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| General Counsel Services |
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| US Representation of Foreign Firms |
  Establishing a New York Subsidiary
Corporate Law
Taxation
Pitegoff Law Office PLLC has a great deal of experience acting
as U.S. counsel for foreign companies doing business in the U.S. (See “ Doing
Business in New York State : A Legal Guide for Foreign Companies ”.)
Foreign companies often begin doing business in the U.S. by distributing
or licensing their products or services in the U.S. Others sell franchises
in the U.S. The establishment of a U.S. office may come at a later stage
in the development of the business, or the company may decide to establish
a U.S. operation at the outset. We are pleased to discuss the various
alternatives with companies that are new to the U.S. market and to assist
them with their plans, whatever they may be.
Establishing a New York Subsidiary
Companies outside the U.S. frequently ask us basic questions about the
establishment of a corporation in New York.
Corporate Law
Corporations are established in the U.S. under the corporate laws of
one of the fifty states. If you are planning to establish business operations
in New York , it is often advisable to organize the corporation in New
York . The corporation can do business throughout the U.S. once it is
established. However, if the corporation intends to establish offices
or warehouse facilities in another state, it may be necessary to seek
formal authority to do business in that state.
A corporation is organized in New York when the certificate of incorporation
is filed with the Department of State of New York. The certificate of
incorporation must include the name of the corporation and the basic
capital structure. If all of the shares are to be owned by one company,
the simplest capital structure would be to authorize 200 shares without
par value.
After the corporation is formed, the incorporator appoints the initial
directors. In a simple structure, a corporation might have three directors.
There is no requirement that the directors be U.S. citizens. They may
all be foreign nationals residing abroad. The directors appoint the
initial officers (e.g., a president, secretary and optionally a treasurer
and one or more vice presidents) and authorize the opening of a bank
account and the issuance of the initial shares of stock.
The shareholders typically elect or re-elect directors once each year,
and the directors typically appoint or re-appoint officers once each
year. The directors determine the amount of dividends to be paid. The
board of directors meets at least once each year. The directors act
only as a board, by voting at a meeting or by written consent. Actions
of the board generally require a majority vote, although fundamental
corporate transactions, such as a merger or sale of assets or dissolution
of the company, usually require a two-thirds vote of the shareholders.
Directors do not have the authority to act individually for the corporation
or to sign documents binding the corporation. The officers run the day-to-day
business of the corporation. The president and vice presidents, for
example, can sign documents on behalf of the corporation.
Taxation
Once a corporation is formed, it must apply to the Internal Revenue
Service for a federal employer identification number. This is the corporation's
identification number for federal tax purposes.
The designation of a “C” corporation refers to subchapter
C of the Internal Revenue Code. This is a section of the federal tax
law of the U.S. A corporation formed under the laws of any of the fifty
states can be a C corporation for tax purposes.
The income of a C corporation is taxed twice, once at the level of the
corporation as a separate entity, and a second time at the shareholder
level when profits are distributed by means of dividends. At the corporate
level, the U.S. subsidiary of a foreign corporation is treated as a
domestic U.S. corporation for federal tax purposes and its income from
worldwide sources is subject to taxation. The federal corporate tax
rates range from 15% to 35%.
The second level of taxes is on dividends received by shareholders.
When the shareholder is a foreign company, U.S. tax law imposes a withholding
tax on dividends because it cannot tax the foreign company directly.
When a U.S. subsidiary pays a dividend to its foreign parent corporation,
this dividend is subject to a 30% federal withholding tax rate or a
lower rate provided for by treaty. Bilateral tax treaties limit the
withholding tax rates on dividends to many countries.
In addition to federal taxes, New York State imposes a franchise tax
on New York corporations and foreign corporations doing business, employing
capital, or owning or leasing property in New York . The corporate franchise
tax is approximately 8%. |
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