[ESTABLISHING A BUSINESS ENTITY IN THE UNITED STATES] 492
ESTABLISHING A BUSINESS ENTITY IN THE UNITED STATES 1. Choosing the Right Legal Structure 1.1 Introduction
alike. Delaware’s Court of Chancery has extensive experience interpreting business legal documents and adjudicating disputes, and all cases are decided by judges. This lends a certain predictability that many businesses find desirable. In addition, the comparative speed at which the Delaware courts resolve those disputes is an attractive feature to many, and the Delaware Rapid Arbitration Act enacted in 2015 allows for even quicker resolution of disputes to those who choose that route. Many other states, however, are popular for a variety of reasons: New York, Maryland, and Nevada, to name a few. This article will provide general principles but will focus on Delaware law when referring to specific state laws or interpretations of state laws. Regardless of a company’s chosen state, it may have to register as a “foreign” company in other states where it conducts business, may be subject to special fees or franchise taxes in those states, and may, in certain cases, be subject to restrictions imposed by local corporate statutes even though it is formed in Delaware. 1.3 The Corporation The corporation has traditionally been the most popular form of business entity in the United States. Once formed under state law, corporations are often described as being “public” or “private,” depending upon whether their shares are registered with the United States Securities and Exchange Commission and therefore freely tradable by members of the public or whether, instead, each individual trade of shares must be separately registered or fit within an exemption from applicable federal registration requirements. Generally, a private corporation may go public after establishing itself in the U.S. marketplace through an initial public offering (“IPO”), which is commonly undertaken to provide access to capital markets.
Establishing a business entity in the United States can be an important strategic step for any international company that wants to avail itself of the world’s economy. There are, however, many considerations to weigh carefully in consultation with an experienced attorney. Perhaps first and foremost, a company should choose the legal structure that is most advantageous and best suited to their needs. Section 1 examines the basic principles of five of the most common types of business entities in the United States: the corporation, the limited liability company, the general partnership, the limited partnership, and the limited liability partnership. In particular, this Section will highlight governance, capitalization, personal liability, and tax treatment for each entity type. While the tax discussion will focus on federal income tax, most state laws follow federal income tax principles. Finally, some consideration will be given to less-common business structures and other regulatory issues. 1.2 A Preliminary Note: Choosing a State for Organizing the Entity In the U.S. federal system, each state promulgates its own statutes and regulations that govern the business entities which may be established in that jurisdiction. It is important to remember that in most cases there is no general “U.S. corporation,” and that choosing the state in which to organize is a preliminary decision that will affect a company’s formation requirements and operations. A natural choice for local companies is often the state where the company maintains its primary place of business or U.S. headquarters. Nevertheless, a company domiciled in the U.S. can be organized in any state and Delaware is the most popular state for domestic and international companies
ILN Corporate Group – Establishing a Business Entity Series
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