There has been a major trend in recent years of European businesses expanding into the US. This is being caused as a result of more widespread realisations surrounding the main limitations of the European economy. The primary thing attracting these European businesses across the pond is the increased willingness of the US economy to take risks, in fact, angel investing in the US is over double that in Europe.
As a consequence of Europe’s comparative reluctance to invest, it is necessarily harder for businesses to secure venture capital domestically than in the US, which has induced an exodus of businesses from the EU towards the US under the promise of increased growth. This article investigates the reasons for these expansions, as well as some useful resources to help you do it too.
Why expand internationally?
Economy size
The US is home to the largest economy in the world, which in itself provides a solid incentive for businesses based in Europe to expand and reap the benefits of a mass of new customers, seemingly limitless resources, and, following leveraging of the two prior motivations, exponentially increased profits.
A climate curated for business
However, this reason is more of a background explanation why European companies are expanding to the US. A more specific reason for the attraction of these European companies is because the climate (both politically and economically) has been gradually curated over the past few centuries to be optimal for them. For example, the US is currently the UK’s biggest importer of its goods globally, making up nearly 20 per cent of all British exports.
Tech hubs
Another illustration of the way in which the US is perfectly tailored for these businesses is the proliferation of hubs such as Silicon Valley across the country. Hotspots such as this attract some of the most intelligent and industrial individuals in the world, which has led to the country’s acquisition of one of the most productive workforces in the world.
This, coupled with the fact that the US is a forerunner in the advancement of technology, (e.g. including the aerospace, military, pharmaceutical, and IT industries). By far the most paramount reason businesses are drawn to the US is the great deal of risk capital ripe for the taking; it is the perfect place to raise money for growing businesses.
Photo: TRUiCResources to help expand to the US
Choose a State
The first step of an expansion to the US is to choose which state to incorporate in, since the regulations controlling how a business should be organised and run vary on a state-by-state basis. When making this decision, a number of factors should be borne in mind, including the state’s: proximity to your market, workforce, resources, and legal environment.
A number of states are particularly popular for both foreign and domestic businesses as a result of their extremely business-friendly tax regulations. Namely, Delaware, Nevada and Wyoming. While an important consideration, businesses shouldn’t solely incorporate in a state because they will be liable to less tax.
Choosing solely on this basis might result in your company being based a long distance away from the state in which they’re meant to do business. Ironically this could incur liability for a higher rate of taxation as businesses will be required to pay taxation for both states.
Choose a business structure
Companies looking to incorporate will often be faced with a tough decision between whether to form themselves as an S Corp or an LLC. An S corporation is a tax status that businesses already structured as an LLC can elect, though it is only advisable to do so when certain conditions are present.
A limited liability company (LLC) is a way of structuring a business that offers limited liability protection. All this means is that a business owner’s personal assets are separated from the businesses and ruled as exempt from pursuit by creditors and in lawsuits.
An LLC can opt to be taxed as an S corporation under IRS regulations, the result of which is LLC owners being taxed as employees of the company (instead of paying self-employment taxes as standard LLCs would).
That being said, it is only financially viable if business owners can pay themselves a reasonable salary and at least $10,000 in annual distributions. For more information on the difference between llc and s corp please see the included link.
Final note
Businesses presented with the decision to expand to the US can be overwhelmed and not know where to start, despite being aware of the very clear incentives to do so. This is not made easier by the number of hoops such European companies expanding to America will be faced with.
We hope that this article provides some useful resources to get you started on an expansion that will only prove fruitful for your business.