Best Way to Enter into the US Market - Essay Example

Introduction The reports main agenda is to lay out the legal requirements that enable market penetration of a business entity into the United States of America. The report also analyzes some of the basic legal points to consider before the establishment of such a company. The United States of America foreign company establishment as it adds the direct investment in the country. Best way to enter into the U.S market A company can choose to either open a branch or set up a subsidiary in the country. When a company opens a branch in the U.S, it can either register the branch with the state in order to do foreign or interstate business. This can be done through the name and address certification of the agent who is resident in the state. The company can also certify the name, address of the agent in the state, and acquire a certification of satisfactory standing from the concerned state or county where the business s set up. The advantage of using a branch is that there are no legal formalities associated with setting up a business and the only requirement is the qualifications to carry on business. A disadvantage of this approach is that, in case of liabilities by the activities of the branch office, the exposure of the assets of the parent company to such liabilities is not avoidable. A foreign company can also use a subsidiary in the U.S to carry on its business and carry on its operations. The subsidiary must be organized through the relevant legislation of the state the subsidiary operates in. The major advantage of operating through a subsidiary is that, in case of a liability, only the assets of the subsidiary are at risk and not the parent foreign company assets. The other advantage of a subsidiary is that the formation of a subsidiary in the U.S enables the clarification of the portion of income subjected to either foreign or U.s taxation. The use of a subsidiary also limits the liability of the shareholders, directors and officers of the corporation in terms of liability in terms of the debts of the corporation. It is more convenient to use a subsidiary than to open a branch of the company as most benefits and advantages lie in the use of a subsidiary. The employing of the new federal imposed tax on branch profits brings to an equal level the branches amount of tax and that of the subsidiaries. The taxation works in limiting the advantage of branch tax liability as compared to subsidiaries. Partnership with a local firm The other form of entry of the company into the U.S market is by entering into a partnership with a U.S based company. This is a situation where there is a contemplation of a joint venture in a situation. In this case, the foreign company enters into a relationship with a company already located in the U.S where they share resources. The entry into a partnership done by the foreign company by contributing capital with the US based company to a newly formed corporation in order to obtain a subsidiary. The other form of partnership is where the foreign company can enter into a general partnership with the U.S based company and carry on business in common. The partnership is subject to various legal and taxation rules as per the relevant state statutes. Procedure of forming an entity The formation and the running of a business enterprise in the United States require compliance of a number of various registration standards. The basic requirement is that the company must comply with the rules of the registration and regulating authorities. Employment issues Foreign companies and their subsidiaries doing business in the U.S should comply with the employment and labor laws of the United States. In some situations, the foreign parent companies become liable for omissions or actions of the subsidiary companies operating in the United States. The labor laws in the United States are more comprehensive and pose some technicality in operation especially if a foreign employer does not understand the laws. The dangers associated with non-compliance of these laws include litigation by the employees, which usually results in heavy compensations. The company should ensure that in there is full compliance with the law in its employment contracts. There is state, local and federal rules that govern employment terms. The state and local rules tend to favor employees as compared to the federal rules, and in its application to resolve employment disputes federal, state, and local rules apply. The employment laws also allow workers to join unions and form a collective bargaining agreement, which is binding to the company. The collective bargaining agreement governs most employment aspects in situations where the company employees are unionized. In situations where the employees are not unionized, the law provides the employees the right to organize groups and enter communication with the company as regards the working and compensation conditions. The company in its employee recruitment must not be discriminative in any aspect. Under the discrimination, laws in the United States the employer cannot disqualify individuals on grounds of possible disabilities in the employment process. The law also provides that the employer company cannot require the applicant employees not to possess or to possess characteristics, which are personal, which include but not limited to national origin, religion, race, age, marital status, or sex. The law provides that the employer must make employment decisions in relation to criteria that is job related and which are experience, education, and skills, as opposed to the absence or presence of personal characteristics. About testing of prospective employees before employment the laws are extremely strict on pre offer testing, and this may cause legal hurdles to the company. The company must ensure that all test prescribed before employment is in conformity with the relevant employment statutes. The company in the employment process should also ensure that they accommodate the needs of applicants who although qualified are at the same time mentally or physically disabled. The American with Disabilities Act (ADA) and state disability statutes prohibit the discrimination of individuals who are qualified for such positions but are otherwise disabled. The law requires the employer to accommodate the needs of disabled applicants. In the United States, the hiring of unauthorized aliens who do not qualify for employment is governed under the Immigration and Reform Act of 1986. Intellectual property Before a company carries on business in the United States, it is necessary to register intellectual property. Even, though, the registration is not mandatory, it is necessary in order to protect the property and to ease the process of litigation in case there are any claims concerning the intellectual property. The fact that the intellectual property registration took place in the U.K does not guarantee the protection of the property is in the United States. In the United States, the commercial use of a trademark culminates in its protection. This is so as long as the trademark does not infringe on any preexisting trademarks and that the trademark meets the criteria that it is not merely descriptive. There is an added advantage in the registration of a trademark such as placing the world at notice as regards the rights of the owner. The registration of the trademark takes place at the federal Patent and Trademark Office. The United States is a signatory of the Paris Convention treaty, which is a treaty that covers trademarks and patents. The federal trademark registration is valid for ten years being renewable indefinitely. Patent laws require the owner to file for patent, and there is no protection unless they are registered. The United States legal system The legal system in the United States comprises of federal and state laws. The federal and state courts enforce these laws and create them. The constitution gives congress power to enact federal laws on specified subjects. All other powers, not given to the congress, fall under state jurisdiction. State can enact laws where they share the jurisdiction with congress. The United States courts enforce, interpret, invalidate in cases of unconstitutional laws, and make laws. Taxation After the penetration of the entity into the United States market, the company must apply for the employer identification number from the internal revenue service. The company should also register with the states taxation department in order to be tax compliant. There are various taxation jurisdictions in the United States; the capital taxation jurisdiction for companies in the United States is the federal tax system. A company has a tax liability in the country if it conducts business or trade in the United States. The company will also be subject to state tax where the same is applicable. A foreign corporation carrying on business in the united state has a disadvantage of double taxation but can avoid filling income tax returns. A limited liability company (L.L.C), on the other hand, has its income taxed and must file United States tax returns. A branch office tax is payable by the foreign company to the United States and becomes subject to audits by the Internal Revenue Service. Franchise taxes can be imposed depending on the state the business operates in, this tax is an indirect tax that is for the privilege of carrying on business in the state. Immigration issues The United States immigration rules seem complicated and difficult compared to other jurisdictions. The laws distinguish two types of individuals that are immigrant and the non-immigrants. The submissions of immigration applications take place embassy abroad or United States Citizenship and Immigration Services. One can obtain Lawful Permanent Residency (L.P.R) commonly known as the green card by Labor Certification (PERM) or the straight I-140 process. Foreign employees can also be employed in the United States of America for a short term in accordance with nonimmigrant visa; the commonly used business visas that are nonimmigrant are the B-1, L-1, H-1B, O-1, TN and the E visas. Legal issues State restrictions, many states have different restriction as regards establishment of foreign businesses in the state. It is necessary to choose correctly the state to establish the business entity in order to make the entity operational. The state of choice is crucial since the entities are subject to state laws and not federal laws. The federal laws are uniform across all states but the state laws that govern these entities vary from one state to another. The federal laws that are applicable include the exchange act, which requires foreign investors acquiring more than 5% of the businesses stock, which trades publicly to file certain financial and personal information with the Securities Exchange Commission. The other relevant law is the Hart-Scott-Rodino, which provides that there should be federal review of acquisitions and mergers upon the exceeding of certain market share thresholds. Another federal statute is the International Investment and Trade in Services Survey Act. This Act provides that all foreign investments in the United States market where an entity, which is foreign, acquires more than 10 percent of ownership or an excess of 3 million dollars in assets, or acquires more than 200 acres of real estate property must be reported. Conclusion This report touches briefly on some legal aspects Sterling Cooper should consider before its entry in to the United States market. While the rules that govern foreign company entrance into the United States are daunting, the legal framework in place is more straightforward and less complex. The best-preferred entry method for the company would be a Limited liability company system. The laws that govern the entry of foreign entities into the United States is numerous and different according to the states. In relation to the above situation and the wide and dynamic market of the United States, the country remains the best and attractive foreign investment target. References David, H 1998, Beyond the market: the EU and national social policy, Routledge. Jeff, M 2009, International Financial Management, Cengage Learning. Kevin, M 1997, Corporate venture capital: bridging the equity gap in the small business sector, Routledge. Mike, G 2010, Global security: UK-US relations, sixth report of session 2009-10, report, together with formal minutes, oral and written evidence, The Stationery Office. Rebalancing the Economy: Trade and Investment 2011, The Stationery Office Read More