax obligations and for minimizing your in-country exposure.
Whether that structure makes sense for your business depends on numerous factors. The key is to recognize that US-sourced revenue means US tax obligations where work or services are conducted or rendered in country.

Commercial Contracts

Some US companies simply prefer to transact with other US companies. To be clear, this is usually a commercial consideration rather than a legal imperative. With limited exceptions (e.g., certain contracts with the US Government), there’s generally no legal restriction on a US entity entering into a contract with a non-US company, but having a US entity removes barriers.

Consumer Confidence

Don’t under estimate US consumer sentiments when it comes to whom people chose to do business with, consume products and engage in the utilization of services. Having a US entity and a physical US presence goes a long way in gaining consumer confidence.

Bank Account

Establishing a US corporate bank account through a US entity typically is a straight forward process. Having a US bank account also allows your tech company to utilize the myriad of digital services such as payment processing platforms and software services in the financial sector such as lines of credit, loans and corporate cards, all of which make the running of your business more efficient.

Litigation Risk

If your non-US company is doing business with the US and operating in a space where US product liability, patent infringement, or other litigation claims are frequent, it may be worth establishing a US company and structuring the business in a manner that makes it more difficult for US claimants to access the international entity’s deeper pockets. To file for US patents and obtain trademark’s and copyright registrations a US entity makes this process all the more streamlines.

Regulatory Requirements

Some heavily-regulated industries (e.g., financial services, healthcare) may require certain types of US operations to be run through a US entity. If your operating in the fintech space in-particular a US entity makes licensing such as ‘merchant of record’ tat much easier to obtain.

US VC investors and Crowdfunding

It is not unheard of, but unusual for US VC investors to invest early-stage capital into non-US companies without a meaningful “US story”, i.e., US operations, US traction, and/or a founder or other senior decision-maker in proximity to the investor. A US entity, without more, typically is insufficient (at least for US-based institutional VC investors; corporate VCs with international operations may take a different view).

If you do in fact receive a term sheet for an early-stage investment from a US VC investor prior to establishing US operations, the US investor may insist you establish a US parent company.
In addition, many US crowdfunding platforms require a US entity through which to raise funds. Accelerators. Some US accelerator programs require the companies in their cohorts to have a US parent company.

Logistics: How do I establish a US company?

Forming a company in the United States can provide many benefits and expose your business to a multitude of opportunities. Operating on the principles of a free market economy, its surprisingly straight forward to setup a company in the US.

Whether you’re an existing business owner that wants to expand to the US, an entrepreneur that wants to start a new business in the US or a digital-nomad who wants to base their remote business in the US, we offer everything you need to incorporate your business online via our streamlined company incorporation service. You can easily setup a US company utilizing our online platform from outside the US. T get started, visit https://yondaa.com/us-company-formation-services/

Which State to Incorporate?

The best state to register in is the one in which you will be conducting business. However, if you’re an online company, plan to operate remotely or do business across a range of regions, you may want to consider registering in a state with lower tax burdens. Two states that are notoriously inexpensive for entrepreneurs are Nevada and Delaware.

For a physical presence, the state of choice should be the one that puts you in line with your immediate customer base or and a location where you plan to establish your physical presence.

To find out more about our company formation services, you can download our full company incorporation services brochure at https://yondaa.com/us-company-formation-services/#Download