At the start-up of a branch business in the US, the decision of which legal form the company will take is the most important. This influences how much in taxes one will have to pay, and which other legal formalities will be required. A primary distinction is made between non-limited liability ánd limited liability forms.

Sole Proprietorship

An enterprise in private hands is often described in the US as “Sole Proprietorship”. It is the simplest business structure and is often comprised of one singular person, by whom the business is owned and governed. It should be considered disadvantageous that one person alone is responsible for the firm, and it is also very difficult to raise capital in this legal form because shares of the company cannot be sold. Additionally, the owner assumes personal liability for the commitment of the businesses and is held personally liable for the business income taxation. In this form, however one must only apply for a Business Licence.

General Partnership

In a “General Partnership” all partners are responsible without limit for the enterprise and governing it together. The benefit is that the tax burden is shared among the various shareholders. A “Partnership” can sometimes be more cost intensive than a “Sole Proprietorship” and with more legal and administrative costs. In this business form it is enough to register a Business License and it is comparable to the German “GbR”.

Limited Partnership

A “Limited Partnership” consists of a General and a Limited Partner. The Limited Partner acts as an investor with limited control rights. This means that the limited partner may not take part in the management of the business. The General Partner in contrast, is liable for and in control of the business. For the founding, a partnership agreement is necessary, and a “Certificate of Limited Partnership” has to be applied for at the Secretary of State. This business form is comparable to the German “Limited Partnership” (KG)

Limited Liability Company

The Limited Liability Company (LLC), which is comparable to the German form (GmbH), is acknowledged not in all of the American states. The tax rate on LLCs vary from state to state. The stakeholder will personally be taxed, where as the liability on the company’s assets is limited. At the time of founding the Filing Documents have to be registered with the Secretary of State and an Operation Agreement must be provided by at least two stakeholders. An LLC is particularly interesting to Americans because by taking this business form, different tax advantages can be accessed. Also, In particular cases it is necessary for German enterprises to take on this form.

Corporation

The Corporation is usually the preferred business form in the US. For German Entrepreneurs, it is by far the most commonly used legal form when founding a branch in the US. The founding of a Corporation that is independent from the larger business can be arranged quickly and simply in every state by filing a Certificate of Incorporation. The state in which the registry has been filed will thereafter be the Corporation’s legal home. The law of every individual state determines the organizational and legal business structure of the Corporation. You can pursue your business activities also in ever other state. It is, however, required to file a second registration in each subsiquent state where business is done.

For those with a Corporation, the combined administration expense is higher than the previously discussed business forms. Also the taxation is often higher, so that the corporation is subject to double taxation. Those can be prevented through the founding of an S-Corporation. American citizenship not required to found an S-Corporation, however an authorized person at the main office in the US has to be given. The advantage of this business form are similar to those offered by the limited liability of the Corporation. Additionally, it is simpler for a corporation to receive more investor capital.

Should you have questions regarding which business form is best for your US-Market entry, CONTACT US. We can recommend lawyers, accountants, and tax advisors to offer you more personalized advised. We can even help you with choosing the optimal location to launch your entry CLICK HERE.

Legal Information:

This information serves the exclusive purpose of orienting the reader. It represents no legal advice or exclusive legal view. Due to the fact that the American legal system often makes several subtle changes, the information here can become partially outdated. The GACC California, therefore, expressly rejects liability for consequences that develop for owner based on the reliance on the information above.