Legal considerations for doing business in the United States

Business Growth
International
Legal
Tax

With the US offering one of the largest consumer markets in the world, it’s no surprise that international businesses often view expansion there as a natural next step. But before setting up a US entity, it’s worth asking a more fundamental question: should you?

Whilst the US is an attractive market, it’s also a complex and high-risk jurisdiction. The legal and tax system is layered at both the federal and state levels, employment law is intricate, and the market is highly litigious. Without the right infrastructure, advisers, and capital behind you, entering the US can become an expensive distraction.

Despite this, the US still presents huge potential for businesses with a solid plan, funding and genuine opportunity.

In a recent webinar hosted by Wilson Elser, a member firm of global association IAPA International, legal experts gave a practical overview of the key considerations for setting up and operating in the US.

What kind of presence do you really need?

If you’re looking to test the waters, you might not need a US entity immediately. For example:

Independent contractors can often help you explore early opportunities without needing to hire employees or open an office.
Selling to US customers doesn’t always trigger a US tax or filing obligation, particularly if your operations are outside the country and you have no US-based staff.

In these cases, a ‘light touch’ approach, one where you can test demand, establish contacts, and build confidence without the cost and complexity of a full US presence, might be more cost-effective and allow you to build up market knowledge before committing to a legal presence.

For businesses planning to hire US-based employees, lease premises, or raise investment within the US, setting up a US entity is typically a must. Corporations based in Delaware are often attractive to many businesses setting up in the US as it’s a favourable jurisdiction for its laws.

Once a business has made a decision to expand into the US, one of the first decisions they must make is what type of legal entity to establish. A Limited Liability Company (LLC) is a popular choice for its flexibility, but understanding how an LLC is treated for tax purposes – and what happens when that treatment changes – is critical.

Why are LLCs beneficial?

In the US, entities can generally be taxed as C Corporations (taxed at the entity level) or S Corporations (pass-through entities with shareholder limits). Most foreign-owned businesses can’t qualify for S Corporation status, so the typical choice is between an LLC or a C Corporation.

LLCs are unique in that they’re created under state law and offer both limited liability protection and contractual flexibility. They can be managed by their members (akin to partners) or by appointed managers, and the operating agreement, can be tailored to fit commercial needs.

In many cases, the operating agreement is structured to resemble a corporate set-up, with a board of managers taking the place of a traditional board of directors. This gives overseas founders a familiar framework while retaining the benefits of an LLC.

Electing how to be taxed

One of the biggest advantages of an LLC is the ability to choose how it is taxed. By default, a multi-member LLC is taxed as a partnership, meaning it is a pass-through entity with no corporate-level tax. However, an LLC can elect to be taxed as a C Corporation, meaning it will pay federal corporate income tax at a flat rate of 21%, and its members (or owners) will also be taxed on distributions. These distributions are treated as dividends, typically subject to 30% withholding.

It’s important to note that electing corporate tax treatment does not change the legal form of the entity. The business remains an LLC, governed by its operating agreement, but is taxed as if it were a corporation.

If you later wish to change back from a C Corporation to an LLC or partnership-style tax treatment, the US tax system treats this as a deemed liquidation, with the business being treated as if it has sold all of its assets and distributed the proceeds – triggering a potentially significant tax charge.

A commercial decision, not just a tax one

Ultimately, the choice of entity and tax classification should be driven by commercial strategy, not just by tax efficiency. Whether you’re looking to raise capital, structure ownership in a particular way, or build in obligations around funding and distributions, the US legal framework is generally accommodating. LLCs in particular offer wide flexibility to structure an arrangement that works operationally and financially, provided it is clearly documented in the operating agreement.

Hiring employees in the US: what you need to know

If your US plans involve hiring staff, there are several key obligations to be aware of, many of which vary by state.

Registering as an employer

The first step is to obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). This is necessary for tax purposes and for reporting employee earnings at both federal and state levels. In some areas, local reporting may also be required.

Workers’ compensation and unemployment insurance

Employers must register for workers’ compensation insurance, which provides wage replacement and medical benefits to employees injured in the course of their employment. This is a state-level requirement and must be arranged separately in each state where employees are based.

Similarly, employers must obtain unemployment insurance to support workers who lose their jobs in qualifying circumstances. You’ll also be required to notify the relevant state authorities when hiring employees so they can monitor withholdings and ensure correct contributions to both schemes.

Agent for service of process

You’ll need to appoint a registered agent for service of process in each state where you do business. This individual or company is responsible for receiving legal documents on your behalf and must be located in the relevant state.

This requirement ties into a broader point: litigation risk in the US is considerably higher than in many other jurisdictions, so this should be a factor in deciding whether to establish a branch or a subsidiary.

Understanding ‘at-will’ employment

One of the most significant differences for non-US employers is the concept of ‘at-will’ employment. In the US, most employees do not have formal employment contracts. This means that either party – employer or employee – can terminate the working relationship at any time, for any reason or no reason at all, provided it is not unlawful.

Unlawful reasons include discrimination, retaliation, or dismissing an employee due to disability or injury. Understanding these boundaries is essential to avoid legal issues.

No statutory right to paid holiday

Unlike many other jurisdictions, the US does not require employers to offer paid vacation. While it is common and often expected in competitive roles, there is no legal minimum. This can be surprising for overseas businesses accustomed to statutory leave requirements, particularly in Europe.

Immigration and sponsoring key staff

If you plan to bring employees from your home country to the US, immigration will be a critical consideration. While there are visa options available – including those that accommodate spouses – the system is complex and slow-moving. Employers must plan and allow sufficient time for visa applications to be processed.

It’s also illegal to employ someone in the US who does not have sufficient authorisation to work. When hiring, businesses must complete Form I-9 to verify each employee’s eligibility. Failure to do so can result in penalties.

Understanding your tax obligations

One of the more complex aspects of doing business in the US is navigating the state-level tax landscape. Unlike the UK, where tax is largely centralised, each US state has its own rules, rates, and requirements. Depending on where your business operates, you may be liable for a range of taxes including corporate income tax, franchise tax, and sales tax.

A key concept here is nexus – the connection between your business and a particular state that triggers a tax obligation. Nexus can be established in several ways, such as having employees, an office, or inventory in the state. In some cases, simply making sales into a state can be enough.

It’s also worth noting that registering to do business in a state usually goes hand in hand with registering for tax purposes. Importantly, meeting your federal tax obligations does not mean you’re automatically compliant at the state level. Each state has its own filing requirements, deadlines, and registration processes.

Given the complexity and variation between states, it’s crucial to map out where your business activities will take place and take advice early. This will help you avoid unexpected liabilities and ensure you stay compliant from day one.

Closing thoughts

Expanding into the US can be a pivotal move for a growing business, but it comes with a unique legal and regulatory environment that can differ significantly from other jurisdictions around the world. From deciding whether a US presence is the right strategic step, to choosing the right legal entity, navigating employment rules, and managing state-specific tax obligations – there are many moving parts to consider.

Success often lies in careful planning. That means assessing your commercial goals, seeking early advice, and working with advisers who understand different jurisdiction requirements. With the right structure and preparation in place, the US can offer huge potential – but it’s wise to be well-informed.

This article is based on insights shared during the Doing Business in the United States: A Legal Overview webinar, hosted by Wilson Elser, a member firm of IAPA International. IAPA is a global association of independent professional services firms, offering clients access to expert advice across accounting, audit, tax, legal, and advisory fields. Our thanks to both organisations for delivering such a practical and informative session on the key legal considerations for entering the US market.

At Price Bailey, our people regularly coordinate with legal and tax experts in international markets through our IAPA network – such as Wilson Elser in the US – ensuring our clients receive expert integrated, cross-border advice.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firms mentioned.