Setting Up Your Business in the US: Legal Considerations

Transcription

1 Setting Up Your Business in the US: Legal Considerations Fried, Frank, Harris, Shriver & Jacobson LLP Bob Mollen March 6, 2014 Attorney Advertising. Prior results do not guarantee a similar outcome Fried Frank Harris Shriver & Jacobson LLP 1

2 US Establishment Business/Entity Structure/Tax Employee/Contractor Issues Liability and Risk Management IP Considerations 2

3 US Business/Entity Structure Establishment of a US subsidiary or branch Subsidiary or Branch? A subsidiary! If subsidiary, you have to consider: Jurisdiction of formation: Choices among US states often Delaware. Why -- But you can still do business in other US states if you qualify your business in these states as a foreign corporation or LLC Entity type: Most likely choices: Corporation, LLC (or LLP) 3

4 US Business/Entity Structure (cont d.) Advantages of Corporation (Inc.): Widely recognized More legal precedent Automatically non-tax transparent (no need to check the box ) Advantages of Limited Liability Company (LLC): Flexibility Avoids need for certain corporate formalities Automatically US tax transparent (no need to check the box ) May elect US non-tax transparent status with check the box (and flexibility permits tailoring to ensure non-tax transparency from a UK standpoint) 4

5 Business Entity Structure/Don t Forget Tax! Types of Taxes Federal income tax (income, withholding, branch profits) State income tax and similar state taxes State franchise tax/annual fees (i.e., Delaware franchise tax, foreign corporation fees) Payroll and self-employment tax Sales tax Property tax (real and personal) Import/Duty tax Of the above list, the only US tax types explicitly covered by tax treaty are federal income taxes Each US state imposes its own rules, which may vary considerably from state to state, and may or may not follow US federal income tax concepts; seek specialist state tax advice Tax structure requires careful consideration; appropriate arm s length structuring of arrangements between UK parent and US subsidiaries is critical! Annual Accounts - no separate filing or audit requirement, unless listed company 5

6 Local Hires vs. Secondments from UK Local Hire Considerations Need to provide for US type terms and conditions Need to arrange for US benefit packages, including health insurance Need to arrange for US payroll services, withholding of employee taxes, etc. Greater control issues/risks associated with new hires in a foreign market Secondment Considerations Immigration/Visa issues Pre-entry planning critical Tax planning in two jurisdictions Expat packages? Family issues schools, etc. Lack of familiarity with local market/laws, etc. 6

7 US Employee Matters: At Will Employment vs. Employment Contracts At Will Employment (most US states permit it) No contract = flexibility Terminate at any time without liability, unless an agreement to the contrary Make sure that there is no agreement embedded in plan or written policy Still need to address confidentiality/trade secrets/ip, etc. Employment Contracts Key talent sign them up! Scope Term $$$ Termination Restrictive covenants 7

8 US Employee Matters: Non-Compete Obligation Non-Competition Clauses and Other Restrictions Post-employment considerations General rule: reasonable (time, scope and geography) and not unduly restrictive Enforceability differs across the US employee non-competes not enforceable in California (and employee non-solicits of other employees/customers highly problematic) 8

9 Other US Employee Matters Employees Investing in the Company s Equity Federal and state law considerations to be taken into account Federal law: Every offer and sale of a security must be registered with the SEC unless exempt Exemptions Blue Sky laws Each state has its own securities laws Violation of the laws Rescission right (the employee can get his money back) 9

10 Liability and Risk Management The US is highly litigious Civil, criminal and regulatory actions, class action claims (incl. product liability) US litigation generally is not loser pays Filing a lawsuit can be relatively inexpensive Discovery can make it expensive to defend a lawsuit Prevalence of jury trials creates uncertainty of outcome Result Litigation threat often used as negotiation tool Most litigation resolved pursuant to out-of-court settlement agreement Risk mitigation Well-drafted, unambiguous contracts Robust compliance programs Insurance (e.g., product liability, E&O, D&O, property and casualty) 10

11 Initial IP Considerations US trademark clearance search: Company name and other key brands Scope of patentable subject matter Domain name:.co.uk?.com?.us? US form of standard T s & C s Which state? Employment agreements Confidentiality and IP transfer Contractor (developer) agreements Unique IP transfer rules Commercial Partnerships / Strategic Alliances Confidentiality term limits and joint IP ownership IP infringement indemnification 11

12 Coming to America: The Legal Basics Coming to America: The Legal Basics, is now available as a free download on itunes (search keywords Coming to America ). The guide is also available as an ereader file and as a PDF through our microsite, tech.friedfrank.com. The guide summarizes key legal issues that companies looking to expand to the US should consider, including sections on US tax, IP, employment, immigration, corporate, financing and litigation considerations. 12

13 Contact Robert Mollen E: P: (London) W: Daniel Glazer E: P: (New York) P: (London) L: 13