Firms urged to think carefully about legal entities when eying US expansion
A law firm with offices on both sides of the Atlantic is advising ambitious firms to think carefully about which legal entity to use when expanding into the US marketplace.
Factors such as tax and immigration can both be a factor in whether expanding firms open up a US branch or become a subsidiary of the UK company.
However, Rob Whittall (pictured), managing partner of Dyke Yaxley LLC, warns the process is not always a straightforward choice.
He said: “At first glance, the answer to this question is straight forward i.e., a branch or a subsidiary. But as you delve a little deeper it becomes a little more complex.
“Most businesses that are just putting their toe in the Atlantic would go for a branch, as in effect it is just an extension of the UK company.
“However, if you have made the decision that you are 'Going to America ', then a subsidiary is the preferred route.
“The first question you ask is which UK entity will own the US subsidiary, i.e., UK Opco or UK Holdco. In practice, we are seeing that if there is not a UK Holdco, then one is set up to own 100 per cent of the UK Opco and 100 per cent of the US Opco.
“The second question is what type of company the US subsidiary should be i.e., Inc. versus LLC (Limited Liability Company). Inc 's have been around for years and are treated as a company for both UK and US tax purposes.
“LLC 's have been a more recent option. LLCs are taxed as a company for both UK and US tax purposes if a US tax election is made. Thus, for tax purposes there is no difference in an Inc versus and LLC.
“We find that the ultimate decision as to whether your subsidiary is an Inc., or an LLC becomes a legal issue.
“What I mean by a legal issue is, depending on which state you are conducting business in, your lawyer may prefer an Inc. versus an LLC for legal liability purposes. A particular state may have stronger liability protection case law for a Inc. versus an LLC. ”
Mr Whittall said another factor for UK companies to consider is whether they are transferring UK employees to the new US operation while it is still getting off the ground.
He added: “Most of the owner managed businesses we work with are looking to transfer UK employees to the US operation while the US company is getting off the ground.
“So, you should discuss with your immigration lawyer whether an Inc. versus an LLC would be preferred for immigration purposes.
“In summary, we see most owner managed businesses use a subsidiary to enter the US market.
“Whether you set up as an Inc. or an LLC will primarily be determined by your immigration and/or corporate lawyer as from a tax perspective both are taxed the same under UK/US tax law. ”