Selling in the USA is a minefield unless you know how to negotiate the issues. If you do, then the USA is an attractive place to do business.
To introduce this article, Selling in the USA: A guide for UK Businesses, and to put it context, the text is based on my notes of a talk given at the Edinburgh Business School on 9th May 2016 by Robert C Dewar.
Robert (Bob) Dewar works for Williams Mullen, a law firm with offices in Richmond, Virginia, in the USA.
He is a Scot who trained in Edinburgh, married an American and has worked in the USA since 1990 with a stint working in Poland.
He was over here visiting family and he gave his time to talk at the University of Edinburgh Business School Entrepreneurship Hub and as you might expect, it was well attended.
The talks are open to anyone, not just members of the University, and if you are local you can sign up to the newsletter to be alerted to upcoming talks.
So with that said, here are Bob Dewar’s recommendations for doing business in the USA.
Selling in the USA – Do Business via a Subsidiary
Bob cautioned against dealing directly as a UK company with the USA for a number of reasons.
Firstly, US companies feel more comfortable dealing with US companies, and especially those incorporated in Delaware. For why that is, see the following section.
Also, by creating a subsidiary, all liability remains in the USA. The UK company is ring-fenced off and protected.
It is easy to set up a company in the USA. It costs about $1,500, and cities and States are eager to help foreign companies. They will offer phones and receptionists to companies wanting to have a presence in the USA.
Setting up a company gives you an EIN (Employer Identification Number), which is the corporate equivalent to a Social Security number.
That enables you to open a bank account and get a visa for workers or yourself.
Corporation or LLC?
Should you trade as a corporation or as a Limited Liability Company?
Corporations are taxed – LLCs are not taxed and only the members of the LLC are taxed. Normally that would mean a tax saving. However, there is a 20% withholding for foreign nationals, so the bottom line is that it is better to set up a corporation.
The best place to incorporate is Delaware. That’s because everyone knows what Delaware incorporation documents contain. Also, if you want to unwind the company, the process is well known with a Delaware incorporation. And it makes it easier to sell the company as well.
Don’t assume normal terms and conditions apply. Use what is called the Uniform Commercial Code.
Put in a retention of title clause. It is called a Security Interest, and make sure it fits the US model of the clause.
File a statement called a Financing Statement so that your rights have priority. A filed statement can be a general statement relating to all the business with a company.
You won’t need a fresh statement each time you contract with a company but you do need to file for each company with whom you do business.
A filed statement gives protection for 5 years.
Finally, make sure the subsidiary in the USA does not have any title to the designs. The way to do this is for the UK company to licence the designs etc to the US subsidiary. Then the design rights remain outside the company doing business in the USA, which is a fair and reasonable way to do business.