Company formation in the United States

We often see businesses first "test" the US market without setting up a legal entity in the US.

What is the problem with this approach?

One of the major problems in the United States is the risk of legal liability for foreign companies. This risk of exposure to litigation in the United States is high and can cause significant financial damage to a business. Therefore, forming an appropriate legal entity and establishing a legal structure from the outset is critical. The choice of legal entity (e.g., corporation or LLC) must be analyzed in advance and customized for each client according to their needs. Besides the legal aspect, clients in the US prefer to contract with a US company and make payments in US dollars.

We always emphasize to our clients that the very formation of the company must be carefully planned. It is often the case that clients prepare corporate documents without the assistance of a lawyer. The necessary formation documents are often incomplete. For example, shareholders do not draft articles of incorporation, and there are no shareholders' agreements. In addition, companies often do not comply with state laws or obtain the necessary licenses to begin operations. Failure to comply can reduce a company's limitation of liability and result in severe penalties from the state. This may seem complicated, but it is not if the foreign company seeks legal help from professionals here in the United States beforehand.

Companies must also realize that establishing a legal entity is not sufficient in and of itself. The company must then continue to comply with local, state and federal laws and corporate compliance requirements. Sometimes companies neglect to file annual reports, resulting first in fines and then administrative dissolution of the company. In addition, it is important that the company obtain at least general liability insurance and product liability insurance. Liability risk exists from the time the products are first sold in the United States.

This article is for informational purposes only and does not constitute legal advice. Please contact us if you need legal assistance.