There are common mistakes made by companies looking to operate in the United States. These mistakes can result in additional costs, time spent and even sanctions. Our local expert Jessica Valenzuela explains.
1. Not evaluating the company's business needs
It is important to be clear on business goals, in particular the
need to establish presence in the US. In the haste to sign
contracts and start operations, setting up the legal entity becomes
secondary with many relying on their company's current
organisational structure. This may work for some, but for others
can result in unnecessary additional costs, paperwork, and ongoing
obligations. Taking the time to evaluate goals can help determine
if the desired business structure is in place.
2. Incorporating in another state to avoid taxes
In the US, there are states that may be more attractive to
incorporate in as there is no corporate income tax. However, this
does not mean the company will have no corporate tax obligations.
In every state the company creates 'nexus' – does
business in – can trigger local tax and entity registration
requirements. This means paying tax initially thought avoidable, as
well as an additional registration fee and ongoing compliance
requirements. A major consideration when selecting the state of
incorporation will depend on the business objectives.
3. Choosing how many shares the company must have
Choosing share options can be as varied as choosing an insurance
plan, especially when you throw in terms like no par value, common
stock, authorized shares, and values from 1 to 50,000. The share
structure a company chooses can restrict ownership flexibility,
investment, and even result in unnecessary costs. For example, a
company may choose to have 100,000 authorized shares with no
intention of becoming public or selling these shares to raise
capital. If the company's state franchise tax happens to
be based on the authorized shares, they can end up paying thousands
of dollars in annual taxes.
Avoid mistakes
Listen to our on-demand webinar, where Jessica Valenzuela, COSEC Manager at TMF Group, goes into detail on these mistakes, and provides guidance on how companies can choose the right legal entity when incorporating in the US.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
