3.3.3 Disadvantages
(i) Foreign businesses relinquish direct control over sales and marketing.
(ii) Distributor agreements may limit pricing flexibility and brand positioning.
(iii) C ontractual restrictions may affect termination rights or the ability to change distribution strategies.
3.4 Regulatory and Licensing Considerations Many states require foreign businesses conducting direct market activities to register and obtain a business license or file for foreign qualification with the state’s Secretary of State. Additionally, businesses may need to:
(i) Register with the Department of Revenue for state tax obligations.
(ii) Obtain federal product approvals if selling regulated goods (e.g., FDA approval for pharmaceuticals, FCC compliance for telecommunications products). (iii) A dhere to intellectual property protections by registering trademarks with the United States Patent and Trademark Office (USPTO). 3.5 Comparison to Establishing a U.S. Entity Businesses considering direct market entry should compare this approach with establishing a separate U.S. entity (discussed in the Establishing a U.S. Entity chapter). While direct market entry minimizes initial costs and administrative burdens, it may limit growth potential and expose the foreign company to greater tax and liability risks. Companies planning long-term operations in the U.S. may find forming a subsidiary (LLC or Corporation) more advantageous in terms of legal protections and scalability.
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