Creating Your American Dream
May 9, 2019
Expanding your business to the United States, whether through relocation, creating a subsidiary, opening a branch office, or simply importing requires capital, time, and knowledge. And it probably requires more capital, time, and new knowledge than initially anticipated. Even though the American culture may feel familiar to Scandinavians who drink Starbucks Coffee, buy Levis jeans, and binge-watch seasons of Orange is the New Black – the differences are often bigger than expected, both between the United States and your home country and within America itself.
Where to go
So you’ve decided to expand to the United States. Where do you go? You need look no further than a globe to understand that the United States is a vast land. But geography alone possibly understates the diversity among U.S. regions, each of which carries distinct advantages and challenges for your business.
As a foreign entrepreneur, it’s tempting to shortchange the decision of where to expand, looking immediately to a large, costal population center such as New York or San Francisco. But a large population does not necessarily equate to business success. You need to ask, “who are my customers?,” “who are my business partners?,” “who are my employees?,” and “how will I get my product to market?” The answers to these and other questions may well lead you to a less familiar market.
When you expand your search for a U.S. home, you are likely to come across regions that have clusters of excellence in particular fields. For example, Minneapolis is known as a hub for medical technology, Pittsburgh and Cleveland have some of America’s top research hospitals, Columbus, Ohio is known for its startup-friendly tech sector, Huntsville, Alabama is a center for precision manufacturing, while North Dakota has emerged as an early leader in unmanned aviation.
Your choice of location should also account for differences in various jurisdictions’ legal and regulatory climates. State laws (and increasingly city laws) vary on key points such as employer/employee relations, environmental laws, and privacy laws. These variations can impose unexpected costs on your business if you do not take them into account before investing significant resources in your U.S. endeavors.
Where to incorporate
A separate—and usually completely unrelated—question from where to locate your business is where to incorporate it. Many Nordic companies will go to the United States looking for capital. Keep in mind that, as most everywhere else, U.S. investors appreciate familiarity. This means that several investors will prefer, or even insist upon, investing their money in a U.S. company. If, after consulting with legal and tax advisors, it makes sense to form a U.S. company, most businesses will choose to form a Delaware company, as Delaware is the state whose corporate law is most familiar to investors. This is not to say that Delaware is the right choice for every company, however, as individual states may offer incentives to incorporate there that outweigh investors’ familiarity with Delaware. And, as a practical matter, the differences between Delaware law and other states’ corporate laws are quite small, as many state legislatures model their corporate laws after Delaware’s and many state courts look to the Delaware Chancery Courts for guidance in interpreting those laws.
If you’re only thinking about forming a subsidiary, we're not going to stress the point to much. Sometimes, however, Nordic companies are tempted to conduct a so-called “U.S. Flip,” whereby they create a U.S. parent company—with all your old familiar investors—which would then own all the shares in the home-country entity, as an operating subsidiary. This process requires some legal acrobatics, if it is at all possible, and rarely yields any commercial benefit that cannot be realized with a simpler corporate structure.
And, regardless of the structure you choose, you should definitely be sure to check on the tax effects for the company and for existing investors alike. The “flip” could, for example, carry adverse tax consequences both upon implementation, and for future dividends and capital gains for the non-U.S. shareholders. In the case of the flip, the entity now holding your business is governed by U.S. corporate-governance (state) and securities (federal and state) laws. The multiple layers of regulations underscore the need to do your homework with your professional advisors before initiating such a process!
Learning the market firsthand.
Entrepreneurs have several resources available to help them understand various markets in the United States. For example, SelectUSA, a part of the U.S. Commercial Service, provides web-based research tools and individual counseling for companies considering an investment in the United States. National business-development agencies, such as Innovation Norway, Business Sweden, and Enterprise Ireland, have their own resources for companies contemplating internationalization.
Many entrepreneurs learn, however, that they need “boots on the ground”—that is, a founder or a key leader in the company, rather than a more distant representative—to gain a true understanding of how to translate success in their home market to success in the United States. They also learn—often the hard way—that it takes significantly longer than expected to understand the market and begin to earn revenues.
These dual challenges—needing someone to invest significant time into understanding the market and the fact that the “someone” with knowledge of the company is likely foreign—mean that one of the entrepreneur’s first challenges is to navigate the U.S. immigration system. Fortunately, there are options to help in this scenario, including the “Business Visitor” visa, which allows six-month stays, extendable up to one year, the “Intercompany Transfer” visa, which allows home-country leaders to stay for one year for the purpose of establishing a new office, and the E-2 treaty-investor visa, which gives the entrepreneur an initial stay of two years, extendible in two-year increments, contingent on the entrepreneur making a “substantial” investment in the United States. Entrepreneurs should consult immigration counsel before formulating their strategy for entering the United States, as choice of visa is a decision that is highly dependent upon the business’s and the entrepreneur’s specific situation, and may affect other areas of the entrepreneur’s personal and business life, including his or her tax burden.
Assembling your own “Dream Team”
Mention the phrase “Dream Team” and most Americans of a certain age will know exactly what you’re talking about – the 1992 U.S. Olympic basketball team, consisting almost entirely of future NBA Hall-of-Fame inductees, which ran over their younger and less-talented competition on their way to an easy gold medal. The “Dream Team” got its name because it combined the world’s best at every position.
So why is this important? You want to assemble your own Dream Team to tackle the challenges that the U.S. market poses. Just like 5 centers would not have won gold in Barcelona, 5 Norwegian software engineers are unlikely to build the next U.S. tech unicorn. Unlike the Nordic countries, the United States is a sales-based culture. This means that, to succeed in the U.S. market, you likely need to hire people in the United States. Hiring people in the United States means that you will be subject to federal, state, and sometimes even local employment laws.
U.S. employment laws likely differ from what you already know, not only in regard to questions of salary, notice period and working hours, but also in regard to the protection and ownership of IPR, the ability to enter into non-compete and non-solicitation agreements, and other parts of the employment relationship that may directly influence your business.
Having employees in the United States will also likely affect your tax burdens both in the United States and at home. Seconding your home-country employees to the United States, for example, can have dire consequences for the employee and consequently also for your business.
U.S. employees of a startup/scaleup will generally expect an equity stake in the company. Culturally (but also due to tax reasons), options are more widely used in the United States than share ownership (which is arguably the best equity incentive in, for example, Norway). As in your home market, it is necessary to clarify any questions relating to taxation, as well as implications or formal requirements under applicable securities regulations, including federal and state “Blue Sky” laws that exempt certain forms of securities from being registered with the Securities and Exchange Commission and state equivalents. Securities laws, in particular, should be navigated with caution and with the help of a trusted legal advisor, as violation can lead not only to civil fines for your business, but also criminal sanctions both for the company and the individuals responsible for violations.
You Built the Better Mousetrap – Make Sure it’s Protected
If you’re seriously considering internationalization, you’ve likely developed a product or service that sets you apart from your competition in your home market. Before setting your sights abroad, you need to make sure that you’ve identified the component of your product that gives you that advantage and make sure that it’s adequately protected against threats that might arise abroad.
For companies contemplating entering the United States, the first (and simplest) step is often to protect your name, logos, and other trademarks. After confirming that your mark is not already in use in your field, you can register it nationwide even before you use it in the United States, so long as you can demonstrate that the mark has been in continuous use in your home market.
An early decision companies often confront is whether to protect their intellectual property via patent or trade secret. Seeking patent protection in the United States can be attractive because investors often value patents and because patent enforcement can be a lucrative source of income for a small company. Patent approval is contingent upon approval by the U.S. Patent and Trademark Office, however, and even then is subject to costly court challenge by third parties. Relative to patent protection, trade secret protection provides flexibility—the company itself can determine what is a trade secret—and affordability—an adequately protected secret does not require court enforcement. If a company decides to protect its assets as trade secrets, it needs to adopt enterprise-wide definitions of what is secret and protections for those secrets, lest a company lose its ability to seek compensation for their misappropriation in a U.S. court. These protections must include technological protections (firewalls, passwords, and encryption) as well as commercial protections (labeling, NDAs, strategic employment agreements, training, and employee exit interviews).
At the end of the day, America has one unique benefit – it has been a land of immigrants since its founding. This means that Americans, by nature, are risk takers. When you take the big step to expand your business to the United States, you follow in the footsteps of generations of risk takers. For this, you should be applauded. Do your research and have the right team of advisors around you and you may also be rewarded.
Robins Kaplan LLP with Partner, Remi Dramstad and Associate, Ingrid Abildgaard in the Oslo office of Advokatfirmaet Selmer AS
1 Ryan is a principal in the Minneapolis office if Robins Kaplan LLP. Remi is a partner, and Ingrid an associate in the Oslo office of Advokatfirmaet Selmer AS. The authors would like to thank Bill Paulin for his insights and his contributions to this article.
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Partner, Advokatfirmaet Selmer AS
Associate, Advokatfirmaet Selmer AS
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