Ten Common Mistakes Made in Business Expansion and Entity Formation
1. The Failure to Assemble an Experienced Professional Team
A successful entry into the US marketplace requires coordinated input from a US Business Lawyer, a US Immigration Lawyer and a Certified Public Accountant. Not all professionals have experience with the legal and tax ramifications involved in international business expansion. Ask your professional how many international business clients he/she has successfully assisted in entering the US marketplace.
2. Forming a Limited Liability Company (LLC) or an S Corporation as Your U.S. Entity
Seek additional professional advice if you have been advised to operate your US business as a Limi ted Liability Company or an S Corporation. Beware professionals who are not aware of the adverse ramifications to a Canadian or International citizen involved in these legal entities.
3. Holding Shares of Stock in a US Business Entity in Your Individual Capacity
There are sound immigration and tax reasons why your shares in a US business entity should be held by your Canadian or International corporation or holding company.
4. Incorporating in Delaware or Nevada Without a Sound Legal and/or Taxation Reason for Doing So
The mistaken belief that there are distinct legal advantages to forming wholly owned subsidiaries of Canadian or International corporations in the States of Delaware or Nevada is most likely the result of “Internet Hype.” The States of Delaware and Nevada aggressively represent that there are distinct advantages to incorporating in Delaware and Nevada i.e. cheaper filing fess, minimum capital requirements, nondisclosure of the identity of officers and directors, ability of a single person to serve as the sole officer and director, cheaper filing fees, etc. In truth and in fact, unless your Certified Public Accountant identifies a specific tax advantage to incorporating in Delaware or Nevada the prevailing opinion is that your business can be more easily established and operated as close as possible to the Canadian or International parent company.
5. Losing Your Access To The US Courts By Failing to Secure Governmental Registration
Many states limit or prevent a foreign company from filing litigation in Court to collect an unpaid contract debt. For example, Revised Code of Washington 23B.15.020 states, in pertinent part, as follows:
Unless it is otherwise authorized to transact business pursuant to a state or federal statute, a foreign corporation transacting business in this state without a certificate of authority may not maintain a proceeding in any court in this state until it obtains a certificate of authority.
6. Losing Your Successful Construction Bid To The Second Place Bidder
American contractors, disgruntled by a low bid award to a foreign contractor, are using the Washington Contractor Registration statutes to file bid protests against successful foreign bidders. Compliance the applicable Washington Contractor Registration statutes may prevent your worst nightmare.
- RCW 18.27.010-Definitions …(1) “Contractor” means any…firm, or corporation who…undertakes to, or offers to undertake, or submits a bid to…construct…for another, any building…structure…or improvement… or to do any part thereof…” “Contractor” includes any person, firm or corporation covered by this subsection…”
- RCW 18.27.005-Strict Enforcement : “This chapter shall be strictly enforced…anyone engaged in the activities of a contractor is presumed to know the requirements of this chapter.”
- RCW 18.27.020-Prohibited Acts—Criminal Penalty : “(2) It is a misdemeanor for any contractor to: (a)…offer to do work, (or) submit a bid…as a contractor without being registered as required by this chapter…”
- RCW 18.27.080 No person engaging in the business or acting in the capacity as a contractor may bring or maintain any action in any court of this state for the collection of compensation for the performance of any work orfor the collection of compensation for the performance of any work or for the breach of any contract for which registration is required under this chapter without alleging and proving that he was a duly registered contractor and held a current and valid certificate of registration at the time he contracted for the performance of such work or entered into such contract. Dollars spent in securing proper governmental licensing is cheap insurance.
- RCW 23B.15.010-Authority to Transact Business Required. “… a foreign corporation may not transact business in this state until it obtain a certificate of authority…”
Insure your successful construction bid by proper corporate and contractor licensing.
7. Misjudging Timelines For Governmental Registration—The California Registration Process
“There is no quick way to secure contractor registrations in the State of California.” Unlike the states of Washington and Oregon, California has a minimum twelve (12) week processing period for Contractors License Applications.
The State of Washington Application For Contractor Registration is approximately one and one half pages in length, requires no classes or educational requirements (for most trades), requires a $45.00 Application Fee and takes approximately fifteen minutes (15) to process.
The State of Oregon Construction Contractors Board License Application consists of a thirty one (31) page booklet of questions, requires a sixteen (16) hour educational course, requires the successful completion of an examination, requires a license fee ranging from $190.00 to $225.00, and takes approximately ten (10) days to process.
The State of California Contractors License Board Application For Original Contractors License consists of approximately sixteen (16) legal pages, requires (1) five (5) years educational experience apprenticeship-training, (2) independent proof/certification of such experience, (3) a two (2) part examination including a Law Exam on California Contractors License Law, Mechanics Lien Law, Labor Laws and (4) a Trade Exam on practical questions and problems for each and every trade classification selected and (5) total license fees of $400.00. Be forewarned that the California Contractors State License Board will utilize virtually every day of the twelve (12) week processing period to meticulously scrutinize your application.
The questionable practice of “bidding first—licensing second,” while ill advised in all states, is fatal In the State of California.
8. Failure To Secure A Passport
Planning on the expeditious issuance of an Employer Identification Number from the Internal Revenue Service toopen your US bank account? The timely issuance of an Employer Identification Number may have gone by the wayside. The instructions for the SS-4 Application refer to an “official identifying document.” The Internal Revenue Service previously accep ted copies of Driver’s Licenses or Passports. We have been advised that, as a result of September 11th, the Internal Revenue Service changed their rules to require all non-US applicants for an Employer Identification Number to possess a passport.
When forming your United States business entity consideration should be given to electing an officer or director who possesses a US Passport to insure prompt issuance of an Employer Identification Number.
9. Employee Contracts—Giving Away The Farm
The federal and state laws pertaining to the rights, benefits and longevity of employees in the Uni ted States are vastly different than those to which you are accustomed in Canada or your home country. Employees in many states, notably the State of Washington, are referred to as “at will” employees. The concept means that the employee may be hired and/or termina ted, with some defined exceptions, at the “will” of the employer. The rights of an employer to hire and fire “at will” may be bargained away through the use of employment contracts, promises of continued employment, employment manuals, etc. Recognize and understand your employer’s rights in a foreign jurisdiction before you negotiate with a prospective employee.
10. Failure To Create A Business Presence
Demonstrate to the US consumer that your business product and/or service is ready accessible and that customer service issues may be promptly addressed through the use of a virtual office, local address and/or 1-800 number.