Legal Myth #1 – The costs of entry into the US are prohibitive
This article first appeared on the EACCNY website. It is part of a series of articles written by Marc S. Friedman, Director of Professional Relations at Global Commerce Education, Inc. as a collaboration with the European American Chamber of Commerce in New York.
Last week I explained how many non-US companies, including Baltic businesses, are discouraged from exploiting a robust US marketplace by 10 legal myths than can easily be debunked. In this article I explain how Myth #1 – The costs of entry into the US, including the costs of business formation, are very great and, thus, prohibitive – is untrue.
There are several ways for a European business to enter the US marketplace and each has its own set of expenses. Typically there are the following six different methods of entry:
Exporting your products to the US
Licensing a US entity to market, sell and distribute your products
Granting one or more franchises to a US entity
Creating a strategic alliance with a US entity
Creating a joint venture with a US entity
Forming a wholly owned subsidiary which usually is a corporation or a limited liability company (LLC)
The startup expenses will be different for every situation. They can be as simple as filing a certificate of incorporation or, for an LLC, a certificate of formation, obtaining an IRS identification number, and opening a bank account. Or they may be more substantial including advertising costs, borrowing expenses, employee expenses, equipment and supplies, insurance and regulatory permits, and technology expenses. But in my experience, most small and medium European companies simply need to form the business in order to start doing business in the US, and the costs are minimal.
Business formation is a matter of state and not Federal law. As an example, many if not most European companies form their US entities under Delaware law. The formation of the entity, the obtaining of an IRS identification number and the opening of a bank account can be done for $1000US or often less. These matters can be handled by an attorney with a business practice. Also, many companies can do the formation themselves through such online services as www.mycorporation.com.
The main point to remember is that to form your US business vehicle, the procedure is very simple and also extremely inexpensive. Thus, the costs of business formation, which discourage many companies from coming to the US, should not be a barrier to entry. That they are prohibitive is a Myth that is easily debunked.
We look forward to addressing and debunking the additional nine legal myths, one by one, in the ensuing articles.
Compliments of Global Commerce Education, a member of the EACCNY