Primary Considerations for Foreign Investment in the United States (Part 1 of 2)
Even with some economic uncertainty following the recent Presidential election, the United States (sometimes referred to herein as the “U.S.”) remains an attractive candidate for foreign investment. This is the first installment in a two-part series which provides a brief overview of some important considerations for foreign business people and foreign companies considering investment in the U.S.
Formation of U.S. Limited Liability Entity
Depending on the activities that your foreign company desires to undertake in the United States, the prudent course of action when considering foreign investment into the U.S. often involves organizing a U.S.-based subsidiary to house your business activities in the U.S. Company law in the United States, including the formation of legal entities, is within the jurisdiction of the separate states, e.g. the State of Delaware. For simplicity, we refer to all such entities as a “U.S. Entity.”
There are many reasons to organize a wholly-owned, or partially-owned, U.S. Entity for foreign investment in the United States, including, but not limited to, limiting liability and insulating personal and other business assets, serving as a “blocker” for U.S. income tax purposes, and managing exchange rates when repatriating earnings.
Limited liability is crucial in any jurisdiction, but that is particularly true in the U.S. which is more litigious than many other countries. Limited liability protects the personal assets of the owners of the entity, as well as the assets of other affiliated foreign and domestic entities. For tax purposes, the U.S. Entity can often provide a level of separation between the owners of the entity and U.S.-sourced tax liability. In that way, the U.S. Entity serves as a “blocker” to limit exposure to the taxable activities in the United States. Moreover, the U.S. Entity would allow the company to limit exchange rate exposure by controlling the timing when repatriating earnings to the home country of the foreign entity or individual.
Intellectual Property Considerations
The United States has high standards for intellectual property protection through patents, copyrights, and trademarks, among other things. Prior to conducting activities in the U.S., or even using a corporate name or logo, it is important for a foreign company to consult local counsel to do an appropriate search to verify that any existing or proposed brand names, trademarks, trade names, logos or other marks do not infringe on existing intellectual property in the U.S.
Assuming a search of existing intellectual property reveals no significant barriers, the next step often involves applying for appropriate intellectual property protection in the U.S. The process to acquire intellectual property protections in the U.S. can be lengthy, so this should be one of the initial considerations to the extent it is applicable in connection with your investment in the U.S. Finally, foreign companies and individuals should be cautious to have competent counsel prepare properly drafted agreements to protect existing and future intellectual property.
Products and Product Liability
To the extent you are exporting, selling, or manufacturing products in the U.S., it is important to determine in advance the right U.S. partners that will participate in product distribution and sales. Initially, you should consider the appropriate business strategy for your company, including whether you will use a distributor, dealer or other form of sales agent or representative to sell and market your products. If you plan to partner with any such companies or individuals, it is crucial to have local counsel prepare well drafted agreements to cover the key terms, and particularly, terms related to product liability.
Product liability is an important consideration when contemplating foreign investment in the U.S. Contracts should be prepared to U.S. standards and should include appropriate limitations on product liability and provisions to pass and reduce risk to other parties in a distribution or supply chain, depending on the circumstances. An additional consideration should be obtaining appropriate product liability insurance and commercial risk insurance for the U.S. and other applicable markets. Taking the appropriate measures can minimize product liability risk so that it is manageable in connection with foreign investment in the U.S.
Please do not hesitate to contact us if you have questions or interest in these topics.
