The United States of America has the largest economy in the world. Known for its business friendly laws, the US is home to major tech companies like Apple, Google, and Meta, as well as Fortune 500 companies, major banks, Hollywood, and some of the world’s best universities. The country is a leader in a number of industries, including media, sports, tech, and finance.
Setting up a subsidiary in the USA can be a challenging process for companies looking to establish a foothold in the United States. Foreign businesses are required to learn about complex federal tax and labor laws, as well as comply with individual state laws about the subsidiary process.
Each state, from Maine to California, has their own legal requirements to form a subsidiary. If you expand in Texas, you will need to follow different subsidiary laws than if you were to open an office in Florida.
This article gives foreign companies information about the subsidiary process in the USA as well as some other options for establishing a subsidiary or entity.
Before you expand your business by opening a subsidiary or separate legal entity in the United States, research and find out information about which state makes the most sense. Wyoming, Nevada, and Delaware, for instance, are known for their business-friendly laws.
With over 50 states in the US, choosing the correct state to open your entity in could make or break your decision to incorporate.
Although each state has its own laws, there are a few common steps in the subsidiary process, as mandated by federal laws:
Choose a business entity type. Decide whether you want to establish a corporation or an LLC (limited liability company). Each one has advantages and disadvantages, so considering what works best for your business goals is crucial
Choose your state of incorporation. Decide which of the 50 states you want to open a subsidiary in. Each state has its own business laws, so you will need to study individual state laws to make the right choice
Register a business name and the type of entity
Find and register a physical office space
Establish a corporate bank account. Paying employees can be challenging without opening a bank account with a local US bank
Hire an accountant. Though hiring an accountant is not legally required, it is highly recommended as a foreign business to choose a local US accountant that understands some of the more complex tax regulations
As United States business and tax laws are complicated, knowing what state you plan to expand to is crucial for maintaining compliance.
Each individual state will have its own laws about how to incorporate a foreign business. The laws you need to follow will also vary based on whether you choose to open a corporation or an LLC.
Here’s a look at what some subsidiary laws require:
All businesses, both local and foreign, must register for an employer identification number (EIN) from the IRS for tax purposes (internal revenue service)
Most states have their own mandatory and licensing regulations for subsidiaries
Some states may require you to register with the local tax authority the city, county, or municipality
As a parent company, you have two main options to set up a business with a physical presence in the USA. You can either open a branch office or a subsidiary. While subsidiaries tend to be more strategic and easier to manage, setting up a branch office also has its advantages.
A subsidiary can operate as a 100% local company. For branch offices, this option is not available, since it is not technically a resident corporation. Subsidiaries, on the other hand, are viewed as a local US company once incorporated. Being a local operation gives companies access to more trade opportunities and makes it easier to attract employees.
Subsidiaries retain full operating independence from the parent company. This makes it easier to tailor your business practice to the culture in the US. You can even change the company name to something different than the parent company.
So while setting up a subsidiary in the US allows you to have a lot of freedom from the parent company, you will still need a lot of investment capital to move the process along. You will also need to account for travel time and costs, especially if you are not based in the United States. The incorporation process in the US normally takes around 3 months, but can be longer. Set aside sufficient time for all your necessary documents to be approved at the state and federal level.
Many expanding companies want to hire employees in the US, but aren’t sure about where to begin the process and what services may help you. You may want to get in touch with an employer-of-record service (like Via) that expedites the process and ensures that companies follow all hiring and employment laws correctly without having to establish a subsidiary. At Via, we help you hire, onboard, and pay remote employees across the world. As your employer-of-record abroad, we take care of the local human resources (HR) logistics, such as salary, payroll, benefits, paid leave, and tax deductions. Maintaining compliance is our responsibility. You simply focus on building your team and running your business.
If you’re looking to test out a market or start building a local talent hub based in the US, partnering with an EOR service like Via (as opposed to opening a subsidiary) is probably the strategic move.
Opening a subsidiary can be costly, as you will need to build out a team of local HR, labor, and legal experts. With Via’s transparent pricing, on the other hand, you can pay full-time employees or contractors in the US with no hidden set-up fees, no foreign exchange or transaction fees, and no minimums–start with 1 employee and scale up at your own pace.