How To Form A Subsidiary In The United States

This article was first published by the Young Entrepreneur Council.

By: Doug Bend

International companies that are looking to expand into the U.S. market often form a U.S. subsidiary. By doing so, they help isolate any liability that might arise in the U.S. to the subsidiary to protect the parent company. There are seven steps to forming the subsidiary:

1.  Certificate of Incorporation

More than half of all Fortune 500 companies and most U.S. subsidiaries are formed in Delaware because it is the preference of investors.

You first will need to file a Certificate of Incorporation with the Delaware Secretary of State’s Office.

If you do not have a U.S. mailing address, you could use a mail forwarding service. For example, some of our clients use Alliance starts which starts at $50 per month.

2. Federal Employer Identification Number (EIN)

Next, you will need to obtain a Federal Employer Identification Number (EIN) from the IRS for the subsidiary.

If you have a U.S. tax identification number, you can obtain the EIN online here.

If you do not have a U.S. tax identification number, you will need to file IRS Form SS-4.

3. Bylaws, Indemnification Agreements and A Board Consent

You should also prepare bylaws, indemnification agreements for the officers and directors of the subsidiary and an initial Board consent approving the issuance of shares to the parent company.

4. City Business License

You most likely will also need to obtain a city business license for the subsidiary.

5. Registering Any DBAs

Depending on where the subsidiary is headquartered you may need to register the additional names that the subsidiary will be operating under besides for its full legal name.

For example, if the subsidiary is headquartered in California you will file a Fictitious Business Name Statement with the county clerk’s office. Once Fictitious Business Name has been approved by the county clerk’s office, you will need to have it published in a legally adjudicated newspaper.

6. Bureau of Economic Analysis

You are also required to file a report with the Bureau of Economic Analysis.The initial report must be filed no later than 45 days after the date of the investment transaction.

Which form you file will depend on much money you are investing in the subsidiary. For example, if the total cost of expansion is less than $3m, then Form BE–13 Claim for Exemption can be filed.The BE-13 can be filed online here.

7. Additional Government Filings

There may be additional government filings. For example, if the subsidiary is headquartered in California and has employees, you will need to register it with the California Employment Development Department (EDD) so you can run payroll. If it is selling goods, you will also need to obtain a seller’s permit from the California Department of Tax and Fee Administration.

You should consult with your attorney as your jurisdiction might have different requirements, but this checklist is a good starting point for forming a U.S. subsidiary.

Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction.  Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.