• How-to

U.S. firms may have found their way to India, but there is still a whole lot of business you can generate from the continent. So, if you’ve evaluated the opportunities available for your product or service, the competition and your ability to compete in the same playing field, then the time is right to set up a representative office. Experts suggest you evolve a financial plan with a minimum six-month funding to cover costs at the outset.

Choose your firm’s entity
There are several CPA firms, law firms and also private entities that facilitate formation of an U.S. entity. Ideally, one should consult with others who have formed an entity and use their experience before choosing a facilitator.

* Corporation (Inc., Ltd., Corp.)
This is the most common type of entity formed by incorporating with a state authority and is a separate legal entity owned by stockholders of the corporation. You will need to file articles of incorporation with the state department to obtain a certificate of incorporation. Any foreigner (meaning non-U.S. citizen) can form a “corporation” in the U.S.A.  While some states make it mandatory for officers of the corporation to have a Social Security Number (SSN), there are some that do not. If you’re looking for funding in the U.S., then a corporation plays a stronger role in the market, and attracts the investor community more easily.

* Limited Liability Company (LLC)
Here too, any foreigner (meaning non-U.S. citizen) can form a LLC in the U.S. Many professionals consider this superior alternative to corporations or partnerships as they combine many of the advantages of both. Also, it is cheaper and simpler to create, say some. However, this entity cannot issue shares and therefore doesn’t have the benefits of stock ownership and sales. Typically an articles of organization is to be filed with the prescribed state authority.

* S Corporation
No foreigner (non-U.S citizen) can set up an S Corporation. However, it has special tax provisions. Unlike corporations, all income or loss is reported only once on the personal tax returns of the shareholders.

* Foreign branch
Choosing this entity will require you to apply to the Secretary of State of the state where the business is being formed and obtain a ‘Certificate of Authority’ to do business in that state, fee varying from state to state. An important point to remember here is that opening a branch office will unequivocally place the parent company under the jurisdiction of U.S. courts and state courts where the business is located and where business is conducted.

Preferred states
Each state in the U.S. has its own laws and taxation policies and ideally the state/city must be a choice driven by business considerations. However, remember, you can subsequently set up offices (for operations) in any city in the U.S., irrespective of the state your firm is incorporated/registered in. For instance, if you are an IT firm you’d typically want to operate in California and if you are in media/entertainment segment, then you’d have operations in Los Angeles.

* Delaware
The state government here is most popular for its business-friendly environment and flexible corporate laws. As per the Delaware Division of Corporations website, over 8.5 lakh business entities have their legal home in Delaware including more than 50 percent of all U.S. publicly-traded companies and 63 percent of the Fortune 500.

* Nevada
As per the State of Nevada website, it ranks #2 in the small business survival index.

* Texas
Is friendlier in terms of taxation and businesses are not liable to pay tax until a certain stage. The percentage of this depends on profits.

Taxation
Tax rates vary from state to state depending on the type of business that is carried out. For instance, California state has a minimum tax of Rs.36,000 per annum, payable irrespective of the volume of business. In addition to the state taxes, local city authorities invariably have nominal taxes based on gross receipts. Also, all corporations will pay federal tax as well. Most businesses will need to register with the IRS (Internal Revenue Service), state and local revenue agencies, and receive a tax ID number or permit.

Businesses permitted
Any legal business is permitted in the U.S.A. More importantly, local regulations must be considered to ensure that the nature of business intended to be pursued overseas is permitted in the country of incorporation. For example, India has stringent regulations covering banking business or real estate business being set up abroad.

Staffing
Anyone eligible to work in the United States can be hired, and a prospective employer must process a form I-9 from the prospective employee before hiring anyone in the U.S.A. The regulatory requirements for hiring are outlined by the DoHS, U.S.A. If you employ more than 10 people, you must provide them with benefits like healthcare and retirement. The better benefits you provide, the better the talent you will attract. Hiring people on a contractual basis is advisable as there are less liabilities on firing since you will not come under any government mandates.

Costs
Some important costs you will incur whilst setting up office in the U.S.:

* Application with the Secretary of State for Certificate of Authority to do business. Filing fees should not exceed Rs.11,250. Where a local service provider is used, you may have to incur about Rs.9,000 for services.

* Medical insurance for employees: Premiums vary based on factors like age, pre-existing condition; Rs.33,750 to Rs.81,000 approx.

* Setting up local U.S. company: Approx. Rs.11,250 for a Delaware Corp; can be higher for other states depending on local fees.

©Entrepreneur April 2011

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representative office, U.S.