Several housekeeping considerations deserve your attention at around the same time you incorporate your business on US territory.
Implement key international practices
Establish share schemes
Set up a US bank account
Ensure the right employee and customer protections
IP is territorial, so your UK or EU protections won’t carry over to the US. What’s more the US can be highly litigious. Lawsuits are relatively inexpensive to file and, thus, are often used as a way to negotiate – and that’s before we account for ‘patent trolling’. Most cases will end up being settled out of court, often at significant expense.
To eliminate as much of the risk as possible, cultivate strong local contracts (not “Americanised” contracts from your home country) and have compliance programs in place. All US employees should sign an “IP and Confidential Information” written agreements. Furthermore, at the point of exit, an acquirer will be far more sceptical about aspects that at the outset seem unimportant.
Kevin McGovern, Notion Expert and exiteering specialist explains: “Buyers and later stage investors are really hot on issues that to them represent potential downside risk: particularly employment contracts – what is owned in terms of IP assignment and what is owed in terms of payments; they are also hot on customer contracts; again, in terms of IP but also the predictability of revenues.
International transfer pricing Acquirers also focus on transfer pricing, due to the long-term tax advantages but also because of the risks associated with tax avoidance. So the advice is simple: get the fundamentals of a global business in place, while it is still relatively small. Transfer pricing may seem unimportant early on, but hard to rectify at a later stage and can put an acquisition at risk.
Manage cap tables and share schemes from day one Any offer of equity or stock options to US based individuals will have tax and US securities law implications, so discuss it with an attorney. “Most commonly, a US sub-plan will be created to the stock option scheme to deal with these issues and where possible to take advantage of US tax breaks,” says Karen Cooper of Cooper Cavendish.
If an employee makes equity investments in your business, the stock purchases must comply with US federal and state law. Every offer and sale of a security (including options) must be registered with the Securities and Exchange Commission (SEC) or an application for exemption from registration must be available.
Each state also has its own laws governing the offering and sale of securities – also called “Blue Sky” laws. Furthermore, California imposes certain requirements on options granted to residents of California, including a stipulation as to the maximum duration of the options and the minimum exercise period following termination of employment.
Kevin McGovern continues, “Messy cap tables can also create headaches at a later stage so get those right from the start. Option schemes are expensive to administer and differ by state (you create a taxable presence in the US in every state in which you have employees or customers) creating a significant admin burden, so get good advice on the structure.
Lastly, it is essential to bill US customers through a US bank account – not just because it’s easier, but also due to the brand comfort it provides to customers. Our recommended provider in this space is Silicon Valley Bank (SVB), used by many of our portfolio. With a large presence across Europe and of course the US, SVB offers much more than just banking solutions. It is an experienced, committed
partner with the scale and the determination to take clients from a small business to a large corporation. You’re also looking for relationship managers who are client-focused – ensure that (as is the case with SVB) you can speak to the same named contact rather than being passed around from one department to another.
Any European enterprise tech company, with the ambition to be a category leader, must conquer the US. Download your copy of “Crossing the Atlantic” here.
To finish with, a couple of golden rules from Notion experts:
An early start will allow you to obtain a Federal Tax ID number. This can take time, but it’s necessary for unlocking other aspects of your company admin, for example opening a US bank account. Cassandra Anderson, HR Consultant, TriNet
SVB has an unparalleled network of innovators and investors, great brand recognition in the US for businesses looking to break America, high quality, content-led events here in London, as well as access to market leading debt financing. Sonya Iovieno, Head of Venture & Growth Banking, Silicon Valley Bank
Crossing the Atlantic