Almost every startup reaches a moment where the US market’s potential becomes too enticing to ignore. It’s a realm of vast opportunities, promising increased revenue and investor interest. Yet, embarking on this journey is anything but straightforward. It demands strategic planning, an understanding of the US’s legal frameworks and insights into local market dynamics. Let’s simplify the steps to a successful US expansion in a clear timeline.
Before expansion
Before you decide that expansion is right for you, you should do research in three areas to confirm your plans.
Fine-tuning your product for the US market
Begin with in-depth market research to understand consumer behavior, industry trends, and the competitive landscape. Tailor your products, services, and marketing strategies to meet local preferences and requirements, ensuring your offering resonates with US consumers. This might require updating your product terms, the way you sell, and pricing.
Choosing the right group structure
Deciding on the entity’s structure is critical. Options include establishing the US entity as a parent company, favored for capital raising from US investors, or a subsidiary for serving US customers. The parent company may need to remain in the original country, especially if projects are co-financed with public funds (e.g., EU public grants). Additionally, companies must decide on the direct shareholder of the US entity to apply the most favorable tax regime which usually requires active companies over passive holding entities.
Intellectual property (IP) rights and sales focus
Determining where to hold and create IP rights is essential. Post-expansion, the original (non-US) company often transitions into a development center, thus concentrating investment and commercial functions in the US as the primary market. The strategy for IP needs meticulous planning as companies need to decide where it should accumulate, which often comes with tax consequences.
The expansion
Once you are done with the basics, it’s time to set up your new company with all the necessities that come with it.
Incorporation and legal structure
Choosing the right type of business entity is critical. Foreign companies typically establish a presence in the US as a Corporation (C Corp) or a Limited Liability Company (LLC). Each has its tax implications and regulatory requirements. Consulting with a US-based legal expert can guide you through the options and processes. Read our blog post that covers everything you should know here.
Motivational programs
If companies opt for a US parent company structure, they must transfer shareholder relations (defining preferential rights, etc.) to the US — known as a US flip. This often involves changing the motivational program (ESOP) to the US standard option programs. It’s crucial to remember that the tax rules of a foreign country continue to apply to all its tax residents, even after the move to the US. See our blog post for more.
Banking and finance
Opening a US bank account can streamline operations and financial transactions. This requires obtaining an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). A lot of the US banks require an in-person visit to open a bank account. Explore online banking services that may be opened online as an alternative (e.g., Mercury, Ramp, Brex). Additionally, understanding the US tax system and its implications on your business operations is crucial. Engage with a tax advisor experienced in international business and transfer pricing strategies to ensure compliance and optimize tax.
Federal, state, and local registrations
Despite being a single economic market, the US consists of 50 states, each with its own regulations. While many companies incorporate in Delaware due to its business-friendly laws, it’s essential to register in other states where the company plans to operate or have customers to comply with local regulations, including franchise taxes. These registrations might also be necessary at the regional (county) and city levels.
After the expansion
And finally, here are the steps you should take once you have your company established and the basics covered.
Protecting your assets
Securing your intellectual property (IP) rights is vital in the US. Register trademarks, patents, and copyrights with the United States Patent and Trademark Office (USPTO) to protect your brand and innovations from infringement. Unlike other major jurisdictions (i.e., the EU), software is patentable in the US and is often used as part of a defensive strategy against infringement claims.
Employment laws
Understanding and complying with US employment laws is essential. This includes regulations related to wages, working hours, anti-discrimination policies, and benefits. Remember that each state has its own employment laws, which are then supplemented by the federal laws.
Access to funding
The US offers various funding opportunities, including venture capital, angel investors, and bank loans. Crafting a compelling business plan and pitch is essential to attract investment. Participation in startup accelerators and networking events can also open doors to potential investors. Take advantage of Simple Agreement for Future Equity (SAFE) templates, which are used in the US as the standard for pre-seed and seed rounds, significantly lowering the cost of financing.
Data protection and data centers
The US does not have a general personal data protection law as stringent as the EU’s GDPR, making data centers in the US significantly less expensive than those in the EU. Companies often set up separate data centers in the US post-expansion, especially if they serve customers in both the EU and the US, as data transfers between the EU and the US can be complex for larger customers.
Direct sales or distribution
Deciding whether to sell directly to consumers or through distributors is a strategic choice that depends on your business model, resources, and the nature of your products or services. Each approach has its advantages and challenges, from greater control and margins to the complexities of managing a supply chain and distribution network.
Strategic partnerships and alliances
Forming partnerships with US-based companies can provide valuable local knowledge, distribution networks, and customer access. It’s essential to conduct due diligence and negotiate agreements that align with your business goals and values.
Digital presence
Establishing a strong online presence through a localized website and social media platforms is crucial for reaching US consumers. E-commerce platforms offer an accessible route to market for many products, while B2B services can benefit from LinkedIn and industry-specific online networks.
Conclusion
Navigating the US market’s complexities can be daunting, but with careful planning and execution, it’s well within reach. From choosing the right business structure to IP protection and understanding legal requirements, every step is crucial. Embrace the journey with patience and adaptability, and the rewards of US expansion can be yours.
Are you looking for a legal partner for your expansion journey? We’re here for you. Send us a message here to start.
