You may wish to take your Australian business to the United States (US) in order to gain exposure to the US’ larger market of investors and customers. US venture capital firms consistently rank among the best in the world. They also rank first in total venture capital invested by country. Additionally, the US market remains the largest consumer market per capita in the world. This means that it offers excellent prospects for startup growth.
To seek exposure to the US market, you may decide to:
- set up a foreign subsidiary;
- operate abroad as a foreign business branch;
- run a flip-up; or
- consider a different arrangement.
This article will discuss one of the most common options: physically setting up shop in the US with a foreign subsidiary.
When an Australian company intends to physically set up in the US, it will need to open up a US-based company. Put simply, a US subsidiary is a company incorporated in the US that is controlled by a foreign entity (known as a holding company). To set up a US subsidiary for your Australian company, you would likely incorporate a US company and hold its shares as assets in your Australian holding company. This allows whatever value your US subsidiary generates to pass through to your Australian holding company, which is ideal for those who own shares in your Australian holding company. It is common for most of the value your US subsidiary creates to pass through to your Australian holding company. Therefore, investors are most likely to want to invest in the shares of your Australian holding company. This includes US investors.
Two of the most popular options for incorporating a subsidiary in the US are incorporating as a:
- Limited Liability Corporation (LLC); or
- C-Corporation (C-Corp).
Both options have their advantages and disadvantages. LLCs are generally the less complex option. They also provide personal liability protection and pass-through taxation. C-Corps are generally more complex. They come with greater upfront costs and are subject to greater government regulation. One of the main benefits of the C-Corp, however, is that it provides the greatest growth potential: the C-Corp has no limit on the number of shareholders. The Delaware C-Corp is perhaps the most familiar corporate structure to investors.
Choosing a State
Unlike in Australia, you will need to establish a US-based company at a state rather than federal level. This has significant consequences for your business. Incorporating your US company in the US state of Delaware is a common option, due to:
- its generally simpler compliance requirements; and
- the tax planning flexibility that it provides.
Even if your company is domiciled in Delaware, it is not necessary for you to live or even base your business operations there. Figuring out in which US state to incorporate your US company will, like everything, depend on your business’ specific needs. This includes acknowledging tax obligations.
Operating Your US Subsidiary
Controlling Your Subsidiary
Successful operation of your US subsidiary requires a number of considerations. First and foremost is how your Australian holding company will control its subsidiary. If a holding company owns all of the shares in a subsidiary, it is entitled to influence the subsidiary’s decision-making processes. One way to do so is by appointing directors of the subsidiary that understand the subsidiary’s broader responsibility to your company’s growth as a whole. There are no restrictions on foreign ownership of US companies. You can be an owner and director of a US corporation without having a US visa. To work for the entity, however, you will need the applicable US visa.
To protect your investment in growing your business’ brand, you will at least need to register a trade mark in the US for your business name and logo. Trade marks registered in Australia are not registered in the US. Moreover, copyright is a type of intellectual property that is automatic in Australia. This is not so in the US, however, and you will need to apply to register copyright in the US.
You will need to license any intellectual property from your Australian holding company, such as software you have developed, to your US subsidiary. This allows your subsidiary to commercially exploit your idea in the US. One way that a subsidiary can pass value to a holding company is through a licensing agreement. This agreement might charge the US subsidiary for its use of the holding company’s intellectual property. It is crucial to get this contract right, as it is a primary means of making your Australian company’s investment in expanding to the US profitable.
Contracts in the US
You will use your US subsidiary to engage in most contracts related to the operation of the US side of your business.
Your US subsidiary will be better positioned than your Australian holding company to interpret and comply with US contract law, including managing dispute resolution in US courts.
US Consumers and the US Market
Explicitly targeting US consumers usually subjects your entity to the US’ complex regulatory regime. Your US subsidiary will be best positioned to navigate US consumer law. Furthermore, targeting any market segment requires a deep understanding of your customers. A US-based company – especially with US employees – is usually better placed to target US customers and navigate US business customs than a foreign entity would be.Continue reading this article below the form
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It is wise for some of your company’s original team to be involved in your business’ growth in the US market. Often, founders themselves move to the US to physically oversee their business’ growth. Of course, moving to the US requires a visa. Getting one is not necessarily easy. There are a number of different visa options available to startups seeking to expand their business operations to the US. You should contact a corporate immigration lawyer in order to figure out which option makes the most sense in your circumstances.
Expanding to the US market is an important part of many startup founders’ growth plans. To ensure that expansion proceeds smoothly, take the time to consider your structuring options and the tax implications of how and in which state your business will operate. You will need to consider the legal implications of your US operations from a US legal perspective. To do so, it will be necessary to find US business lawyers. Ultimately, a US entity is better positioned than a foreign entity to operate a business in the US, especially given the country’s complex legal and commercial requirements. When you are ready to take this next step, contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.
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