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Opening a US Subsidiary: Next Steps

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Opening a US Subsidiary: Next Steps

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The response to our post on setting up a U.S. subsidiary of a foreign company demonstrates there is great interest in this topic. Here is some additional information.

Determine Your Expectations
For a foreign entity, the thought of entering the huge U.S. market can be very enticing. But pursuing that market can also create a financial hardship if not done correctly. That's why, as we covered last time, you'll have to follow a specific set of parameters, including (in most cases) choosing a subsidiary over a branch office and setting up an LLC.

The most important step in setting up a U.S. subsidiary is to determine exactly what you hope to accomplish. Consider questions like these:

  • If you're selling a product, have you done the research to determine who your established U.S. competitors are?
  • Does your product meet U.S. safety standards?
  • Can you simply export your product to the United States from your existing manufacturing facility, or do exorbitant tariffs make it more cost-effective to build a manufacturing facility domestically?

We had to consider those questions when a Europe-based toymaker approached us a few years ago about entering the U.S. market. Given the company's relatively small size and modest goals, there was no need to open a manufacturing facility here.

Some foreign entities, including auto manufacturers, can realize certain benefits by building manufacturing plants in the United States, including the ability to capitalize on the "Made in the USA" claim. However, even the world's most successful companies usually decide they'd be better off opening a U.S. subsidiary and importing their products rather than building them here.

Our client, the toymaker, didn't need to build a U.S. factory or even hire any full-time U.S. employees. The parent corporation concluded they could meet all the very precise requirements of a U.S. subsidiary by outsourcing basic services such as bookkeeping.

Choose Specialists, not Generalists
Setting up a U.S. subsidiary is a complex procedure. It's not something you can do yourself. You'll need considerable input from lawyers, accountants and other professionals. But more than that, you'll need the assistance of specialists within those professions, not generalists.

Think of it this way: You might go to a family doctor for your annual checkup. But if that doctor were to diagnose a serious condition that required heart surgery, you wouldn't expect them to perform the actual procedure. You'd find a trusted specialist in cardiac surgery.

The same principle applies here. While you might have a lawyer for routine transactions in your home country, you'll need to find U.S.-based attorneys who specialize in each of the steps needed to establish a subsidiary in this country. That could mean, for example, consulting an attorney who specializes in intellectual property law, including trademarks, patents and copyrights.

The same goes for other professionals. You'll need both a Certified Public Accountant, who specializes in tax preparation and preparing financial statements, and a bookkeeper, who records the company's financial transactions in chronological order, usually each day.

The best accountants, bookkeepers and lawyers tend to have working relationships with members of the other professions and will provide referrals. One good place to start: the American Institute of Certified Public Accountants website.

Network Your Way to Success
Generally, once you've found that first expert, they can help you connect with other members of the outsourcing network. That's the most important part of establishing a U.S. subsidiary that's in compliance with this country's standards, practices, customs — and laws.

Pete Denholm

Author:

Pete Denholm

Managing Director Pete Denholm, Supporting Strategies | Northeast Florida, provides bookkeeping and controller services to growing businesses.

Legal and Tax Disclaimer

This website is created by Supporting Strategies to provide general bookkeeping and accounting information only. Supporting Strategies does not provide tax, legal or accounting advice, and the information contained herein is not intended to do so. As such, the information provided should not be used as a substitute for consultation with professional tax, legal, and accounting advisors, and you should consult with a tax, legal and accounting professional before engaging in any transaction.