2024 LEGAL GUIDE TO
DOING BUSINESS IN THE UNITED STATES
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Establishing a business in the U.S. (or otherwise gaining access to the U.S. market) is often a top priority for many global companies, as the potential exists for massive economic success and growth opportunities. However, doing so typically requires navigating significant legal and regulatory hurdles.
This “Legal Guide to Doing Business in the U.S.” is meant to provide a high-level insight into the requirements, regulations, and challenges related to entering the U.S. market by examining the full range of issues companies must address when establishing a business in the United States, including choice of entity type, IP registration, taxes and tax status, immigration, privacy/data security, and economic incentives. Also examined are timely global factors that impact companies doing business in the U.S., including the ongoing impact of COVID-19, inflation, recent changes to immigration law, and more.
Introduction
Lawyers from across Womble Bond Dickinson’s multidisciplinary Global Business Team have developed this comprehensive guide, which covers the following topics:
TABLE OF CONTENTS
Internationally based businesses coming to the United States require experienced American legal representation. Our attorneys have strong, long-lasting relationships with key prospective American business partners and governmental agencies. With relevant industry knowledge and well-developed practice groups in areas integral to establishing and managing a business abroad, Womble Bond Dickinson helps international businesses find the connections and partners they need to succeed in the American market. Our Global Business lawyers are adept at working with foreign counsel to understand and interpret foreign legal requirements for United States-based clients, as well as in explaining American legal requirements to foreign entities doing business in the United States, making investments, or interfacing with United States federal, state or local governments. We provide practical guidance on bridging the divide between different business and legal cultures. Understanding and respecting differing cultures defines our approach to cross-border matters.
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Womble Bond Dickinson’s Global Business and Cross-Border Capabilities
©2024 Womble Bond Dickinson (US) LLP “Womble Bond Dickinson,” the “law firm” or the “firm” refers to the network of member firms of Womble Bond Dickinson (International) Limited, consisting of Womble Bond Dickinson (UK) LLP and Womble Bond Dickinson (US) LLP. Each of Womble Bond Dickinson (UK) LLP and Womble Bond Dickinson (US) LLP is a separate legal entity operating as an independent law firm. Womble Bond Dickinson (International) Limited does not practice law. Please see www.womblebonddickinson.com/us/legal-notices for further details. Womble Bond Dickinson (US) LLP’s Guide to Doing Business in the United States is intended to provide general information about significant legal developments and should not be construed as legal advice on any specific facts and circumstances, nor should it be construed as advertisements for legal services. 0424_2769
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CORPORATE / COMMERCIAL
Partner
BANKRUPTCY
Jeff Tarkenton
Patent Protection
Chris Humphrey
Dispute Resolution
Chris Jones
Environmental
Lisa Rushton
Trademarks & Copyright
Sarah Keefe
Randy Springer
IP and Data Privacy
Ted Claypoole
White Collar Defense, Investigations, & Regulatory Enforcement
Britt Biles
Labor & Employment
John Pueschel
Tax & BENEFITS
Mike Cashin
Jeff Lawyer
International Trade
Alan Enslen
GOVERNMENT CONTRACTS & International Trade
Jim Kearney
Corporate & Securities
Dean Rutley
For more information, please contact any of the contributing authors listed below or the Womble Bond Dickinson lawyer with whom you regularly work:
CONTRIBUTING AUTHORS
Bio
Immigration
Jeffrey Tarkenton
Jennifer Cory
Tax & Benefits
Jeffrey Lawyer
James Kearney
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10
DISPUTE RESOLUTION
9
ENVIRONMENTAL
8
DOING BUSINESS WITH THE U.S. FEDERAL & STATE/LOCAL GOVERNMENTS
7
ANTI-CORRUPTION LAWS / FOREIGN CORRUPT PRACTICES ACT
6
IMPORT AND OTHER TRADE LAWS
5
EXPORT CONTROLS AND ECONOMIC SANCTION LAWS
4
INTELLECTUAL PROPERTY MATTERS
3
GLOBAL MOBILITY
2
TAX
1
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PUBLIC Securities
Sid Shenoy
Joe Whitley
Corporate / Commercial
Entry into the U.S. Market
The United States is widely viewed as a very open market, which makes it an ideal place to both start and operate a business. Unlike many countries in the world, there is no requirement that a U.S. citizen own any equity in the foreign-owned U.S. entity or that a U.S. citizen be appointed as and serve as an officer, manager or director for foreign owners and investors to establish a new U.S. business.
Your entry into the U.S. may involve (1) operating directly through a branch office, (2) establishing of a wholly owned U.S. subsidiary, or (3) merging with an existing U.S. business or purchasing the assets or equity of an existing U.S. business. A fourth option for entry into the U.S. marketplace is to not establish an actual physical presence in the U.S. via the three options mentioned immediately above, but instead (i) engage a U.S. business to act as a sales representative for your product in which the U.S.-based sales representative solicits sales of your product and sends such sales orders to you for acceptance and fulfillment in return for a sales commission, (ii) enter into an agreement with a U.S.-based distributor (which may or may not involve franchising) in which you sell your product to such distributor outright who, in turn, is permitted to then sell the product to an end user (keeping any profit above the initial cost paid to you), or (iii) enter into a licensing arrangement with one or more U.S.-based companies whereby the U.S.-based licensee manufactures and sells your product in the U.S., keeping the sales revenue and paying you a license fee (royalty).
This Legal Guide will focus on the first three options of establishing an actual presence in the U.S. market, but our firm’s cross-border attorney team is available to advise on the pros and cons of the various distribution methods listed in this fourth option upon request.
Many of the factors to be considered in starting your U.S. operations and how you decide to enter into the U.S. market depends on your chosen business model.
Determination of U.S. Business Model
Entry via Branch Office
Your business model may involve:
Relationships with U.S. vendors, contract manufacturers, logistics providers, and other supply chain partners;
Office, manufacturing, warehouse, and/or sales locations in the U.S.;
Direct sales and services to U.S. customers; and/or
E-commerce activities;
Sales to U.S. customers through third-party intermediaries such as agents and distributors.
Ownership Structure & Choice of U.S. Entity
Historically, the primary factor when deciding upon a U.S. subsidiary’s ownership structure and choice of entity was what would be the most tax efficient structure. However, the Corporate Transparency Act (CTA), which went into effect January 1, 2024, may be an additional factor to now consider. The CTA requires certain U.S. entities and foreign entities operating in the U.S. to report to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) information on natural persons who beneficially own and form such entities through the filing of a Beneficial Ownership Information Report (BOIR). Thus, foreign investors must now consider under what circumstances the “personally identifiable information” of its “beneficial owners” may have to be provided to the U.S. government. Investors also should consider whether providing such information is an issue for the foreign investor (and its ownership group).
There are different disclosure requirements under the CTA for new and existing U.S. entities owned by foreign investors. Entities created or registered to do business in the U.S. before January 1, 2024 have until January 1, 2025 to file their initial BOIR. Entities created or registered in the U.S. on or after January 1, 2024, and before January 1, 2025, have 90 calendar days from the notice of the entity’s creation or registration to file their initial BOIR. Entities created or registered in the U.S. on or after January 1, 2025, will have 30 calendar days from the notice of the entity’s creation or registration to file their initial BOIR. Entities are required to file an amendment to their BOIR within 30 days of any change to their reported information or of learning of an inaccuracy in a previously filed BOIR. While there are 23 categories of exemptions under the CTA, it is important to note that many exemptions will apply only to large operating companies or to those entities that are already highly regulated (for example, public companies, banks, and insurance companies).
For your U.S. entity to be ready to commence operations, you will also need to:
Initial Entity Setup Tasks
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Assuming the CTA is less of a concern or, more likely, evaluated to be a new “cost of doing business” in the U.S., it often will be most advantageous for tax, liability, commercial, and other reasons to form a separate U.S. entity (typically a wholly owned subsidiary of a foreign parent). Conducting business in the U.S. without forming a separate U.S. entity may result in the creation of a “branch office” in the U.S., and the foreign parent will, among other things, be subject to U.S. federal and state tax jurisdictions and be required to file U.S. tax returns. For foreign owners concerned about CTA disclosures, the creation of “branch offices” or other entities outside the scope of the CTA (entities not covered by the CTA are those that are not created by a filing with a secretary of state or similar office, such as general partnerships, sole proprietorships and certain types of trusts), the benefit of not having to make the required disclosures may outweigh the tax impact of not forming a new U.S. entity.
Determine your accounting year end.
Capitalize the U.S. entity. Some states require a certain minimum paid-in capital. Delaware (the most common state of formation for U.S. entities) does not have a capital requirement. You may decide to capitalize your U.S. entity with equity and/or debt.
Determine what insurance is necessary to protect the business and its assets, workforce and executive team, officers, and/or board of directors.
Obtain any required business licenses and permits. Licensing and permitting requirements may vary depending on the type of business and the state/municipality in which business is conducted.
Qualify to do business in states in which you will conduct business. We can help you determine the states in which qualification is necessary, based primarily on the business activities that you will conduct in certain state(s) and multistate tax considerations. You will qualify by filing documents in those states and paying filing fees.
Prepare additional governing documents such as organizational consents and bylaws for a corporation or an operating agreement for a limited liability company.
Open a U.S. bank account. Among other requirements to open a U.S. bank account, your U.S. entity will need to have a U.S. physical address and a FEIN and complete certain “Know Your Customer” (KYC) requirements.
Obtain any appropriate state and/or local tax identification numbers, in consultation with a U.S. multistate tax advisor.
Obtain a Federal Employer Identification Number (FEIN) from the Internal Revenue Service. Your U.S. entity will need a FEIN to establish a U.S. bank account.
2024 is the earliest any “personally identifiable information” of a U.S. entity’s “beneficial owners” is required to be submitted to the U.S. government.
The CTA is meant to combat the use of shell companies by foreign investors to evade anti-money laundering and other laws. While the disclosures on a BOIR will not be public (unlike in many foreign jurisdictions), FinCEN issued a final rule on December 22, 2023, that sets forth the circumstances under which beneficial ownership information may be disclosed to authorized recipients. The U.S. government will be permitted to share beneficial ownership information with U.S. states and agencies, many foreign governments and, subject to the entity’s consent, lenders and other financial institutions. Many entities, particularly those with low number of equity holders or those that fall under an exemption, may find that compliance with the CTA is not overly burdensome. But the CTA may prove to be problematic, or at least complex, for private equity firms and other financial buyers that have flow through structures comprised of limited partnerships and limited partners that may themselves be flow through structures. It may be difficult, if not impossible, for an entity to arrive at a level where all the owners are natural, individual persons.
Your U.S. legal entity will be established by filing documents in the state of formation and paying a filing fee.
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Entry via Merger or Acquisition
Entry via Establishment of Wholly Owned Subsidiary
However, U.S. tax treaties do not limit the ability of individual U.S. states to impose their own taxes; that is, they are generally not bound by U.S. tax treaties with foreign jurisdictions. Non-U.S. business organizations generally do not want to be directly subject to U.S. taxation or U.S. tax return filing requirements and accordingly generally prefer not to set up branch offices, unless, for non-U.S. tax planning purposes, there is an expectation that the U.S. branch is expected to produce losses.
“Branch offices” can be structured in the form of directly setting up a business in the U.S. or setting up the business through a fiscally transparent entity, such as an entity disregarded for U.S. federal income tax purposes (e.g., a wholly owned limited liability company). A foreign company investing in this way would be considered to be engaged in a U.S. trade or business, and, accordingly, subject to U.S. federal, state, and local income taxes, U.S. tax return filing obligations, and the 30% federal branch profits tax, which may or may not be reduced or eliminated pursuant to a treaty, if applicable.
The two initial “choice of entity” decisions are (1) what type of legal entity to form; and (2) in what state to form the entity. These decisions should be made with the advice of your U.S. lawyers, U.S. accounting firm and parent company tax advisors.
A corporation is the most common entity type for foreign ownership, particularly for enterprises that wish to better insulate their non-U.S. activities from U.S. taxation, but other possibilities exist. The tax considerations relating to choice of entity are discussed in more detail below.
You may form your legal entity in any U.S. state. The state of formation may be entirely different from the state(s) in which your U.S. entity will conduct business. Your legal entity will be governed by the laws of the state where it is formed. Delaware is a common choice for state of formation because Delaware has well- developed corporate laws and favorable treatment of business entities.
The name selected for your legal entity, if intended to be used in a public-facing manner, should be cleared prior to use in commerce to confirm it is available and does not infringe on the rights of other parties. See the U.S. trademark discussion below.
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U.S. wholly owned subsidiaries of non-U.S. entities are generally taxed under normal U.S. corporate income tax rules - 21% on the worldwide income of the U.S. subsidiary plus state and local taxes as applicable. By setting up a corporate subsidiary, the non-U.S. parent avoids direct U.S. tax liability, tax filing obligations, and the branch profits tax. However, the non-U.S. parent must consider and comply with the U.S. transfer pricing rules applicable to related party transactions. While a U.S. corporate subsidiary shelters a non-U.S. parent from direct tax U.S. tax liability, dividends from a U.S. corporate subsidiary are subject to withholding taxes at a 30% tax rate, unless reduced or eliminated by a tax treaty.
21%
Corporate Income Tax
Dividend Withholding Tax
30%
U.S. subsidiaries of non-U.S. entities are taxed on their worldwide income at the federal corporate income tax rate of 21%.
Non-U.S. parents must adhere to U.S. transfer pricing rules, ensuring that transactions between related parties are conducted at arm's length to avoid penalties.
The cross-border mergers and acquisitions (M&A) process can range from massively complex to relatively straightforward. The details of what that process may involve are beyond the scope of this outline, but the following are some high-level issues to keep in mind:
M&A transactions in the U.S. typically involve the engagement of multiple advisors (e.g., lawyers, tax advisors, and investment bankers/financial advisors/brokers);
Transactions are usually heavily negotiated and involve a significant amount of diligence and back-and-forth among the various parties, advisors, stakeholders, and counsel regarding both business issues and legal/tax documentation;
State and federal regulations may come into play depending on the size and/or nature of the transaction;
Litigation and post-closing disputes are considered to be more common in the U.S. than in most other countries (hence the need for carefully crafted transaction agreements and the avoidance of ambiguity in such agreements);
The M&A process (from the beginning of diligence to closing) can take anywhere from a few months for straightforward transactions to several months for more complex transactions (especially if third-party financing is involved and/or government approvals are required);
Acquiring a distressed or bankrupt target adds additional complexity to an M&A process;
The post-closing integration and transition process can oftentimes be just as important and time consuming as the deal itself; and
If an M&A transaction or investment involves a transfer of assets or equity with a value of more than $111.4 million (as of 2023) and either party satisfies the “size-of-person” test of having either at least $222.7 million (as of 2023) in annual net sales or total assets or $22.3 million (as of 2023) in total assets, the parties should consider whether a Hart-Scott-Rodino (HSR) filing is required prior to closing the transaction. A Hart- Scott-Rodino filing is submitted to the Federal Trade Commission and U.S. Department of Justice, who then must approve the proposed transaction.
TABLE OF Topics
TAX & BENEFITS
For more information, please contact any of the contributing authors listed or the Womble Bond Dickinson lawyer with whom you regularly work:
corporate attorneys
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Foreign Private Issuers
Regulation of Private Capital Markets
Regulation of Public Capital Markets
Alongside the public equity markets, which account for approximately 55 percent of global public equity markets, the U.S. also possesses well-developed private capital markets catering to companies not yet prepared or willing to go public. The diversity of U.S. markets results in a wide range of capital resources and intense competition for funding opportunities. Raising capital in the U.S. is subject to significant federal and state regulation and requires a thorough understanding of the specific type of capital being sought and the corresponding regulatory framework.
The United States boasts the world’s largest capital markets, making them appealing to both domestic and international companies seeking growth opportunities.
Access to U.S. Capital Markets
As a result, extensive disclosure rules are in place, not only during the initial public offering (IPO), but also with regard to ongoing requirements, to ensure transparency and accountability. Bankruptcy offers several key benefits for a business in financial distress. Perhaps most importantly, bankruptcy affords the debtor the protection of the automatic stay which enjoins creditors and other parties from taking actions against the debtor to recover debts including lawsuits and judgment enforcement actions as well as most actions to terminate leases and contracts. Bankruptcy also provides the means to discharge most debts and to sell assets free and clear of lien and encumbrances.
Public markets, overseen by the U.S. Securities and Exchange Commission (SEC) and other regulatory bodies, operate within a heavily regulated framework. Companies that become public entities are typically large organizations that raise sufficient capital to offset the costs associated with regulatory compliance. The level of regulation and compliance is notably high due to the sale of public securities to both retail and institutional investors. Regulators and laws assume that investors, including retail investors, may lack sophistication, necessitating measures to protect them from fraudulent activities and potential investment disadvantages.
As a result, these offerings are limited to "accredited investors" or "qualified purchasers," which terms generally refer to investors who are considered sufficiently sophisticated and possess enough capital to negotiate their own disclosure terms and investment safeguards.
Transactions in private capital markets typically fall under SEC Regulation D. Under U.S. regulations, securities must either be registered with the SEC or meet certain qualifications for exemption. Securities offered under a Regulation D exemption generally have different disclosure requirements compared to registered offerings.
Under U.S. securities laws, a company that is incorporated outside of the U.S. may be eligible for the designation of a "foreign private issuer." This status provides specific registration and disclosure benefits that are not available to domestic companies. Key advantages for FPIs include the following:
FPIs have less burdensome periodic reporting obligations, such as extended filing deadlines for annual reports. They also have the flexibility to submit interim reports in accordance with their home country requirements, instead of the mandatory quarterly reports and current reports that U.S. domestic issuers are required to file with the SEC. This allows FPIs to align their reporting practices with their home country regulations while still meeting their obligations to the SEC.
FPIs may use International Financial Reporting Standards (IFRS) instead of U.S. Generally Accepted Accounting Principles (GAAP) for financial reporting purposes. This can be advantageous for companies already utilizing IFRS in their home jurisdiction, eliminating the need for costly accounting conversions and facilitating greater consistency in financial reporting practices.
FPIs may avail themselves of exemptions from certain U.S. proxy rules, thereby simplifying certain voting and reporting requirements. As a result, FPIs can navigate the process of soliciting proxies from shareholders more efficiently and effectively.
Directors and officers of FPIs often have limited liability protections, which can provide greater security and peace of mind when serving in leadership roles within the company.
Principal U.S. Securities Regulatory Agencies
Principal U.S. Securities Laws
Transactions exempt from registration include, among others, transactions by any person other than an issuer, dealer or underwriter, transactions by an issuer not involving a public offering, and transactions for resales of securities that meet certain requirements. Certain Securities Act rules under Regulation S provide a safe harbor from registration of sales of securities that are made outside the U.S. to non-U.S. persons. The Exchange Act is the main source of reporting obligations for public companies and governs the trading of securities on national exchanges. These obligations arise after an initial public offering, but also arise if a non-reporting issuer sells securities that are not listed on any securities exchange in an SEC-registered offering or if a non-reporting issuer becomes subject to the reporting obligations of the Exchange Act. Holders of more than 5% of any class of an issuer’s equity securities are subject to additional reporting obligations under Section 13 of the Exchange Act, and directors, officers and 10% shareholders are subject to additional reporting obligations under Section 16 of the Exchange Act.
The primary U.S. federal securities laws are the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Together, the Securities Act and the Exchange Act regulate the registration and offering of securities, and the related periodic reporting obligations of publicly traded companies. The Acts operate in harmony to create an integrated disclosure system under which information, including business and financial information (under Regulation S-K) and financial statements (under Regulation S-X), are presented in a similar manner whether the company is offering securities or reporting quarterly or annual financial results to its security holders. The Securities Act requires an issuer to register any offer or sale of securities unless an exemption applies. Registration statements containing the disclosure required by SEC rules, regulations and forms are filed in connection with certain securities offerings. Securities exempt from registration include, among others, U.S. government obligations, municipal obligations, bank securities, commercial paper, exchanges with existing security holders and court-or government-approved exchanges.
State securities laws, generally referred to as “blue sky laws,” govern the offer and sale of securities in both registered and unregistered offerings. For every U.S. state, these requirements must be complied with in addition to federal securities laws to the extent applicable. As a general matter, the focus of blue sky laws, which include antifraud provisions, provisions requiring registration or licensing and provisions requiring qualification or notice filings or fee payments, is the fairness of an offering and the adequacy of the underlying disclosure.
The primary federal securities regulatory agency is the SEC, which administers both the Securities Act and the Exchange Act – among other regulations – and exists to protect investors from fraudulent and manipulative practices. The Financial Industry Regulatory Authority (FINRA), a non-governmental body with oversight from the SEC, regulates securities firms doing business in the U.S. by imposing registration requirements for member firms and periodically examining them for compliance. In registered offerings, FINRA also examines compensation received by underwriters to ensure that it is fair and reasonable. The leading self-regulatory organizations on which public securities are listed and traded in the U.S. are The New York Stock Exchange and The Nasdaq Stock Market, LLC.
The primary U.S. federal securities laws are the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Together, the Securities Act and the Exchange Act regulate the registration and offering of securities, and the related periodic reporting obligations of publicly traded companies. The Acts operate in harmony to create an integrated disclosure system under which information, including business and financial information (under Regulation S-K) and financial statements (under Regulation S-X), are presented in a similar manner whether the company is offering securities or reporting quarterly or annual financial results to its security holders.
The Securities Act requires an issuer to register any offer or sale of securities unless an exemption applies. Registration statements containing the disclosure required by SEC rules, regulations and forms are filed in connection with certain securities offerings. Securities exempt from registration include, among others, U.S. government obligations, municipal obligations, bank securities, commercial paper, exchanges with existing security holders and court-or government-approved exchanges. Transactions exempt from registration include, among others, transactions by any person other than an issuer, dealer or underwriter, transactions by an issuer not involving a public offering, and transactions for resales of securities that meet certain requirements. Certain Securities Act rules under Regulation S provide a safe harbor from registration of sales of securities that are made outside the U.S. to non-U.S. persons.
The Exchange Act is the main source of reporting obligations for public companies and governs the trading of securities on national exchanges. These obligations arise after an initial public offering, but also arise if a non-reporting issuer sells securities that are not listed on any securities exchange in an SEC-registered offering or if a non-reporting issuer becomes subject to the reporting obligations of the Exchange Act. Holders of more than 5% of any class of an issuer’s equity securities are subject to additional reporting obligations under Section 13 of the Exchange Act, and directors, officers and 10% shareholders are subject to additional reporting obligations under Section 16 of the Exchange Act.
Determination of U.S. Foreign Direct Investment (FDI) Requirements
The method, structure, and location for entering the U.S. may be subject to U.S. Federal and State Foreign Direct Investment (FDI) or Foreign Ownership Control or Influence (FOCI) regulations. Most U.S. FDI or FOCI regulations focus on non-U.S. investments that implicate a risk to U.S. national security. The U.S. Committee on Foreign Investment in the United States (CFIUS) is tasked with reviewing foreign investment in certain controlled technologies, critical infrastructure, or involving sensitive personal data of U.S. citizens. Transactions under CFIUS’s jurisdiction may require the submission of a declaration or notice to CFIUS in advance of consummating the transaction. Even if a submission is not mandatory, a foreign investor should assess whether a voluntary submission would still be advisable.
There are a number of factors to consider when determining if a transaction is subject to CFIUS’s review and approval or FOCI mitigation. It is important to note that CFIUS’s jurisdiction is not limited to the defense, aerospace, telecommunications and energy sectors, but can also cover cyber security, critical supply chain (e.g., food and medical supplies), biotech, fintech, personal data collection (e.g., TikTok), critical infrastructure (e.g., medical supplies and semiconductors), or other areas designated by CFIUS. In addition to CFIUS, there are other FDI related reporting requirements with other Federal and State agencies, including the U.S. Department of Commerce and U.S. Farm Services Agency, and similar State agencies.
Investments and transactions subject to U.S. FDI and FOCI regulations are expected to increase, with corresponding increases in enforcement and litigation. As a result, early assessment of appliable U.S. FDI and FOCI regulations is recommended, and should include an analysis of:
Business with U.S. Federal or State government customers, whether through direct, subcontract, or supplier relationships.
Nature, scope and volume of electronic data obtained, stored, or acted upon from in the U.S.
Nature, location, use, and size of real estate to be acquired in the U.S.
Controlled technologies related to the business or the transaction
Nationality of the company and principals of non-US business entering the U.S.
Determination of U.S. FDI Requirements
Determination of FDI Requirements
There are a number of factors to consider when determining if a transaction is subject to CFIUS’s review and approval or FOCI mitigation. It is important to note that CFIUS’s jurisdiction is not limited to the defense, aerospace, telecommunications and energy sectors, but can also cover cyber security, critical supply chain (e.g., food and medical supplies), biotech, fintech, personal data collection (e.g., TikTok), critical infrastructure (e.g., medical supplies and semiconductors), or other areas designated by CFIUS.
In addition to CFIUS, there are other FDI related reporting requirements with other Federal and State agencies, including the U.S. Department of Commerce and U.S. Farm Services Agency, and similar State agencies.
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Your U.S. operations likely will be subject to federal U.S. income tax, as well as state and local taxes. Most states have many different types of taxes, some of which are industry-specific, but many of which generally apply to all industries, such as income, gross receipts, franchise/net worth, sales and use, payroll, and property taxes.
Preparation for U.S. Tax Compliance
For a foreign corporate entity, the U.S. federal income tax rate is 21%, and state and local income tax rates vary. The foreign entity will also be required to pay the 30% U.S. federal branch profits tax on its U.S. income unless that rate is reduced or eliminated by an applicable tax treaty. There are no clear standards for determining whether a foreign entity is doing business in the U.S., but having U.S. employees or an office or other facility in the U.S. would be considered as doing business in the U.S.
A foreign entity that conducts business in the U.S. directly will be subject to U.S. tax jurisdiction and will be required to pay U.S. federal, state, and local income taxes on its U.S. business income and file U.S. tax returns.
Choice of Entity Tax Considerations
Most foreign entities choose to use a corporation to enter into U.S. business operations in order to avoid U.S. tax jurisdiction for the foreign parent entity. The U.S. corporation will be subject to U.S. federal corporate income taxes at a 21% tax rate on its income along with state and local income taxes at varying rates. Any dividends paid by the U.S. corporate subsidiary to the foreign parent entity will be subject to a U.S. federal income tax withholding at a 30% tax rate, but that withholding tax rate may be subject to reduction or elimination pursuant to an applicable tax treaty.
Limitations on Investments by Non-U.S. Persons
Real Property Considerations
Consideration of Available Incentives
There are two types of entities that are primarily used by foreign entities to conduct business in the U.S:
Corporations
type of entity
Limited liability companies
Dividends paid by the U.S. corporation are not deductible by the corporation in determining its taxable income. For that reason, foreign parent entities will often capitalize their U.S. corporate subsidiaries with a combination of debt and equity, because the interest payments on the debt are deductible by the U.S. corporate subsidiary, subject to limitations.
If the foreign entity is entering the U.S. market through a joint venture with a U.S. partner, the joint venture may be organized as a general partnership, limited partnership, limited liability company, or corporation. If a limited liability company is used, it will be treated as a partnership for U.S. federal income tax purposes, in the same manner as if it was a general partnership or limited partnership. Partnerships are fiscally transparent entities for U.S. income tax purposes and would cause the foreign joint venture partner to be subject to U.S. tax jurisdiction, U.S. income tax liability, and U.S. tax return filing requirements with respect to its U.S. income from the joint venture. Because of this, foreign entities will often establish a U.S. corporate subsidiary to participate in the U.S. partnership. If the joint venture is conducted through a U.S. corporation rather than through a U.S. general partnership, limited partnership or limited liability company, then there may not be a need for the foreign entity to establish a U.S. corporate subsidiary to own its interest in the U.S. corporate joint venture entity. However, most U.S. joint venture partners will prefer to use a fiscally transparent entity treated as a partnership, including a limited liability company, to conduct the joint venture, because that structure is usually the most tax-efficient structure for the U.S. joint venture partners.
A limited liability company is treated as a fiscally transparent entity for U.S. federal, state, and local income tax purposes. If the foreign entity is the sole owner of the U.S. limited liability company, then the limited liability company is treated as a disregarded entity for U.S. income tax purposes, and the foreign parent entity would be treated as if it was directly engaged in the U.S. business conducted by the U.S. limited liability company, thereby subjecting the foreign parent entity to U.S. tax jurisdiction and the requirement to pay U.S. income taxes and file U.S. tax returns as described above. The U.S. federal branch profits tax would be applicable as well. Notwithstanding these potentially negative U.S. tax consequences for the foreign parent entity, the choice of a limited liability company may be advantageous in the early years of the U.S. operations if there will likely be losses that the foreign parent entity would prefer to flow through and be available to offset its non-U.S. taxable income. In a later year, the limited liability company can make an election to be treated as a corporation for U.S. income tax purposes if desired.
State and local taxes are generally not covered by, or preempted by, international tax treaties. Income and sales/use tax compliance can be particularly complex, requiring careful planning. This typically will include consideration of the taxes imposed by multiple states and local jurisdictions.
It is important that you understand the tax implications of transacting multistate or multijurisdictional business. The types and amounts of taxes to which the U.S. entity will become subject, and the number of jurisdictions with authority to impose those taxes, will be dictated in large part by how and where the U.S. entity chooses to own or lease property, employ workers (employees and independent contractors), store assets and sell goods, and services.
You will need to review anticipated intercompany transactions to determine withholding tax and transfer pricing considerations.
In addition to considering tax liabilities, businesses entering the U.S. market also should consider if they are eligible for any tax credits, tax exemptions or other tax or financial incentives specific to their business sector, location or employees.
Section 179D energy efficient commercial building deduction (permanent and will not expire);
Tax withholding requirements may apply to dividends and distributions to the foreign parent company, subject to potential reduction under applicable tax treaties. In consultation with your U.S. accounting firm, we can help you determine your tax compliance obligations and processes.
Some of the most common credits include:
Foreign tax credits;
Research and Development (R&D) tax credits (the scope of these credits is quite broad and can be significant);
Economic development incentives offered by utility providers, ports authorities or other potential stakeholders;
Paid family and medical leave credits for certain family and medical leave benefits to employees (extended through December 31, 2025);
State tax credits or cash grants for job creation and investments;
Property tax abatements, credits and other incentives offered by local governments;
Work Opportunity credits (extended through December 31, 2025);
Empowerment zone credits (for investing in certain communities) (extended through December 31, 2025);
Second generation biofuel producer credits (extended through December 31, 2024);
Biodiesel and renewable diesel fuels credits;
Orphan drug tax credits;
Renewable energy and green technology investment credits and incentives (credit phase outs and construction deadlines extended by at least one year and longer in some instances (e.g., offshore wind));
Various energy efficient, alternative motor vehicle, and fuel efficient credits; and
Agricultural chemicals security credits.
Opportunity zone credits (similar concept to empowerment zone credits but less generous and a wider number of communities are eligible);
New Markets tax credits (similar to empowerment and opportunity zone credits but subject to annual renewals from Congress) (extended through December 31, 2025);
There are generally few restrictions on foreign investment in the U.S. and the vast majority of foreign investors are subject to the same restrictions as U.S. investors. A limited (but important) exception to this rule is controlling or certain non-controlling investments that may implicate U.S. national security concerns.
While there are a number of additional factors and details to consider if a transaction is subject to CFIUS’s review and approval that are beyond the scope of this outline, it is important to point out that CFIUS’s jurisdiction covers not only transactions in the defense, aerospace, telecommunications and energy sectors but also sectors such as cyber security, critical supply chain (e.g., food and medical supplies), biotech, fintech, personal data collection (e.g., TikTok), critical infrastructure (e.g., medical supplies and semiconductors), and others designated by CFIUS.
The disposition of a U.S. real property interest by a foreign person (the transferor) is subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) income tax withholding. Therefore, when a foreign person sells or transfers U.S. real estate, there are additional IRS processes and procedures the parties must go through to ensure tax compliance.
Depending on the scope and types of your anticipated U.S. business activities, you may be eligible for tax, cash grant, and/or other incentives in connection with establishing U.S. operations.
As you begin a real estate site selection process, determine if economic development incentives may be available to support your project. It is important that this analysis happens before your real estate site selection process is complete. Ideally, the analysis begins when your real estate site selection process is still underway in more than one state in the U.S.;
Based on your anticipated capital investment in your project within the first five years and the estimated number of new full-time jobs you expect to create at your new location within the first five years, financial incentives may be available to support your project at both the local and state level in the states where you are considering locating;
The value of these incentives may be significant, so it is important to engage in this process early in the site selection process; and
The incentives may come in the form of cash grants, significantly reduced property taxes on both real and personal property, credits for certain employee-related taxes, grants to support certain infrastructure improvements at the site, reductions in utility costs, and other financial incentives.
Various incentives and related issues to consider include:
You must plan ahead in any FIRPTA transaction. Generally, the buyer holds the cards. FIRPTA can delay the sale due to the time it can take to secure the withholding certificate. Unless the seller is able to obtain a
withholding certificate, the U.S. government will require that 15 percent of the sale price is withheld. In most cases, the transferee/buyer is the withholding agent. If you are the transferee/buyer, you must find out if the transferor is a foreign person. If the transferor is a foreign person and you fail to withhold, you may be held liable for the tax. There are other filing considerations, from the application of IRS forms to timely filing strategies. However, with proper planning and obtaining the necessary withholding certificate, the tax impact can be minimized.
The U.S. has established an interagency committee named the Committee on Foreign Investment in the United States (CFIUS), which is tasked with reviewing foreign investment in critical technologies or infrastructure, or businesses collecting sensitive personal data of U.S. citizens. There are also restrictions on purchasing or leasing real property near certain ports or other sensitive facilities. If a transaction falls (or might fall) under CFIUS’s jurisdiction, the parties must consider, among other things, whether submission of a declaration or notice to CFIUS for review and approval of the transaction is mandated, or, if not, whether a voluntary submission would still be advisable.
The potential impacts on supply chain and sensitive or critical technology are among top concerns when CFIUS assesses the national security risk posed by foreign investments. Given the above, as well as the number of cyber security and supply chain vulnerabilities exposed during the COVID-19 pandemic, it is expected the number of transactions subject to CFIUS and other governmental agencies will increase in the future, which almost certainly will give rise to increased enforcement and litigation.
2.
tax attorneys
Tax & benefits
Most foreign entities choose to use a corporation to enter into U.S. business operations in order to avoid U.S. tax jurisdiction for the foreign parent entity. The U.S. corporation will be subject to U.S. federal corporate income taxes at a 21% tax rate on its income along with state and local income taxes at varying rates. Any dividends paid by the U.S. corporate subsidiary to the foreign parent entity will be subject to a U.S. federal income tax withholding at a 30% tax rate, but that withholding tax rate may be subject to reduction or elimination pursuant to an applicable tax treaty. Dividends paid by the U.S. corporation are not deductible by the corporation in determining its taxable income. For that reason, foreign parent entities will often capitalize their U.S. corporate subsidiaries with a combination of debt and equity, because the interest payments on the debt are deductible by the U.S. corporate subsidiary, subject to limitations.
If a limited liability company is used, it will be treated as a partnership for U.S. federal income tax purposes, in the same manner as if it was a general partnership or limited partnership. Partnerships are fiscally transparent entities for U.S. income tax purposes and would cause the foreign joint venture partner to be subject to U.S. tax jurisdiction, U.S. income tax liability, and U.S. tax return filing requirements with respect to its U.S. income from the joint venture. Because of this, foreign entities will often establish a U.S. corporate subsidiary to participate in the U.S. partnership. If the joint venture is conducted through a U.S. corporation rather than through a U.S. general partnership, limited partnership or limited liability company, then there may not be a need for the foreign entity to establish a U.S. corporate subsidiary to own its interest in the U.S. corporate joint venture entity. However, most U.S. joint venture partners will prefer to use a fiscally transparent entity treated as a partnership, including a limited liability company, to conduct the joint venture, because that structure is usually the most tax-efficient structure for the U.S. joint venture partners.
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Prior to establishing a presence in the U.S., certain employees of the foreign parent company may enter the U.S. as business visitors to explore investment opportunities, attend conferences and seminars, negotiate contracts and disputes, and to observe activities at a related company.
Visa Options
The following discussion provides an overview of information regarding important labor, employment, and immigration law matters that an employer should consider when establishing a business and hiring employees in United States.
Consideration of Employment and Immigration Needs
The most commonly used visa to accomplish the transfer of key employees among an international group of companies. To qualify, the beneficiary must be transferring from an overseas company to a properly related U.S. company and must have served for one year within the preceding three years in an executive, managerial or “specialized knowledge” capacity with the overseas company. S/he must be transferring to the U.S. company to serve in one of these capacities. L-1 visas may be approved for a maximum initial period of three years and may be extended in two two-year increments for executives/managers and one two-year increment for those with specialized knowledge.
Global Mobility
Skilled Technicians
Training Visas
Labor and Employment
When determining whether to employ a foreign national worker in the U.S.:
In addition to considering tax liabilities, businesses entering the U.S. market also should consider if they are eligible for any tax credits, tax exemptions or other tax or financial incentives specific to their business sector, location or employees. Some of the most common credits include:
You must plan ahead in any FIRPTA transaction. Generally, the buyer holds the cards. FIRPTA can delay the sale due to the time it can take to secure the withholding certificate.
Unless the seller is able to obtain a withholding certificate, the U.S. government will require that 15 percent of the sale price is withheld. In most cases, the transferee/buyer is the withholding agent. If you are the transferee/buyer, you must find out if the transferor is a foreign person. If the transferor is a foreign person and you fail to withhold, you may be held liable for the tax. There are other filing considerations, from the application of IRS forms to timely filing strategies. However, with proper planning and obtaining the necessary withholding certificate, the tax impact can be minimized.
Both permit foreign nationals to come to the United States to participate in a bona fide training program and require maintenance of a foreign residence with no intent to abandon it.
3.
Labor & Employment, Immigration attorneys
The U.S. employment legal framework is founded on principles that emphasize flexibility for employers, whilst offering significant protections to employees with respect to, among other things, discrimination, wage payment, leaves of absence, and workplace safety. While U.S. employment law may be more favorable to employers in many respects compared to other jurisdictions, there has been an increase of new laws and regulations being enacted in recent years that provide greater rights to employees.
applicable to employees across the U.S. Those federal laws cover a wide range of topics, including minimum wage, overtime pay, wage payment, equal pay, discrimination, harassment, workplace safety, child labor, the right to organize and join labor unions, disability accommodations, pregnancy, plant closings and mass layoffs. Often, state and local laws provide greater rights and protections to employees than federal law, so businesses must be aware of their legal obligations in each jurisdiction where they have employees. Generally speaking, if a state provides a greater protection than a similar federal law, the state law must be followed.
Please note that this overview does not provide a complete and comprehensive analysis of all potentially applicable labor and employment laws in the United States, but rather a general overview that should prompt a deeper discussion with your U.S. legal advisors.
Skilled technicians may enter the United States as business visitors pursuant to a B-1 Visitor Visa or the Visa Waiver Program, as applicable, for the purpose of installing, servicing, or repairing commercial or industrial equipment or machinery purchased from a company outside the United States where the contract of sale requires such service. Skilled workers may also enter the U.S. as business visitors to teach U.S. workers or to demonstrate a skill or technique, so long as they are not productively employed.
Additional resources are available at wombleimmigration.com
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Requires participation in a program run by a U.S. government-approved designated sponsor organization. The length of stay in the U.S. varies depending on the visa classification.
Requires participation in a U.S. employer training program for job-related training for work that will be performed outside the United States. The training must not be available in the home country.
H-3 Trainee Visa
J-1 Exchange Visitor Visa
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Maintain required immigration records to ensure compliance with U.S. immigration laws.
Allow immigration counsel to coordinate directly with the foreign national employee.
Acknowledge that the best immigration strategy may not always be the fastest, especially in the current environment.
Understand the short- and long-term immigration benefits available to the foreign national employee and his/her family members.
Determine a reasonable start date, with contingencies in the event a visa application is delayed.
Ensure the position offered to the employee meets immigration law requirements.
A number of nonimmigrant employment visa options exist under U.S. immigration law with the best option dependent upon a number of factors including, but not limited to timing, availability, job type, and employee education and experience. The most common options are as follows:
It is notable to observe, however, the important but elusive distinction between employment, which is not allowed, and doing business on behalf of a foreign employer, which is allowed.
The L-1 Intracompany Transferee Visa
Option 1
H-1B Temporary Worker in a Specialty Occupation Visa
Option 2
TN Trade NAFTA Classification
Option 4
E-1/E-2 Treaty Trader/Treaty Investor Visa
Option 3
This category generally requires the possession of a bachelor’s degree or higher, as a minimum, entry-level credential. It may be approved for a maximum initial period of three years and extended for an additional three years (or longer under certain circumstances). A statutory cap limits annual approval of new H-1B petitions at 65,000, with an additional 20,000 available for individuals with U.S. master’s degrees or higher. A foreign national already employed in H-1B visa status may start work for a new U.S. employer upon the filing (as opposed to the approval) of an H-1B petition with USCIS by the new employer.
This classification is available to Canadian and Mexican citizens who will engage in certain specific professions on behalf of a US employer. “Business activities at a professional level” generally require that the individual have at least a bachelor’s degree or appropriate credentials demonstrating status as a professional. Canadian citizens are visa exempt and may apply directly at a Class A port-of-entry, a U.S. airport handling international traffic or a U.S. pre-flight inspection station for admission in TN status. Mexican citizens must obtain a visa stamp (valid for one year) in their passport prior to entering the United States in TN status. The TN category allows for an initial entry of up to three years, with extensions of up to three years available.
This visa is issued pursuant to bilateral treaties of friendship, commerce and navigation between the United States and various other countries. A national of the treaty country involved may live and work in the United States for an employer sharing his/her nationality in executive, supervisory or essential skills positions. The US company must be at least 50%-owned by a company which is owned by treaty country nationals or at least 50%-directly owned by treaty nationals. Visa holders may be admitted to the United States in E status for up to two years from the date of each admission through the validity of the visa stamp. Visas may be issued in increments of up to five years and are renewable as long as the company and the employee continue to qualify under the E classification requirements.
Residual effects of COVID-19 persist for those seeking visas to the U.S. U.S. consulates and other government agencies involved with administering U.S. immigration law are still working through significant backlogs but are making improvements. Still, it is especially important to start the visa process as early as possible.
U.S. immigration matters are generally governed by three separate federal administrative agencies: the U.S. Department of Homeland Security (DHS); the U.S. Department of State (DOS); and the U.S. Department of Labor (DOL). Within DHS, the U.S. Customs and Border Protection (CBP) regulates admission at ports-of-entry, Immigration and Customs Enforcement (ICE) enforces immigration laws within the United States, and U.S. Citizenship and Immigration Services (USCIS) adjudicates applications for immigration benefits. This bureaucracy often presents challenges to foreign nationals and their employers desiring to successfully navigate the system.
Nonimmigrant visa
Category
Immigrant visa
U.S. Citizenship
Three primary U.S. immigration categories exist:
Nonimmigrant visa status permits a foreign national entry to the United States for a finite period. Each nonimmigrant visa has specific requirements that must be met in order for an individual to qualify for admission to the United States. Nonimmigrant employment-based visas are often location- and employer-specific.
U.S. Citizenship status may be obtained through the naturalization process by LPRs who can demonstrate good moral character and who have maintained LPR status for a qualifying period of time. Individuals who have obtained LPR status through employment may apply for naturalization once they have maintained LPR status for five years, have been physically present in the United States for at least half of that time, and have not been absent from the United States for a continuous period of six months or more during the five-year period. Individuals who have obtained LPR status through marriage to a U.S. citizen may apply for naturalization if they are living with the U.S. citizen; have been married to the U.S. citizen for at least three years; have been physically present in the United States for at least 18 months. The U.S. citizen spouse must have held citizenship for at least three years at the time of the naturalization application.
Immigrant visa status (or Lawful Permanent Resident “LPR” or “green card” status) permits a foreign national to live and work in the United States permanently, provided s/he does not engage in activities which could result in the rescission of the green card (loss of LPR status) and deportation from the United States. LPRs may freely change employers and generally possess the same rights and obligations of U.S. citizens; however, they may not vote, serve on juries, obtain certain U.S. government employment, or hold a U.S. passport.
In light of these various federal, state, and local laws, there are many issues that will need to be considered and addressed by businesses which plan to have employees in the U.S.
Those issues include:
Determine what states and localities where the business will have employees, including remote employees.
Evaluate the income, franchise, sales/use, payroll, and other tax implications of having employees work within a particular U.S. jurisdiction (see Tax section above).
Ensure the businesses’ executive and HR teams have an adequate understanding of the applicable federal, state and local labor and employment laws, including engaging with appropriate legal counsel or other advisors as needed.
Set pay rates and determine which employees qualify as “exempt” from overtime and/or minimum wage requirements.
Determine what employee benefits the company will offer to employees (e.g., health, dental, and vision insurance, and/or 401k or other retirement plan).
Create written bonus, commission, and other incentive compensation plans or contracts, if desired.
Establish a payroll system or hire vendor to process payroll, make required tax withholdings, and remit taxes.
Create an employment contract for key employees, if desired, including any terms of employment, and any desired covenants regarding confidentiality, non-competition, non-solicitation, and/or intellectual property rights in accordance with applicable state law.
If desired, create a standard contract or offer letter terms for employees other than key employees, including confidentiality and intellectual property provisions, and/or other restrictive covenants.
Determine whether any employees or locations will be subject to a collective bargaining agreement with any labor union, and if so, what impact that will have on pay, benefits, and policies.
Create an employee handbook that contains the employment policies applicable to your U.S. employees, including policies on equal employment opportunity, wage compliance, vacation, paid time off, and leaves absence.
Establish recruiting and onboarding procedures, including creation of onboarding documents (e.g., application forms, policy acknowledgements, required tax forms, Form I-9 for immigration compliance, background screening consent forms, etc.).
If hiring an international employee to either work in the U.S. or work remotely overseas for a U.S. entity, determine how best to structure the arrangement from an employment and tax perspective, including compliance with U.S. and home country tax obligations.
If any employees will be working in the U.S. pursuant a visa or other work permit, ensure compliance with all immigration laws (see further below).
If any independent contractors will be engaged as workers, ensure the classification as independent contractor is appropriate under applicable federal and state law, and create appropriate written agreements to memorialize the engagement and its terms.
The following is an overview of key labor and employment issues and laws:
Accordingly, businesses entering the U.S. must consider and allocate resources to develop practices and procedures to comply with U.S. labor and employment laws.
An important aspect of this legal framework is that employment laws in the U.S. are a complex interplay of federal, state, and sometimes even local laws and regulations. Coverage under these laws generally depends on the number of employees and where they are located—not all laws will apply to smaller businesses, so it is essential to know what laws are applicable based on the size of the workforce and the location of employees. The federal law, in general, provides a baseline standard
Employment and Termination
In general, the “employment at will” doctrine is the rule in the United States, which simply means that either party can terminate the relationship at any time, for any reason or no reason at all and with or without notice, unless there is a contract providing for a specific term or duration of employment, or unless the termination is for an unlawful or discriminatory reason. There are also a number of federal and state laws that provide for certain notice periods that may apply in the event of a plant closing or mass layoff. When recruiting and hiring employees, the equal employment opportunity laws mentioned below will generally apply, and federal and state laws regulating background screening, credit and criminal history checks, and pre-employment drug and alcohol screening may apply.
Wage Payment
Equal Employment Opportunity
Employee Benefits
Independent Contractors
Safety and Workers’ Compensation
Labor Unions
Vacation and Leave
Payroll and Employment Taxes
The payment of wages is highly regulated under federal and state law. The Fair Labor Standards Act (FLSA) establishes the minimum wage, overtime, and child labor laws for employers engaged in industries affecting interstate commerce regardless of the number of employees. The FLSA regulates whether employees can be classified as “exempt” from overtime pay, or whether they are “nonexempt” and must be paid overtime for work over 40 hours in a work week. State and local laws may provide increased rights to overtime and higher minimum wages than federal law and will establish when employees must be paid and the form of wage payment. Under the federal Equal Pay Act, employers must not discriminate on the basis of sex for similarly situated employees performing equal work.
Employee benefits are governed by federal, state, and local laws, making it crucial for employers to navigate these laws carefully to ensure compliance. Not all benefits are mandated for all employers or in all locations. For example, the provision of certain benefits, such as health insurance and retirement plans, depends largely on the size and type of the employer. Health benefits are a central component of this framework, especially since the implementation of the Affordable Care Act (ACA) enacted in 2010. In general, employers with 50 or more full-time employees (or equivalents) are required to offer health insurance and meet minimum essential coverage standards and affordability criteria. For smaller employers, there is no federal mandate to offer health insurance, but many employers offer coverage to aid in recruitment and retention of employees. Retirement benefits or pensions are not mandated by federal law for private-sector employers, and pensions are uncommon in the U.S., currently. The Employee Retirement Income Security Act (ERISA) governs implementation and maintenance of most types of employee benefit plans, including most retirement programs, life and disability insurance programs, medical reimbursement plans, health care plans, and severance policies.
There are many federal, state, and local laws that prohibit unlawful discrimination, harassment, and retaliation against employees and whistleblowers. In general, for employers other than small businesses, employers are prohibited from discriminating against employees on the basis of race, religion, color, national origin, sex (including sexual orientation and gender expression and identity), pregnancy, age (over age 40), disability, genetic information, and other characteristics that may be protected by state and local law. Sexual harassment and other forms of harassment are unlawful. Retaliation against employees for exercising rights under these laws is prohibited.
Generally speaking, vacation time or “paid time off” (PTO) is governed by state and local law, and is not required for most private sector employees, although most employers elect to provide these benefits. When vacation or PTO is provided, state and local laws may govern its accrual, forfeiture, or payment upon termination. The federal Family and Medical Leave Act (FMLA) mandates up to 12 weeks of unpaid leave for eligible employees for certain family and medical reasons, but it applies only to employers with 50 or more employees. Some states and localities have enacted laws providing for paid family or medical leave and which have broader coverage or leave entitlements. An increasing number of states require minimum allotments of paid sick time which employees may use for sick days. Pay for time off on nationally recognized holidays is generally not required, but most employers provide it. It is important that employer policies on vacation, PTO, and leaves be in writing.
Labor organizing, and labor unions are regulated by the federal National Labor Relations Act (NLRA) which governs the rights of employees to join together to organize a labor union and engage in collective bargaining. Unfair labor practices are regulated by the National Labor Relations Board (NLRB), a federal agency with authority to investigate and address unfair labor charges. If an employer’s workforce is unionized or workers are seeking to form a labor union, the employer should be aware that the NLRA and state law provides significant protection for workers who wish to speak out about the terms and conditions of employment and participate in organizing activities. For unionized workplaces with collective bargaining agreements, the terms and conditions of employment (including pay and benefits) and the rights of the employer and the employees (including discipline and termination rules), may be controlled by the agreement.
The Occupational Safety and Health Act (OSHA) is a federal law establishing and enforcing safety regulations in the workplace. It applies to all employers who are engaged in an industry affecting commerce, regardless of the number of employees. There is a general duty for employers to provide a workplace free from safety hazards. In the U.S., on-the-job injuries are covered by workers’ compensation statutes in each state, which provide a form of “no fault” compensation system for workers injured in the course and scope of their duties. Workers’ compensation insurance is generally required for most employers in every state, other than small businesses.
The correct classification of workers as either employees or independent contractors is crucial to ensure compliance with payroll tax regulations and labor and employment laws. In general, the labor and employment and tax withholding rules do not apply to individuals who are not employees. So, misclassification of employees as independent contractors can lead to significant legal and financial consequences, including wage payment violations, tax compliance problems, and violations of laws regarding workers’ compensation and unemployment benefits. Businesses should be aware that new federal rules and a number of state laws have created more strict tests to apply for independent contractor classification.
Businesses operating within the U.S. are obligated to withhold certain federal and state taxes from employee paychecks and remit them to taxing authorities, which generally include: (i) federal income tax, based on the information provided on a Form W-4 which specifies the employee's filing status and the number of allowances claimed; (ii) Social Security and Medicare taxes (including FICA); (iii) state income tax, if applicable, which will vary by state; and (iv) federal and state unemployment taxes. Businesses should consult with an accounting or tax advisor to ensure compliance with these payroll obligations.
The two primary visa options for training are the H-3 Trainee and J-1 Exchange Visitor Visas.
State and local laws may provide increased rights to overtime and higher minimum wages than federal law and will establish when employees must be paid and the form of wage payment. Under the federal Equal Pay Act, employers must not discriminate on the basis of sex for similarly situated employees performing equal work.
In general, employers with 50 or more full-time employees (or equivalents) are required to offer health insurance and meet minimum essential coverage standards and affordability criteria. For smaller employers, there is no federal mandate to offer health insurance, but many employers offer coverage to aid in recruitment and retention of employees. Retirement benefits or pensions are not mandated by federal law for private-sector employers, and pensions are uncommon in the U.S., currently. The Employee Retirement Income Security Act (ERISA) governs implementation and maintenance of most types of employee benefit plans, including most retirement programs, life and disability insurance programs, medical reimbursement plans, health care plans, and severance policies.
If an employer’s workforce is unionized or workers are seeking to form a labor union, the employer should be aware that the NLRA and state law provides significant protection for workers who wish to speak out about the terms and conditions of employment and participate in organizing activities. For unionized workplaces with collective bargaining agreements, the terms and conditions of employment (including pay and benefits) and the rights of the employer and the employees (including discipline and termination rules), may be controlled by the agreement.
You will need to consider how your U.S. operations, manufacturing (if applicable), and sales may affect intellectual property rights of third parties and how your own intellectual property rights, including patents, trademarks, copyrights, and trade secrets, can be protected in the U.S.
IP and Data Privacy Considerations
Intellectual Property Matters
U.S. Copyright Protection
U.S. Patent Protection
U.S. Trademark Registration
Also, having a patent in another country does not provide patent protection in the U.S. for your products. The U.S. requires patent grant in the U.S. by the U.S. Patent and Trademark Office prior to asserting any patent infringement rights against others. It is prudent to file for U.S. patent protection on any products or processes prior to commercial introduction of those products or processes in the U.S. market. As a general rule, the U.S. patent system operates on a “first inventor-to-file” basis to determine which entity has a priority right in newly claimed subject matter or technology, although the U.S. patent system does allow publication or sale of an invention during a one-year grace period prior to patent filing (unlike most other countries).
4.
IP and Data Privacy, Trademarks & Copyright attorneys
U.S. legal advisors skilled in IP and Data Privacy can assist you with developing and implementing a U.S. strategy to evaluate intellectual property landscapes of third-party rights relevant to your industry/products/services and protect/enforce your intellectual property rights. This may include evaluation of your current license agreements to confirm you may use any licensed rights in the U.S.
The U.S. requires you to have a U.S. copyright registration for your work prior to filing a lawsuit for copyright infringement in the U.S. Having U.S. copyright registration is not required for any work, but it can be helpful and valuable. The U.S. respects and honors copyright registrations from other Berne Convention countries. Nonetheless, registering your work in the U.S. can be important to seek full federal enforcement rights if another entity infringes your copyright in your work.
In many countries, personal data is governed by a single, comprehensive data protection law. But the U.S. has a patchwork of state and federal laws that govern the privacy and security of personal information throughout the lifecycle of data processing, including collection, use, disclosure, retention, and destruction.
Filing for and obtaining U.S. copyright registration is strongly encouraged for any of your commercially important artistic or creative works. Owning a U.S. copyright registration in a work will help you prevent others from reproducing, distributing, publicly displaying, or performing your work, and from making derivative works based on your work.
If you contract with a U.S. entity to create a new work, it may be important that any contract with that entity specifies that you own or have a license to use the work being created. Skilled U.S. Copyright attorneys can help review or draft contracts to make sure you have these rights.
U.S. Patents can impact your ability to import products into the U.S., as well as make, use, sell, or offer for sale products in the U.S. market.
Willful patent infringement risks treble damages and attorney fees associated with litigating the patent infringement. As such, you may want to conduct a patent clearance search to reduce the risk of patent infringement for any new commercial product or service intended for the U.S. market. U.S. skilled patent attorneys can help conduct this type of search and provide you with analysis and opinions with respect to reducing patent infringement risks. Having a U.S. patent (or a patent in another country) does not alleviate the risk of patent infringement.
You may file a trademark application before you have sales of products or services in the U.S. (called an “Intent to Use” application). We recommend filing early to reserve your rights in the trademarks that you intend to use in the U.S. By filing early, your mark may be protected even before you enter the U.S. market.
A trademark registration in the U.S. helps to protect your trademark rights when doing business in the U.S. and confers exclusive rights in the particular mark nationwide, providing you with a basis to object to another’s use of your mark on similar goods or services after your registration. Federally registered marks also may be recorded with U.S. Customs and provide support in preventing importation of infringing products.
Consider setting up a watch service for your core brands so that you can be aware in advance of any third parties using or attempting to use or register confusingly similar marks.
You should confirm availability of proposed brands and consider filing U.S. trademark applications for marks that are registered in foreign jurisdictions and/or other marks that you will use in connection with your U.S. operations.
If you own a trademark registration outside the U.S. or are licensed to use a mark in a particular jurisdiction, this does not mean you have rights in the mark in the U.S., so this should be evaluated prior to entry.
Conducting a trademark clearance search for your company name and proposed product and service brands will reveal potential conflicts with existing U.S. marks and allow you to develop a strategy in advance regarding selection of, and protection for, your marks for use in association with your goods and services in the U.S. U.S. law also recognizes common law trademark rights (i.e., rights based on use without a registration). A comprehensive trademark clearance search also can help find use of unregistered marks by others that may conflict with your proposed marks.
The U.S. also is member of the Patent Cooperation Treaty (one of 150 plus member countries) and the Paris Convention. As such, it honors priority patent filings in corresponding treaty or convention countries. Nonetheless, filing promptly prior to market introduction can be important. The time to obtain a granted U.S. patent can be from about 10 months (e.g., if fast tracked by paying additional fees) to 30 months, sometimes longer, depending on the technology and any backlog in the U.S. Patent Office of prior filed patent applications in the same technology area. We encourage you to start the process early and/or fast track the process if having U.S. patent protection is important to you.
Many federal privacy laws are sector-specific, yet requirements may vary by data type, even within a given industry. In addition, since the passage of the General Data Protection Regulation (GDPR) in the European Union, many U.S. states, including California, Virginia, and Nevada, have been increasingly focused on consumer data rights and regulating information treatment by companies. U.S. states also have privacy laws affecting biometrics (including facial recognition), geolocation, privacy and healthcare/DNA information. Other states are already following this trend with proposed legislation. Nonetheless, on the whole, U.S. data management laws can be less restrictive than those of other countries, which may allow you to utilize more analytics, expand your marketing, and increase profits. You will need to identify the data types relevant to your company (e.g., employee data, health or biometric data, payment card information, or consumer or customer data) in order to determine your compliance obligations, which, in turn, may influence business strategy.
Issues to consider include:
Whether special state law requirements apply to a U.S. website and whether those requirements should be addressed in both the online privacy policy and the website’s terms of use;
Whether you will use the same website accessible all over the world or create separate sites for the U.S. and other countries and regions;
Whether you plan on treating customers or consumers differently across jurisdictions to address the varied regulatory requirements (note also that distinctions may apply post-Brexit under the UK GDPR in addition to cross-border transfer considerations under the EU GDPR);
Whether you will enter into any outsourcing arrangements to assist with compliance to help balance risk and delegate obligations to specialized service providers. For example, websites with ecommerce functionality entail more regulation and complexity, leading many online retailers and service providers to retain a third-party payment platform vendor to handle transactions; and
What protective language should be added to contracts with vendors who handle certain transactions and/or personal data.
In addition, all U.S. states and most U.S. territories have data breach notice laws with a wide range of notification requirements. Many state laws also include minimum data security requirements for protecting personal data. Consequently, information security and data exposing incidents must be treated seriously to minimize reputational damage, regulatory enforcement and associated losses and liabilities.
U.S. legal advisors skilled in privacy and cybersecurity can assist you in identifying legal risk and requirements related to your data processing activities and help you implement a compliance strategy to reduce exposure while optimizing the value and use of your company’s data assets.
Nonetheless, on the whole, U.S. data management laws can be less restrictive than those of other countries, which may allow you to utilize more analytics, expand your marketing, and increase profits. You will need to identify the data types relevant to your company (e.g., employee data, health or biometric data, payment card information, or consumer or customer data) in order to determine your compliance obligations, which, in turn, may influence business strategy.
PATENT PROTECTION
PATENT PROSECUTION
The U.S., as do most major trading nations, controls the exports of articles and technologies from its borders.
Export Controls and Economic Sanction Laws
OFAC Sanctions
The ITAR
The EAR
5.
International Trade attorneys
In the U.S., the export of non-defense items of U.S. origin is controlled under the Export Administration Regulations (EAR); the export of defense articles, and related defense technologies and services, are controlled under the U.S. International Traffic in Arms Regulations (ITAR). In addition, the U.S. imposes economic sanctions on designated countries, sectors and individuals that are administered by the Department of the Treasury, Office of Foreign Assets Control (OFAC).
The ITAR control the export, re-export, and temporary import of defense articles, including goods, software, and technical data specified on the U.S. Munitions List (USML). The ITAR also control the export of defense-related technical services and assistance to foreign persons (wherever located). Such services and assistance can include the design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarization, destruction, processing, and training in the use of defense articles. Like the EAR, the disclosure of technical data subject to the ITAR to a foreign person, through visual inspection or otherwise, even if the foreign person is in the U.S., is considered a deemed export to the foreign person’s country of permanent residence or nationality. Moreover, with limited exceptions, the ITAR require exporters to obtain written authorization from DDTC is required before exporting or re-exporting defense articles defense articles, technology or services to any non-U.S. person or destination.
U.S. persons and entities involved in manufacturing, exporting, or brokering of items subject to ITAR must register with the Department of State, Directorate of Defense Trade Controls (DDTC).
The EAR control the export and re-export from a destination outside the U.S. to a third country, or to a non-U.S. person regardless of location, of commercial, “dual use,” and certain defense-related hardware, software, and technology (i.e., information necessary to develop, produce and use U.S.-origin items) identified on the Commerce Control List (CCL) and specified with an Export Control Classification Number (ECCN).
Dual use items are items that can be used for both civil and military applications. Also controlled are certain items manufactured outside the U.S. that contain greater than de minimis controlled U.S.-origin content, and certain items manufactured outside the U.S. derived from, and direct products of, U.S.-origin technology or software. Notably, the EAR control transfers of technology to non-U.S. persons wherever they are located. The application of EAR controls can be complicated and nuanced. Moreover, not all items that are subject to the EAR require a license for export or re-export, depending upon how the item is classified, the destination country, and the end-user and end-use. A license may be required to transfer even unsophisticated items that otherwise may be exported without a license if the intended end-use is related to the proliferation of nuclear, chemical, and biological weapons or related missile systems.
The U.S. Government imposes economic sanctions against various countries, entities, individuals, and organizations for national security and policy reasons, who are identified on one of the several U.S. Government restricted party lists.
The sanctions, administered by OFAC, can be either territory-based or targeted to specific individuals, entities, or government organizations. Sanctions prohibit the transaction of business or other specified dealings with targeted countries, or geographic areas, business sectors, or persons within targeted countries. Sanctions may include the blocking or “freezing” of assets in which a targeted country or person has an interest.
Currently, comprehensive territory-wide sanctions, prohibiting almost all transactions involving these countries or regions, apply only against Cuba, Iran, North Korea, Syria, Crimea (region of Ukraine/Russia), and the so-called Donetsk People’s Republic and Luhansk People’s Republic regions of Eastern Ukraine. Significant restrictions are also currently imposed against Venezuela and entities owned or controlled by the Government of Venezuela, as well as numerous and complex sanctions against persons and entities in Russia or Belarus.
Under current OFAC policy, any entity that is directly or indirectly owned 50% or more (individually or in the aggregate) by a sanctioned party is also treated as sanctioned, even when that entity is not specifically identified on the U.S. Government restricted party lists as a restricted party. A license is generally required to export or re-export items to persons on these lists or provide services to persons on the lists, directly or indirectly. In most instances, license applications are subject to a policy of denial.
The U.S. Government also administers trade embargoes against various countries under the EAR, such as its current prohibitions against exports and re-exports to Cuba, Iran, North Korea, Crimea (region of Ukraine/Russia), Syria, and the so-called Donetsk People’s Republic and Luhansk People’s Republic regions in Eastern Ukraine. These prohibitions are subject to very limited exceptions and are in addition to economic sanctions imposed and administered by OFAC.
Import and Other Trade Laws
6.
The U.S. has also entered into several bilateral and multilateral free trade or other agreements permitting the duty-free or preferential import into the U.S. of goods from certain countries.
The U.S. has long been a member of a variety of global trade-related organizations and agreements, including the General Agreement on Tariffs and Trade (GATT), which set global fair-trading rules, and its successor, the World Trade Organization (WTO), under which the U.S. has committed to global trading rules for such things as tariff classification and valuation of imported goods.
Under U.S. import and customs rules, the importer of record (i.e., the owner, purchaser, or licensed customs broker designated by the owner, purchaser, or consignee) is responsible for filing entry documents for imported goods with the U.S. Customs and Border Protection (CBP or Customs) at the port of entry. An importer of record must use “reasonable care” due diligence in providing to CBP accurate tariff classification, customs value, country of origin, and tariff preference program eligibility for the imported goods. CBP administers and enforces customs and other agency laws and regulations protecting public health and enforcing specific product restrictions, anti-dumping laws, quotas, and country of origin representations. Upon arrival at the port of entry, imported items must be marked with the English name of the country of origin in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit. Certain goods may also be subject to product safety standards, labeling or certification requirements, or hazardous substance regulations. In addition, U.S. law prohibits the import of merchandise produced using convict labor, forced labor, or indentured labor.
DOING BUSINESS WITH THE U.S. FEDERAL AND STATE/LOCAL GOVERNMENTS
Anti-Corruption Laws / Foreign Corrupt Practices Act
7.
Payments, offers, promises or authorizations to pay any other person, U.S. or foreign, are also prohibited if there is "knowledge" that any portion of that payment will be offered, given or promised to a foreign official, party or official of a public international organization. This provision includes situations where intermediaries, such as foreign affiliates or agents, are used to channel payoffs to foreign officials.
The Foreign Corrupt Practices Act (FCPA) in the U.S. prohibits any offer, payment, promise to pay, or authorization to pay any money, gift, or anything of value to any (i) foreign (non-U.S.) official, including any person acting in an official capacity for a foreign government, (ii) foreign political party official or political party, (iii) candidate for foreign political office, or (iv) official of a public international organization, for the purpose of:
securing any improper advantage from an official or party.
Inducing the official or party to use influence to affect a decision of a foreign government or agency, or
Influencing any act, or failure to act, in the official capacity of that official or party,
The FCPA prohibits any person, while in the territory of the United States from doing any act in furtherance of a violation of the FCPA. The FCPA applies to all entities and individuals in the U.S. regardless of nationality, and any officer, director, employee, agent or stockholder of a U.S. concern subject to the anti-bribery provisions, and to any publicly held company, including a foreign company, that is registered pursuant to Section 13 of the Exchange Act or that are required to file reports pursuant to Section 15(d) of the Exchange Act. The FCPA requires public companies to maintain records that accurately reflect transactions and dispositions of assets and to maintain systems of internal accounting controls. These provisions apply to all companies that have stock registered with the U.S. Securities and Exchange Commission.
The FCPA defines the term "foreign official" as any officer or employee of a foreign government or public international organization, or any department, agency, or instrumentality thereof, or any person acting in an official capacity for or on behalf of such government or public international organization, or department, agency, or instrumentality. Under the FCPA, officials of government-owned corporations are considered "foreign officials."
In addition to the FCPA, U.S. federal law prohibits the provision of gratuities and other forms of value to U.S. federal government officials to influence or affect a decision of the federal government, or to secure any improper advantage from a federal official. Similar anti-corruption laws have been enacted by many state governments in the U.S., including not just corrupt payments to public officials but also prohibiting corrupt commercial payments.
Doing Business with the U.S. Federal and State/Local Governments
8.
Purchases by federal and state/local agencies amount to hundreds of billions of dollars a year, and can include buying complex weapons and information systems, as well as paper clips, janitorial services, office supplies, materials, consulting services, and medical research. Federal and state/local governments buy almost every category of commodity and service available in the private market.
Both the U.S. federal government and each of the fifty state governments and their localities award contracts for various products and services.
Contracting with the “sovereign” – be it federal, state or local – differs from commercial contracting. A plethora of statutes and regulations govern each transaction, causing the contracting process as a whole to be highly regulated. Those statutes and regulations govern the contracts in nearly every manner. National and state legislatures delegate their respective constitutional authorities to contract with private parties to government agencies and other authorized organizations in the agencies' organic statutes. The agencies are required, however, to abide by and impose the legislatively mandated regulatory scheme that imposes strict compliance terms on both agencies and contractors. If your U.S. business will be involved in work for the U.S. federal government, various government procurement issues may be raised. Substantial security clearances may be required for a foreign-owned business to engage in Department of Defense or other federal work.
In certain circumstances, the U.S. government’s view of the foreign owner(s) from a national security standpoint can eliminate or restrict opportunities to obtain government contracts. The Federal Acquisition Regulations (FAR) is a set of primary rules and regulations guiding the federal government’s procurement of goods and services to government contractors using the allocated federal budget. Each federal agency also supplements the FAR with agency-specific rules for transacting business with that agency. At the state/local level, each state implements its own laws and regulations governing doing business with public entities within the state.
GOVERNMENT CONTRACTS & INTERNATIONAL TRADE
GOVERNMENT CONTRACTS attorneys
Federal and State Considerations
When doing business in the United States, companies must pay attention to not one, but two or more sets of environmental regulations.
Contaminated Land
9.
Standards and Regulations
CERCLA establishes four categories of PRPs, which can include private parties and governmental entities:
Current owners and operators of a facility. A current owner of a site can be liable for investigation and clean-up of contamination on their land even if they did not cause the contamination. A current operator (for example a lessee) can also be subject to CERCLA liability, though in practice the owner of the site is typically responsible pursuant to the lease for contamination that predates the lease term.
Past owners and operators of a facility at the time hazardous substances were disposed.
Generators and parties that arranged for the disposal or transport of the hazardous substances.
Environmental attorneys
Emergency Planning and Community Right-to-Know Act: imposes reporting requirements relating to the storage, use and release of regulated chemicals and substances.
Occupational Safety and Health Act establishes standards that ensures employees work in a safe and healthful environment and requires training and education.
National Environmental Protection Act: requires federal agencies to assess the potential environmental impacts of “major federal actions” (for example, federal projects and permitting decisions).
Resource Conservation and Recovery Act (RCRA): regulates the handling, transportation, treatment, storage, and disposal of hazardous wastes from the point of generation to their ultimate disposition.
Endangered Species Act (ESA): establishes protections for endangered and threatened species and their habitats.
Toxic Substances Control Act: regulates the production, importation, use and disposal of chemical substances and mixtures.
Federal Insecticide, Fungicide, and Rodenticide Act: regulates pesticide distribution, sale, and use.
Clean Air Act (CAA): regulates air quality and air pollution from stationary and mobile sources.
Clean Water Act (CWA): regulates discharges of pollutants into US waters and the quality of surface waters.
Safe Drinking Water Act (SDWA): regulates public drinking water supply and systems, as well as the construction, operation, permitting, and closure of underground injection wells.
Regardless of the nature of a company’s operations, all companies must assess whether their facilities require permits and their compliance obligations under a broad array of environmental statutes and regulations (federal, state, and local).
The complete universe of statutes and regulations is beyond the scope of this outline, and will vary between geography and facilities, but these are some of the primary statutes that must be considered:
The federal agencies include:
DOJ
OSHA
FERC
DOE
PHMSA
NOAA
Army Corps
DOI
USEPA
Department of Justice (DOJ). The DOJ through its Environment and Natural Resources Division represents the U.S. in litigation arising under federal environmental laws.
Occupational Safety and Health Administration (OSHA) sets and enforces protective workplace safety and health standards. OSHA also provides information, training, and assistance to employers and workers.
The Federal Energy Regulatory Commission, or FERC, regulates the interstate transmission of electricity, natural gas, and oil.
Department of Energy (DOE) manages the United States’ nuclear infrastructure and administers the country’s energy policy.
Department of Energy
Pipeline and Hazardous Materials Safety Administration (PHMSA), within the Department of Transportation, regulates the transportation of hazardous materials, including oil and gas.
National Oceanic and Atmospheric Administration (NOAA), within the Department of Commerce, administers programs for the conservation and management of marine resources. NOAA enforces more than 40 laws, along with international treaties, designed to protect marine life and their habitat. NOAA Fisheries, also known as the National Marine Fisheries Service, is responsible for the management, conservation, and protection of living marine resources within about 200 miles of the U.S. coast.
Army Corps of Engineers (Army Corps). The Army Corps regulates the disposal of dredged or fill material in waters subject to federal Clean Water Act jurisdiction, as well as activities and structures in navigable waters under the Rivers and Harbors Act.
Department of the Interior (DOI). The DOI administers federal laws dealing with public lands management, mining, minerals, offshore energy and natural resources, including various wildlife and plant conservation laws. Key sub-agencies within DOI include:
U.S. Environmental Protection Agency (USEPA). The USEPA implements and enforces most of the federal environmental statutes. The USEPA shares responsibility with states and other federal agencies under certain federal environmental laws.
Bureau of Land Management
Office of Surface Mining Reclamation and Enforcement
U.S. Fish and Wildlife Service (FWS)
Bureau of Ocean Energy Management
Bureau of Safety and Environmental Enforcement
Between environmental specific agencies, the USEPA sets national standards for environmental protection. Because every state and local has a different set of natural and economic parameters, states and local agencies often adopt laws that are at least as stringent as the federal ones except when prohibited by federal statute. For example, many states have enacted more stringent air emission standards and requirements than are imposed by federal laws. Additionally, many states have adopted regulations and standards for certain per- and polyfluorinated substances (PFAS) which are not yet regulated by the USEPA.
When adopted by reference or with new or more stringent requirements, state law then takes precedence over the federal one provided the state can assume primary responsibility for implementing and enforcing the law – but this varies by state and statute. Regardless, the federal government continues to have ultimate enforcement authority in all cases. The USEPA has oversight responsibility over the states’ activities and monitors state and tribal implementation of USEPA-approved programs. Local countries and municipalities come in behind this two-tier regulatory regime to fill in gaps and address more localized issues, concerns, and priorities.
In fact, many facilities managers say that decoding environmental regulations and their requirements are one of their most significant pain points. There are very few integrated permitting regimes in the U.S. Permitting authorities take a single-medium approach, under which separate permits are issued to address potential impacts to or by distinct environmental media (for example, air, water, waste, wetlands, and natural resources). Some media-specific permits, however, consolidate requirements under different state and federal regulatory programs into one permit, such as Title V operating permits under the Clean Air Act.
Transporters of hazardous substances to a disposal site.
A PRP may be liable for:
Government and/or private party clean-up costs.
Damages to natural resources.
The costs of certain health assessments.
Performing a response or removal action where a site may present an imminent and substantial endangerment.
CERCLA liability is:
There are the overriding U.S. Environmental Protection Agency regulations, then there are individual state environmental regulations, and in many instances, there are local county and municipal regulations that apply only to companies operating within their jurisdictions. To further complicate matters, depending on the nature of a company’s operations there are numerous other federal and state regulatory agencies that are involved with permitting and enforcement of environmental regulations.
Manufacturing, industrial, and commercial facilities are subject to numerous environmental standards and regulations, and it’s not always easy to figure out what rules a facility may need to follow, or which permits it must obtain to construct or operate.
CERCLA establishes a framework for the investigation and clean-up of sites contaminated with hazardous substances. CERCLA can impose strict, joint and several, retroactive liability on several categories of Potentially Responsible Parties (PRPs) for the release of hazardous substances. The EPA administers CERCLA, with state environmental agencies playing an active role in Superfund site identification, monitoring, and response activities. Many states have enacted similar laws to address the remediation of contaminated sites within their borders.
A discussion of environmental regulations in the United States would not be complete without mention of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).
CERCLA does provide several liability defenses, protections, and exemptions to liability. Included within these protections are:
Defenses for releases caused by acts of God, acts of war, or by acts/omissions of a third party with whom a PRP has no contractual relationship.
Protections for certain landowners, including bona fide prospective purchasers, innocent landowners, or contiguous property owners.
Protections for state and local governments undertaking an emergency response to the release of a hazardous substance, as well as clean-up contractors.
Exemptions for certain residential, small business, and non-profit generators of municipal solid waste and parties who arrange for the recycling of certain substances.
Congress established certain, specific exclusions from liability for parties that conduct what’s termed as an “all appropriate inquiry” prior to purchasing (or leasing) a site. By conducting an appropriate investigation into the existing conditions of a site, owners and operators at a site may protect themselves from liability for pre-existing environmental contamination. The requirements for taking advantage of these defenses are beyond the scope of this outline.
As anywhere, doing business in the U.S. can result in disputes. Usually, care in front-end negotiating, document drafting and understanding regulatory schemes can minimize follow-on disputes, but where they arise, the U.S. has adopted carefully crafted rules that largely honor and enforce venue selection clauses, choice of law provisions and arbitration provisions.
Below is a broad discussion of these court systems as well as alternative dispute resolution methods such as arbitration.
There are a wide variety of arbitration and mediation services available to those seeking alternative dispute resolution services in the United States.
Arbitration and Mediation
Federal Court System
ARBITRATION
10.
State Trial and Appellate Courts
State Court System
Federal district court procedure is governed by the Federal Rules of Civil Procedure, promulgated by the U.S. Supreme Court and approved by the U.S. Congress. These are a uniform body of procedural rules applicable to every federal district court in the US. Each federal district court also establishes its own rules applicable only to the procedure in that district court. These “Local Rules of Civil Procedure” often set forth specific guidelines for the handling of an action, apply in parallel with the Federal Rules of Civil Procedure, and counsel must be familiar with, and abide by, both. Federal district courts now require that pleadings be filed electronically, using the CM/ECF System. The procedure for electronic filing varies, so practitioners should consult the local rules. Each district court maintains a website which contains information about the court, electronic filing, local rules and other essential information. The U.S. circuit courts of appeal are the federal appellate courts to which appeals from U.S. District Court is taken. The Federal Rules of Appellate Procedure is a uniform body of procedural rules applicable to all appeals from a federal district court to a federal appellate court. If an appeal is taken from a U.S. District Court, the appellate rules and internal operating procedures of the specific U.S. circuit court to which the appeal is taken should be consulted in parallel with the Federal Rules of Appellate Procedure as both apply.
The trial courts of the federal court system are the U.S. District Courts. The states are divided into federal districts—some have one district, and some have multiple districts. Each district has federal district court judges who are appointed by the President for life terms upon approval by the US Senate. U.S. magistrate judges, who do not serve a lifetime appointment, can handle a variety of pretrial matters and can, with the consent of the parties, try cases. Appeals are made to the United States Circuit Courts of Appeals. The federal district courts are courts of limited jurisdiction. The types of cases they may hear are mandated by both the US Constitution and federal statute. They have exclusive jurisdiction over bankruptcy, patent and copyright, foreign consuls and vice-consuls, admiralty and maritime, antitrust, Securities Exchange Act cases, and all actions where the United States is involved, including federal crimes, tort suits brought against the United States, and customs decision review. All other jurisdiction is concurrent with that of the state courts. There are generally three ways to gain access to the federal district courts when there is such concurrent jurisdiction. First is diversity jurisdiction, which involves disputes between citizens of different states with an amount in controversy exceeding $75,000. To be brought in federal court, there must be complete diversity, i.e., each plaintiff must be from a state that is different from that of each defendant. The second basis for jurisdiction involves a federal question, i.e., presenting an issue arising under the Constitution, statutes, or treaties of the United States. The third basis for jurisdiction is the Class Action Fairness Act, which give federal courts jurisdiction over certain types of class actions. If a party’s case does not fit within one of the statutorily mandated jurisdictions, there is no recourse in the federal courts.
Bankruptcy
Most States have statewide organized judicial systems. Generally, they are comprised of trial courts of general or limited jurisdiction and appellate courts. Some states have intermediate appellate courts that hear appeals from trial courts before they are heard by the state’s highest appellate court.
Dispute Resolution attorneys
There are generally three ways to gain access to the federal district courts when there is such concurrent jurisdiction:
• the Class Action Fairness Act
• diversity jurisdiction
• jurisdiction involves a federal question
actions where the principal relief sought is injunctive relief against the enforcement of any statute, ordinance, or regulation or injunctive relief to compel enforcement of any statute, ordinance, or regulation,
declaratory relief to establish or disestablish the validity of any statute, ordinance, or regulation or the enforcement or declaration of any claim of constitutional right, upon appeals are unique to each state, but every state does have a court of final resort—often called the Supreme Court (e.g. North Carolina Supreme Court)
While state laws, regulations and court systems are unique to and in each State, there is one unifying body of law that each state legislature must adhere to when making law and every State court system must adhere to when adjudicating disputes—the U.S. Constitution. State laws and regulations are subjugated to the US Constitution and its tenets apply across all states. For that reason, the United States Supreme Court is the highest court in the land on questions of constitutional conformity without regard to whether a case may have originated in state courts.
Superior Courts also retain jurisdiction over the following:
MEDIATION
Arbitration is a favored method of dispute resolution in the U.S. The Federal Arbitration Act (FAA) makes clear that it is the policy of the United States to protect the integrity of arbitration agreements by deeming them valid, irrevocable, and enforceable. Generally, neither federal nor state courts have the authority to set aside an arbitration award if an arbitration agreement is valid. There are a handful of disputes that are excluded from the FAA, but many disputes—and nearly all commercial disputes arising from contracts that contain an arbitration provision—fall within the purview of the FAA and are likely to be enforced. Many States have enacted their own arbitration protection statutes, and some even require certain classes of disputes to be arbitrated before they run through the court system. There are several arbitration services that administer dispute resolution and provide access to qualified and credentialed neutrals.
Two such services that are well known and heavily used in the commercial context are the American Arbitration Association and JAMS. Each has its own dispute resolution tiering based upon the types of claims and monetary exposure in a dispute, and each has its own administrative and procedural rules. Arbitration awards can easily be converted into enforceable judgments and enforced in the same manner that a court adjudicated judgment can be enforced. Arbitration has long been viewed as a more efficient and less-expensive alternative to federal or state court litigation because discovery is more restricted, the rules of evidence are relaxed, and disputes can be resolved more quickly with little prospect of delay arising from post judgment appeals. However, the more complex the dispute and the higher the exposure, the more likely that arbitration administration, timelines, discovery breadth, motion practice and overall expense will rival federal or state court litigation.
Mediation differs both from litigation and from arbitration in that a mediator does not adjudicate a dispute or impose a resolution on the parties. Rather, the mediator is trained to assist the parties in coming to an agreement on a solution to their dispute. Mediation can be useful in several different categories of cases and can also be useful when business imperatives or goals favor early resolution or compromise, when litigation or arbitration is too expensive for the amount in dispute, or when negotiations between parties are not proceeding productively. Pre-litigation mediation clauses are often built into commercial contracts in the US, and most federal and state courts require that the parties attempt mediation as a distinct phase in cases pending in those courts. In fact, mediation has become so ubiquitous that
even federal and state appellate courts have adopted (largely voluntary) mediation programs in Pre-litigation mediation clauses are often built into commercial contracts in the U.S., and most federal and state courts require that the parties attempt mediation as a distinct phase in cases pending in those courts. Generally, party litigants agree upon who should mediate the case, and they split the cost of the mediator. Most mediations are conducted in person with all parties and counsel present, and they are usually completed in one business day, but can be left open for days, weeks and even months following the in-person mediation wherein the mediator remains engaged and continues to assist the parties toward an agreed resolution. Typically, mediators will declare an impasse only where one or both parties communicate that they are disinterested in further negotiation or compromise.
Sophisticated federal, state and (sometimes) local court systems can be accessed to protect one’s rights and there are excellent options for administering arbitrations.
State trial courts often have multiple levels and are sited on the basis of county or municipality. Each state has a sovereign judicial system that operates largely independently of the federal judicial system. State Courts are heavily focused upon resolving disputes that arise out of the laws and regulations governing the particular State. State court systems are organized in varying ways and are subject to procedural and evidentiary rules (both general and local) that are unique to a specific State. The same is true of state appellate courts. Superior Courts have jurisdiction over all civil cases where the amount in controversy exceeds $25,000, except as otherwise provided below, and all criminal actions that constitute felonies.
Each district has federal district court judges who are appointed by the President for life terms upon approval by the US Senate. U.S. magistrate judges, who do not serve a lifetime appointment, can handle a variety of pretrial matters and can, with the consent of the parties, try cases. Appeals are made to the United States Circuit Courts of Appeals.
They have exclusive jurisdiction over bankruptcy, patent and copyright, foreign consuls and vice-consuls, admiralty and maritime, antitrust, Securities Exchange Act cases, and all actions where the United States is involved, including federal crimes, tort suits brought against the United States, and customs decision review. All other jurisdiction is concurrent with that of the state courts. There are generally three ways to gain access to the federal district courts when there is such concurrent jurisdiction.
To be brought in federal court, there must be complete diversity, i.e., each plaintiff must be from a state that is different from that of each defendant. The second basis for jurisdiction involves a federal question, i.e., presenting an issue arising under the Constitution, statutes, or treaties of the United States. The third basis for jurisdiction is the Class Action Fairness Act, which give federal courts jurisdiction over certain types of class actions. If a party’s case does not fit within one of the statutorily mandated jurisdictions, there is no recourse in the federal courts.
Federal district court procedure is governed by the Federal Rules of Civil Procedure, promulgated by the U.S. Supreme Court and approved by the U.S. Congress.
These are a uniform body of procedural rules applicable to every federal district court in the US. Each federal district court also establishes its own rules applicable only to the procedure in that district court.
Federal district courts now require that pleadings be filed electronically, using the CM/ECF System. The procedure for electronic filing varies, so practitioners should consult the local rules.
The federal district courts are courts of limited jurisdiction. The types of cases they may hear are mandated by both the US Constitution and federal statute.
The trial courts of the federal court system are the U.S. District Courts. The states are divided into federal districts—some have one district, and some have multiple districts.
First is diversity jurisdiction, which involves disputes between citizens of different states with an amount in controversy exceeding $75,000.
These “Local Rules of Civil Procedure” often set forth specific guidelines for the handling of an action, apply in parallel with the Federal Rules of Civil Procedure, and counsel must be familiar with, and abide by, both.
Each district court maintains a website which contains information about the court, electronic filing, local rules and other essential information.
The U.S. circuit courts of appeal are the federal appellate courts to which appeals from U.S. District Court is taken. The Federal Rules of Appellate Procedure is a uniform body of procedural rules applicable to all appeals from a federal district court to a federal appellate court. If an appeal is taken from a U.S. District Court, the appellate rules and internal operating procedures of the specific U.S. circuit court to which the appeal is taken should be consulted in parallel with the Federal Rules of Appellate Procedure as both apply.
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States also offer insolvency options beyond those that the U.S. Bankruptcy Code offers which typically include assignments for the benefit of creditors and state dissolution proceedings.
State Insolvency Proceedings
Chapter 7 and Chapter 11 are the two main sections of the Bankruptcy Code that apply to businesses, and Chapter 15 is the section that applies to businesses that are in insolvency proceedings outside of the United States, but which wish to utilize U.S. bankruptcy laws by commencing ancillary proceedings. Each state also had its own insolvency laws which often provide streamlined, and less costly, alternatives to bankruptcy proceedings.
The United States Bankruptcy Code provides a means for a business to restructure its debts and to discharge its obligations, often while continuing to operate in the ordinary course of its business.
Federal Bankruptcy Code and State Insolvency Proceedings
Chapter 11 is the section of the Bankruptcy Code that most businesses file either to reorganize or to liquidate while continuing to operate as a going concern.
Chapter 15 Bankruptcy
Chapter 7 Bankruptcy
Chapter 11 Bankruptcy
There are two main sections of the Bankruptcy Code that apply to businesses:
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Chapter 7 is typically a last resort for a business since, once the Chapter 7 petition is filed, all operations cease, employees are fired, the business is shuttered, and the court appoints a Chapter 7 trustee to liquidate the remaining assets and to pursue claims held by the debtor. As in Chapter 11 cases, creditors and parties to contracts and leases with the debtor need to file timely proofs of claim with the court in order to receive payments from the trustee’s liquidation of the debtor’s assets. Moreover, the trustee can assign the debtor’s contracts and leases, subject to court approval and conditioned on curing all defaults including any payment defaults and establishing that the purchaser can perform.
State court dissolution proceedings provide the company with a procedure for existing management to remain in control of the liquidation process and the decisions regarding the payment of creditors. The laws governing these proceedings differ from state to state and they also lack many of the protections offered by the Bankruptcy Code including the automatic stay and provisions for sales free and clear of liens.
As in Chapter 7 and Chapter 11 cases, the commencement of the Chapter 15 case causes the automatic stay to take effect to protect assets located in the United States. The foreign representative can use the Bankruptcy Code’s provisions to reorganize, to sell assts as well to assume or reject contracts and leases.
CHAPTER 15 BANKRUPTCY
Chapter 15 is the section of the Bankruptcy Code that is used to commence a bankruptcy case that is ancillary to an insolvency proceeding that is pending outside of the United States.
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Bankruptcy offers several key benefits for a business in financial distress. Perhaps most importantly, bankruptcy affords the debtor the protection of the automatic stay which enjoins creditors and other parties from taking actions against the debtor to recover debts including lawsuits and judgment enforcement actions as well as most actions to terminate leases and contracts. Bankruptcy also provides the means to discharge most debts and to sell assets free and clear of lien and encumbrances. Although numerous parties participate in a Chapter 11 case, the key parties include the debtor, the unsecured creditors committee, the secured lenders and the United States Trustee’s Office which is an arm of the U.S. Department of Justice. The U.S. Trustee appoints the members of the unsecured creditors committee which generally consists of the unsecured creditors holding the largest claims and who are charged with representing the interests of the unsecured creditors. An operating business commences its bankruptcy case by filing a Chapter 11 petition with the Bankruptcy Court. Typically, the debtor will file with its petition a number of pleadings that are called “First Day Motions” that usually include a motion seeking authority to obtain debtor-in-possession financing for funding to continue to conduct operations.
Other first day motions that debtors typically file include asset sale motions, motions to reject burdensome contracts and leases and motions to pay critical vendors. In some cases, the debtor may file a “Pre-Packaged Plan” where the debtor has successfully negotiated the terms of a Chapter 11 plan with its major creditors prior to bankruptcy. In other cases, the debtor may file a motion to sell assets free and clear of liens where it has negotiated the terms of a sale pre-petition or, if it is a retail business, it may file a motion for authorization to conduct a going out of business sale. A Chapter 11 plan typically results from negotiations among the parties to the case. The plan will classify claims against the debtor into various classes which can be treated differently depending on their priority. Generally, the court will approve a plan that has been approved by each class of creditors that votes on the plan or, as long as one class accepts the plan, the court can “cram-down” and approve the plan provided it meets other requirements. The debtor can also assume or reject its contracts or leases either prior to or through its Chapter 11 plan. Once a court has approved the plan and the plan becomes effective, the debtor will commence paying creditors’ claims as required by the plan.
Creditors and parties to contracts and leases with the debtor need to file timely proofs of claim with the court in order to receive payments on pre-petition claims. Parties to contracts and leases also need to monitor the bankruptcy case closely to make sure their rights are properly protected. If the debtor assumes the contract or lease, or seeks to sell the contract or lease, then the debtor must cure all defaults including any payment defaults and, in the event of a sale, must provide adequate assurance that the purchaser will be able to perform. If the debtor rejects the contract or lease, then the creditor will have the opportunity to file an additional claim for any damages arising from the rejection. Finally, both Chapter 11 and Chapter 7 asset sales can provide significant opportunities for businesses interested in purchasing assets from companies in financial distress. Assets can be “cleansed” through bankruptcy and sold free and clear of all liens and encumbrances and contracts and leases can be sold over the objections of counterparties.
Chapter 11
Chapter 7 is the section of the Bankruptcy Code used by businesses that have decided to liquidate and that either do not have sufficient cash or ability to borrow to continue to operate in bankruptcy or that do not need to operate in bankruptcy to maintain asset values while liquidating.
Chapter 7
BANKRUPTCY ATTORNEYS
Existing management of a business that files a Chapter 11 petition typically will remain in place during the bankruptcy proceeding and the business will operate as a debtor-in-possession. Reorganizations involve the restructuring of debt and equity through a Chapter 11 plan that is subject to court approval. Liquidations of operating businesses are also subject to court approval and often will occur prior to approval of a Chapter 11 plan.
An assignment for the benefit of creditors is a process by which a company voluntarily assigns all of its assets to an assignee who winds down and administers the company’s estate for the benefit of the company’s creditors. The company’s management is divested of all authority after the assignment, the assignee liquidates the company’s assets and, following the liquidation, pays creditors. The proceeding is under the supervision of a state court. Assignments for the benefit of creditors lack many of the protections offered by the Bankruptcy Code including the automatic stay and provisions for sales free and clear of liens.
The foreign representative for the insolvent business commences the ancillary case by filing a petition with a U.S. bankruptcy court.
Bankruptcy offers several key benefits for a business in financial distress. Perhaps most importantly, bankruptcy affords the debtor the protection of the automatic stay which enjoins creditors and other parties from taking actions against the debtor to recover debts including lawsuits and judgment enforcement actions as well as most actions to terminate leases and contracts. Bankruptcy also provides the means to discharge most debts and to sell assets free and clear of lien and encumbrances.
Although numerous parties participate in a Chapter 11 case, the key parties include the debtor, the unsecured creditors committee, the secured lenders and the United States Trustee’s Office which is an arm of the U.S. Department of Justice. The U.S. Trustee appoints the members of the unsecured creditors committee which generally consists of the unsecured creditors holding the largest claims and who are charged with representing the interests of the unsecured creditors.
An operating business commences its bankruptcy case by filing a Chapter 11 petition with the Bankruptcy Court. Typically, the debtor will file with its petition a number of pleadings that are called “First Day Motions” that usually include a motion seeking authority to obtain debtor-in-possession financing for funding to continue to conduct operations.
Other first day motions that debtors typically file include asset sale motions, motions to reject burdensome contracts and leases and motions to pay critical vendors. In some cases, the debtor may file a “Pre-Packaged Plan” where the debtor has successfully negotiated the terms of a Chapter 11 plan with its major creditors prior to bankruptcy. In other cases, the debtor may file a motion to sell assets free and clear of liens where it has negotiated the terms of a sale pre-petition or, if it is a retail business, it may file a motion for authorization to conduct a going out of business sale.
A Chapter 11 plan typically results from negotiations among the parties to the case. The plan will classify claims against the debtor into various classes which can be treated differently depending on their priority. Generally, the court will approve a plan that has been approved by each class of creditors that votes on the plan or, as long as one class accepts the plan, the court can “cram-down” and approve the plan provided it meets other requirements. The debtor can also assume or reject its contracts or leases either prior to or through its Chapter 11 plan. Once a court has approved the plan and the plan becomes effective, the debtor will commence paying creditors’ claims as required by the plan.
Bankruptcy offers several key benefits for a business in financial distress.
Parties to contracts and leases also need to monitor the bankruptcy case closely to make sure their rights are properly protected. If the debtor assumes the contract or lease, or seeks to sell the contract or lease, then the debtor must cure all defaults including any payment defaults and, in the event of a sale, must provide adequate assurance that the purchaser will be able to perform. If the debtor rejects the contract or lease, then the creditor will have the opportunity to file an additional claim for any damages arising from the rejection.
