At SeedLegals, founders regularly ask us about expanding their business into America — if and when to start up in the US, how to register a business in the States, the contracts you need, how to hire people in the US, how to give share options to workers abroad, and more.
To answer all these questions, and to highlight some of the pitfalls for UK businesses when they expand to the US, we ran a webinar with Daniel Glazer of Wilson Sonsini, the international American law firm that specialises in advising high-growth technology companies from corporate formation to IPO/M&A exit and beyond.
Go to the US either early or late:
After decades of working with startups, Daniel Glazer and his team observe that UK startups are most successful in their move into the US when they go either early or late. Daniel recommends you get it right in the UK or in the US before you attempt to expand in America:
Move into the US early:
If you decide that the USA is the big opportunity for your products or services, then you might decide to move into the US early. Typically, companies who go early move the management team to the US and leave ‘back office’ functions (HR, IT, Finance etc) in the UK. The company will be a transatlantic US-oriented company. The team will optimize the product for the US market, meet with US investors and scale from there.
US moves delayed:
Wilson Sonsini says it is becoming more common for UK companies to delay US moves. Let’s say you grow seed or series A in the UK and initially build a product for the UK or European market. Then around Series A, retention or growth gravitates to the US. You sell remotely, and management travels frequently as demand increases for Americanized versions of what you’ve already built in the UK. Finally, in order to properly Americanize the company, it makes sense to set up a structure within the United States.
Going ‘in between’:
If there is no product market to fit in the UK or the US, it is very difficult to try to scale in both countries at the same time.
Don’t “work” in the US without a visa:
Thinking of traveling to the US? , you need a visa to prove you are eligible to work there.
But the definition of “work” is a little vague. For example, we may organize and attend meetings, solicit investments, conduct research, and so on.
But working on a laptop for days or writing code while hanging out at a coffee shop can be considered “work” for the right visa.
To ensure that you are complying with the law, please consult a US immigration professional. If you are found to be working illegally in the United States, you could be “blacklisted” and delay your plans. This will prevent entry into the United States for the time being.
Make sure your US contractor is not an “employee”: Right?
In the United States, whether or not someone is an “employee” does not depend on whether or not they have an employment contract. In the UK he said the same way IR35 rules work, a “contractor” could actually be an employee under relevant state law, in which case payroll tax, workers’ compensation fund contributions, etc. may be held liable for
If you hire someone in the US through a freelance platform such as Fiverr or Upwork, that employee is likely to be considered a contractor.
However, if you hire someone and give them the ability to sign contracts on behalf of your company, or if they hold a senior position (e.g. Chief Sales Officer), the relevant There is a significant risk that state officials see as they do. “employee”.
Do not hire US employees from UK companies:
Before hiring employees in the US, Daniel would like to emphasize the following important advice. Doing this presents three major issues:
One major tax issue:
If a UK company employs employees in the US, under US law, the UK company may be deemed to have established an unincorporated U.S. branch. A UK company’s income may be taxed by both the UK HMRC and the US IRS (Internal Revenue Service, equivalent to the US HMRC).
Make Litigation More Attractive:
Limit litigation if you establish a US subsidiary and employ employees in the United States through that subsidiary. why? Because at this point in your company’s growth, your UK company likely has significant assets and a US subsidiary of virtually nothing. If you sue a US subsidiary and the UK company itself does not exist in the US, there is little for US employees, or anyone adversely affected by a US employee. and if they (or a third party injured by a US employee) sue the UK company, it can be very costly.
These complicate legal matters:
The laws governing UK employers and US workers are not always the same. When a dispute arises, resolution takes time and money. We recommend that you fully understand your needs and seek the advice of a professional US attorney before hiring anyone in the United States.
Create a Job Description and Get Professional Advice:
Talk to a U.S. Employment Attorney to save yourself the headache of knowing if a U.S. employee is a contractor or an employee. increase. If you prepare a job description, the professional will tell you whether your role in that particular state is contractor or employee.
If your attorney says the position you want to hire is an ‘employee’, you have two options.
Change job description If you are not ready to incorporate her. US company, reduce the job requirements so that you and your contractors comply. It’s easy for a role to change to the “employee” role in a few months or a year. So keep an eye on them to make sure the job description matches the person’s job.
Forming a Delaware Subsidiary to Hire Employees Generally, a US company is not required to:
However, if you need to employ employees in the US, we are ready to set up a US company.
Wilson Sonsini recommends that a UK limited company incorporate a Delaware corporation as a wholly owned subsidiary of a UK company. It will take a day or two to sort this out. Also note that it is more expensive to incorporate in the US than in the UK.
Why would you want a subsidiary rather than a US parent company? With a subsidiary, you can do almost anything you want in the US. This is less expensive and time consuming than setting up a new parent company in the US for a UK company. When a UK company establishes a US parent company, it is almost always decided by a US investor.
Incorporating as an Inc instead of LLC:
When incorporating in the United States, the US subsidiary is incorporated as an “Inc” corporation. The most common choice is a limited liability company (LLC).
It is generally easier for tax purposes to incorporate as an Inc than as an LLC. This is because Inc is taxed on its own activities. LLCs are tax conduits by default, so the parent company (the UK company) bears the taxes of the LLC. Under UK tax law there is generally little advantage for a UK company to have a US LLC rather than a stock company.
Register in the State of Employment:
Your US subsidiary is incorporated in Delaware. Now you are ready to hire your first employee in New York for example. To do this, the company must be registered with the Secretary of State in New York. Additionally, for New York employees, two New York state-specific documents are required.
IP Assignment and Confidentiality Agreement Offer Letter:
This includes financial details Whenever you hire an employee in another state, you must do the same. record.
Americanize Your Legal Status Or Should You Americanize Your Legal Status? . I would like to consider registration in the United States.
Data Protection GDPR does not apply in the United States. If you collect personal data in the United States, you must comply with applicable United States and state data protection laws.
Contracts should consider localizing their terms for the American market, taking into account both market norms and applicable contract law. Get banking, tax, insurance and payroll right
In addition to the legal situation, if a British company wants to expand into the United States, he has four other areas to consider.
If you live in the United States, you will need your Employer Identification Number (also known as an “EIN” or “Tax ID Number”). Open a bank account in the US and pay your salary. Ask a US accountant to obtain an EIN and help with federal and state tax returns.
Estimated cost: $1,000 to $3,000 Banking Use the EIN to set up a US bank account for your US subsidiary.
Estimated Cost: Minimal Business Insurance:
Need to extend business insurance from parent to subsidiary — ask insurance company if possible. If not, you can ask your insurance company or US accountant for recommendations.
Estimated Cost: $1,000 to Thousands of Dollars
Salary and Benefits:
Small and medium-sized businesses (less than 50 employees) in the United States tend to employ workers collectively through Professional Employer Organizations (PEOs). Common. The PEO can arrange salaries, retirement benefits, and health insurance for the employees of the US subsidiary, so the company does not have to set them up separately.
Estimated Cost: Labor is the biggest expense — see below
Be prepared to pay higher salaries in the US:
For most companies, the largest cost to set up a US office The costs are labor costs. American salaries are typically 1.5 to 3 times the equivalent UK salaries. Also, the per capita benefits and salary he may reach $15,000–20,000. This is much higher than in the UK, as US employees typically expect to have health insurance.
Granting stock options to a UK parent company:
To grant stock options to US employees, you must set up an unauthorized options program (easy for SeedLegals).
Do not grant options from US subsidiaries. It can get very complicated later on as your US company has no assets (hence very little value) and your US employees will be co-owners of your US subsidiary.
The option given to a U.S. employee requires her to have a 409A assessment of her in the U.S. from an independent expert. Unlike the HMRC ratings received for the EMI program, 409A ratings are generally not discounted from fair market value, so the exercise price for US employees is generally higher than for UK employees with EMI options. increase.
Originally published at https://businessdor.com on January 30, 2023.
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