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Thinking of expanding into the United States? The current context, with possible tariffs and other measures, requires good preparation.
Although the United States is one of the largest global markets, many questions arise before you cross the American border. You must assess the different impacts such a decision could have on your organization, from global strategy and legal obligations to recruitment and financing.
The key elements to consider are detailed below.
1- Accurately defining your business strategy
2- Choosing the right legal structure
3- Planning for challenges when recruiting
4- Determining your financing strategy
5- Knowing the tax implications
6- Properly understanding regulatory requirements
7- Looking for available financial assistance
Accurately defining your business strategy
First of all, you must determine the purpose of this move. Which operations will be on American soil? For instance, is your aim to:
- acquire a sales force or a distribution centre that will bring you closer to your client base?
- open a manufacturing plant to increase your competitive advantage?
Your company must clearly define its motivations and goals to allocate the necessary resources for this project.
Choosing the right legal structure
Subsidiary
One of the options available to your company is to create a subsidiary, which is a distinct legal entity, and therefore limit your legal liability. This choice allows for greater management flexibility, certain tax benefits and easier access to financing, among other considerations. Nevertheless, this option increases both the number of administrative requirements and the costs linked to implementation and maintenance.
Branch
You could also decide to set up a branch, which enables the company to expand, and would ensure operational continuity and centralized management. However, since a branch is not a distinct legal entity, this option exposes the parent entity to higher risk.
Partner company
Another possibility is for a U.S. partner to own an interest in your company so that you can share costs as well as risks. The upside of this solution is that it facilitates access to a partner’s resources and networks. On the other hand, this may create challenges regarding management and decision-making if cooperation between the partners is not optimal.
To choose the right type of structure, we recommend that you consult with business law and taxation experts who will help you assess all your options.
Planning for challenges when recruiting
Visas and administrative procedures for your employees
Is your company intending to transfer employees to the United States? If so, you must follow procedures and plan for the time required to obtain work visas. For instance, you will have to fill out the right forms according to the type of visa requested, provide information about your organization, justify the need to hire, etc.
Recruiting locally
If expanding implies recruiting locally, you will then have to consider the employment policies south of the border. American labour laws are different from Canadian laws in several respects.
Labour standards in different states
American labour standards are governed by a federal organization under the Fair Labor Standards Act, which establishes rules on the minimum wage, for instance. However, some states and cities can set their own standards. It is therefore crucial that you find out about existing legislation at the different government levels.
Health insurance and employee benefits
Furthermore, there is no public health insurance plan comparable to the Canadian one in the United States. To remain competitive, your company will need to provide, where applicable, the right medical insurance to attract talent. The same applies to an employee benefit package, including a retirement savings plan.
Determining your financing strategy
To be able to finance your company’s expansion into the United States, you must evaluate several options:
- Equity financing;
- Bank indebtedness (either a business loan or a line of credit);
- Venture capital investment;
- Different types of government assistance;
- Finding an American strategic partner.
To convince lenders or investors, you should decide which formula is best suited to your business context, develop a business plan and demonstrate your potential for growth. Financial and legal advisors can help you better understand the implications and requirements.
Knowing the tax implications
Your enterprise will have to become familiar with the rules of the U.S. taxation and accounting system, including:
- Filing obligations and deadlines;
- Accounting standards;
- Tax implications for cross-border operations, such as repatriating funds/profit, financing, lending employees, etc.;
- Transfer prices.
Once again, you will have to consult with taxation and accounting experts to ensure that your organization is in compliance and your financial management optimal.
Properly understanding regulatory requirements
The United States has specific requirements for foreign companies, which may call for significant adjustments in your business practices. It is therefore important that you keep informed about permits, licences, business standards and industry regulations, for instance regarding tariffs and other American measures that might be adopted.
You will also have to ensure that your different contracts (with employees, suppliers and customers) comply with American practices.
You should also find out about business risks across the border. Several elements can impact your company’s operational conditions and profitability, including:
- Changes in trade policies;
- Economic sanctions;
- Environmental regulations.
The risk of lawsuits is also higher in the United States, as American companies are more likely to initiate legal action in the case of a dispute.
Looking for available financial assistance
A Canadian company wishing to set up shop in the United States could be eligible for certain types of government assistance. The different levels of government (federal, state and local) have put in place several programs and incentives to encourage foreign companies to invest and create jobs in their jurisdictions.
Each state has economic development agencies that provide information, resources and personalized assistance. Many American states also offer tax incentives, including tax cuts and tax credits, to attract foreign companies. These types of assistance can decrease your operating costs and increase your profitability.
Evaluating all such factors and seeking help from competent professionals in these matters will save you from many pitfalls and give you the best chance to maximize your success in the U.S. market.
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