Doing Business in the USA @ SXSW 2013


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Doing Business in the USA is the essential conference for Founders, CEOs and C-level executives from around the world who are planning to enter or expand their business in North America.

Set on the first day of SXSW Interactive, it provides a comprehensive view of industry trends, investment, legal, tax and regional opportunities with a mix of expert speakers, case studies and candid Q&As.

For more information on the Doing Business in the USA event including the full speaker line-up check out:

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  • LLC is pass-through. Owner files tax returns.
  • Notes: We advise companies of many states but we’ll focus on NY here.
  • Factors in “piercing the corporate veil”:Absence of corporate formalities (records, separate bank accounts, financial statements, etc.)Inadequate capitalizationControl of daily operationsEconomic independence
  • Notes re: annual tax obligations:Minimum annual tax for NY LLC is $100 for a single-member LLCFor multi-member LLCs: $100/owner, minimum annual fee of $500 and a maximum annual fee of $25,000
  • When a foreign corporation is required to qualify (register for authority to do business) in a state and fails to do so, it may be restricted from using the state’s court system. For example, the state may not allow it to sue (in that state) someone with whom it does business in that state.SO IS THE CASE OVER?If you find yourself in violation, you can remedy the situation by qualifying the business in the state. You will likely have to pay back taxes and penalties and interest. So while it is possible to fix the problem after the fact, it can be a costly mistake to fix. To avoid this problem in the first place, companies should register to (qualify to) do business in the state or states in which it will do business.
  • -Not as complicated as people might think.-Planning that goes into it is really the legal advice.-Documents come later: Operating Agreement, Shareholders Agreement.-Why Delaware?If multiple states, multiple annual report filing requirements, multiple maintenance fees/franchise taxes.
  • IC/EE? Control?Time, place, manner.Significant liabilities.
  • Often times at-will agreements are a massive departure from the UK employment agreement UK companies are accustomed to.Note here that company can also engage independent contractors if circumstances allow (non-employment engagement, save withholding taxes)
  • “To the extent it’s not a “wfh,” the IC expressly assigns the rights to your company.California distinction re “work for hire” agreement. Be careful when entering into “WFH” agreements with ICs; consider the laws of the jurisdiction. In California, a person who enters into a “work for hire” agreement is considered an employee (at least for unemployment insurance and workers’ comp purposes.How to deal with this? One way is to treat the ICs as employees for the purposes of unemployment insurance and workers’ compensation. Another way is to omit the “work for hire” language from the IC agreements altogether, and instead include an assignment provision, whereby the IC agrees to assign all intellectual property created as part of the project to the client. A third way is to ask the independent contractor to form an LLC, and then enter into a “work for hire” agreement with that LLC instead of with an individual. LLCs cannot be employees, so the LLC would be an IC.
  • California is stringent re restrictive covenants. Non-compete is prohibited. Non-solicitation may be upheld if protecting trade secret. Confidentiality extends only to trade secrets.
  • Mention CLE (attorneys in our office)Presented to Goldman Sachs
  • Sales tax for sale of goods/services. Figure it out first. State by state issue. If must collect and did not collect it from customer at the get-go, won’t be able to collect it later. Principal officers personally liable for sales tax. Sales tax nexus (federal limitations). Generally, tangible personal property taxable.
  • Recent case (2013 settlement)Path Social Networking App Settles FTC Charges it Deceived Consumers and Improperly Collected Personal Information from Users' Mobile Address BooksCompany also Will Pay $800,000 for Allegedly Collecting Kids' Personal Information without their Parents’ Consent
  • Advantages of registering:-protection-notice to others/deterrence-remedies: presumption of validity
  • Advantages of registering:-protection-notice to others/deterrence-remedies: presumption of validity
  • Trademarks not always registered. Common law rights.Google. Full search recommended.
  • Make sure your company owns the domain.
  • Rules differ by type of IP and jurisdiction. Agreements should include the following language: “Developments will be jointly owned without duty of accounting.”
  • Longer NDA term. Only disclose what you need to. Receivers of info refuse to sign if have leverage. Broad NDAs come back to haunt you—limit competitive activity.
  • Just be aware that agreements may be confidential. Get permission to disclose.
  • Limit your indemnifications.
  • Get a present grant and license to use the source code (even if it’s escrowed).
  • Doing Business in the USA @ SXSW 2013

    1. 1. Welcome to Doing Business in the USA @ SXSW 2013Lunch & refreshmentscourtesy of #doingbiz
    2. 2. Doing Business in the USA@ SXSW 2013 Introduction Sam Michel – Chinwag – @toodlepip Hugh Forrest – SXSWLunch & refreshments courtesy of2 #doingbiz
    3. 3. Doing Business in the USA@ SXSW 2013 Welcome to Austin Mayor Leffingwell, City of Austin Stephen Kreher, Austin Chamber of CommerceLunch & refreshments courtesy of3 #doingbiz
    4. 4. Doing Business in the USA@ SXSW 2013 Geography Lessons: Silicon Alley to Silicon Valley Robert Scoble (@Scobleizer) Startup Liaison Officer, Rackspace Hermione Way (@hermioneway)Newspepper / The Next Web Harper Reed (@harper) Founder, Harper Rules LLC ManoushZomorodi (@manoushz) New Tech City, WNYC Radio Ben Metcalfe (@dotBen) Co-Founder, WP EngineLunch & refreshments courtesy of4 #doingbiz
    5. 5. • • Twitter @manoushz •
    6. 6. • Digital companies that base at least 75% of their development in New York City and have at least 1,000 users or monthly visitors are eligible.
    7. 7. NYC STATS• Home to 29 multi-billion dollar media companies, more than any other US city, according to NYEDC.• NYC is nation’s 2nd largest hub for tech companies, says Center for Urban Future.• New York Tech MeetUp has grown to 30k members.• Venture funding to startups grew 34% from 2007-2011, according to Pricewaterhouse Coopers and National
    8. 8. Craig David article
    9. 9. The PROs Proximity Cool factor Creative Minds Design/Media/Fashion Wall Street International capital
    10. 10. CONSPolitical uncertainty Broadband Talent Real Estate Sandy
    11. 11. • • Twitter @manoushz •
    12. 12. Doing Business in the USA@ SXSW 2013 Keeping Legal: Setting up, starting up, paying up, keeping up Allan Rooney (@ajprpc) Rooney, P.C US Immigration for Digital Entrepreneurs BarstMukamal&Kleiner LLP Lunch & refreshments courtesy of13 #doingbiz
    13. 13. Legal Aspects of Doing Businessin the United States Allan J.P. Rooney Emre Ozgu Rooney P.C. Barst Mukamal & Kleiner LLP 800 Third Avenue 2 Park Avenue New York, NY 10022 New York, NY 10016 (212) 545-8022 (212) 686-3838
    14. 14. Contents Methods of doing business• This presentation will set forth the major considerations for foreign Subsidiary entities companies that wish to expand operations into the United States, Employment and establish United States subsidiaries. Contracts• This presentation does not constitute legal advice or counsel, and you Intellectual Property Protection should consult a legal professional about the matters contemplated Privacy herein. Immigration
    15. 15. VolunteersSAM TOM
    16. 16. Methods of Doing Businessin the United States Acquisition Direct sales to US customers Agency/Distributors/Resellers Subsidiaries/Joint ventures
    17. 17. SubsidiaryEntity Formation Corporate ChoicesWhat type of entity should I establish?• Sam, owner of XYZ UK Company, wants to expand her UK- based business into the USA.• She recalls her US friends chose LLCs when they started their own businesses.• Sam forms an LLC named XYZ US Company, with XYZ UK Company being the sole owner.• Tax time comes around and Sam’s US accountant tells her that XYZ UK Company must file US income tax returns.• Sam is surprised and asks why XYZ US Company is not the entity filing the returns.
    18. 18. Subsidiary Entity/US Branch Subsidiary Subsidiary corporation LLC Subsidiary US Branchpartnership entity
    19. 19. Subsidiary Entity: Corporations and LLCsSimilarities/Differences• Liability• Taxation• Tax Return FilingCorporate Governance• Piercing the corporate veilImmigration Visa Purposes• Ownership percentage affects visa eligibility
    20. 20. Subsidiary CorporationsShareholders, directors & officersTaxesPersonal liability of owners & officers
    21. 21. Shareholders, Directors and Officers Shareholders • Owners Directors • Appointed and removed by shareholders • Responsible for overall management • Do not need to be US citizens or residents  Officers • President/CEO, VP/COO, Secretary, Treasurer/CFO, CTO, CIO, etc. • Appointed and removed by directors • Responsible for day-to-day management • President/VP typically sign contracts (but other officers may do so) • Do not need to be US citizens or residents 
    22. 22. Taxes (New York example) •15% on the first $50,000 •25% on the next $25,000 •34% on the next $25,000Federal Corporate •39% on the next $235,000 Taxes •34% on the next $9,665,000 •35% on the next $5,000,000 •38% on the next $3,333,333 •35% thereafter New York State •Generally 7.1% Taxes New York City •Generally 8.85% Taxes • Company must withhold income taxes from employees’ paychecks • Company must pay federal unemployment tax (FUTA) (6.0% of the first $7,000 or less based on experience) • Must pay employer’s share of the Social Security tax and the Medicare Payroll Taxes tax and withhold employee’s share (each: 7.65% on the first $113,700 (for Social Security and Medicare), 1.45% on the excess (for Medicare only)) • Must withhold employee’s federal, state, and local income taxes
    23. 23. Personal Liability: Shareholders Generally, shareholders are not personally liable for a corporation’s obligations. Potential exceptions:  Sales tax obligations  10 largest shareholders of a NY corporation can be held personally liable for the wages of the company’s employees  A creditor may hold shareholders liable for the acts of the corporation (“piercing the corporate veil”) if:  The company has been used to commit fraud, or  The company is the mere instrumentality or alter ego or agent of its owners
    24. 24. Personal Liability: Directors and Officers• Generally, directors and officers owe fiduciary duties to only shareholders, not creditors, of a company.• Personal liability to the company or its stockholders for breach of fiduciary duty can be eliminated in the Certificate of Incorporation with certain exceptions (breach of duty of loyalty, intentional misconduct, bad faith, knowing violation of law).• If the company becomes insolvent, directors and officers have a fiduciary duty to protect the interests of the company as a whole, including its creditors.
    25. 25. Subsidiary Limited Liability Companies Members and managers Taxes
    26. 26. Members and Managers• Members (Owners) – Can manage the LLC (a “member-managed LLC”) or be passive investors (a “manager-managed LLC”) – Have limited liability, unless the “corporate veil” is pierced• Managers – Can be the same as or different from the members – Appointed and removed by members – Do not need to be US citizens or residents 
    27. 27. Taxes (New York example) • LLCs with multiple members are taxed as partnerships by default (single-member LLCs are ignored here for tax purposes). • A partnership is a pass-through entity; General partners (members), not theInformation partnership, are subject to taxation. • In New York, each LLC member will file federal, state, and city income tax returns reflecting its respective share of the LLC income. • Even though an LLC does not bear any New York federal or state “entity” taxes, it may be City Taxes subject to City unincorporated business tax (in NYC, it’s 4%).
    28. 28. Subsidiary Entity Formation State Your BusinessIn what state will the company be formed/doingbusiness?• Tom, owner of ABC UK Company, wants to expand the business into the USA.• Having heard that the State of Delaware is “where companies want to be,” Tom sets up a subsidiary company, ABC US Company, in Delaware.• ABC US Company establishes its office and operations in New York City.• Business is going well, but one day ABC US Company is forced to sue a client who has not paid.• During the litigation, the nonpaying client argues that ABC US Company should not be permitted to litigate in a NY court because it is not a NY company and it has not obtained authorization to do business in NYS.
    29. 29. Formation/Qualifying to do Business Selecting jurisdiction (State of formation)  Laws of the State govern the corporate aspects of the company.  Laws of the State in which the company “does business” govern state taxation. Domestic Registration/Formation  File “Certificate of Incorporation” or “Articles of Organization” in the jurisdiction. Foreign Qualification  State laws vary on when you must apply for authority to do business in the State.  The qualifying process is comparable to the process of forming a US company in terms of time and cost.  Branches should also qualify.
    30. 30. EmploymentArrangementsProtecting Assets: Restrictive covenantsDiscrimination
    31. 31. Employment Choosing to be Independent—Control!What issues should my company consider when we’rehiring workers?• Remember Tom?• Tom’s company is now fully operational and has a number of full-time employees.• In the third month, a big project comes in that requires additional staffing. Tom hires a worker as an independent contractor to work on the one project. The worker is permitted to work remotely using her own computer, but is asked to work during normal business hours to facilitate communications with team members.• The project ends and the worker has been fully paid for her services.• A few weeks later, Tom receives a notice from the State indicating that the worker filed a claim for unemployment insurance benefits and named Tom’s company as her most recent employer.
    32. 32. Employment At-will arrangement Independent Contractor (or Employee)?  It’s all about CONTROL!  (time, place, manner)  Fact-specific determination, various factors  Test varies across States and agencies  Misclassification can lead to significant exposure and liability  Back taxes, interest, penalties  Unpaid overtime claims  Minimum wage  Benefits  Unemployment  Etc.
    33. 33. EmploymentIt’s a Sign When Your Assignment Agreements Don’t Assign Have non-employees (e.g., ICs) developed software under a “work-for-hire” agreement? • Tom’s company is working with a US software developer and enters into a work-for-hire agreement that purports to transfer all rights in the developed software to Tom’s company. • During its due diligence, counsel for a VC investor expresses concern that Tom’s company actually doesn’t own the developed software because the software was not expressly assigned by the developer.
    34. 34. Employment Protecting Your AssetsHave employees entered into confidentiality andinvention assignment agreements?• One of Tom’s first employees helped to develop the core software products sold by Tom’s company. The employee never signed an agreement assigning her IP rights to the company.• The employee has left Tom’s company to work for a competitor.• The competitor begins marketing similar software.
    35. 35. Employment Contracts/Equity Compensation Documents  Confidentiality  Restrictive covenants  Equity awards General Employer Requirements/Concerns  Myriad of technical rules—state-specific  Discrimination  Wages, health insurance, benefits, tax withholding  Payroll company  Benefits vendors
    36. 36. Restrictive covenants• Subject to law of State of employment• Generally must be reasonable in scope, geography and duration; cannot overreach• Facts and circumstances• Types: – Non-compete • Prohibits joining/establishing competing business • Very restrictive  Non-solicitation  Prohibits soliciting customers/employees of company  May be enforceable, depending on facts and circumstances  Non-service • Prohibits providing services to customers of former employer, even if “they call you” • Compare to active solicitation
    37. 37. Discrimination• In accordance with federal, state, and local statutes, an employer cannot discriminate on the basis of: – Age – Gender – Disability – Race – Religion – Sexual Orientation (e.g., NY)• EEOC responsible for enforcing federal anti- discrimination laws
    38. 38. ContractsContracts for sale of goods/servicesReseller agreementsLicensing/Development agreementsCommercial leases
    39. 39. Selling via the InternetClick-Wrap agreementsSales tax concernsPrivacy
    40. 40. Click-Wrap Agreements IACCEPT?
    41. 41. Sales Tax Collection is Not OptionalShould my company be collecting sales taxes?• Sam’s company is selling software over the Internet.• Customers can buy CD versions or download the file.• Sam does not collect sales tax from her customers.
    42. 42. PrivacyNew Federal Trade Commission (FTC) Recommendation App developers should:  Have a privacy policy and ensure that it is easily accessible through the app stores.  Provide just-in-time disclosures and obtain affirmative express consent before collecting and sharing sensitive content, such as geo-location information (unless already provided and obtained by the platform provider).
    43. 43. PrivacyNew FTC Recommendation (cont’d) App developers should:  Improve coordination and communication with ad networks and other third party service providers, such as analytics companies, to better understand the software they use and, as a result, be able to provide accurate disclosures to consumers.  Consider participating in self-regulatory programs, trade associations, and industry organizations, which can guide them in preparing uniform, short-form privacy disclosures.
    44. 44. PrivacyPath (social networking mobile app) FTC settlement:  $ 800,000 fine  Requirement to create a comprehensive privacy program and to obtain independent privacy assessments every other year for the next 20 years for, among others, collection of children’s personal information and deceptive privacy policy.  Policy claimed that Path automatically collected only certain user information while in fact one version of the app also collected information from users’ address book.
    45. 45. Privacy New EU Data Protection Regulation (Enter into force in 2014) Fines of up to 2% of worldwide turnover for gross data protection violations Requirement to appoint a data protection officer in companies “Privacy by design”  Companies must consider privacy at the outset of designing new technologies. “Right to be forgotten”  Companies must, upon justifiable request, delete consumer personal data completely.
    46. 46. PrivacyMergers & Acquisitions – Privacy due diligence now standard – Keep privacy policies up-to-date and retain right to disclose personal information to buyers
    47. 47. LitigationLimited liabilityProduct liabilityInsurance
    48. 48. Litigation• Venue• Fee-Shifting SUED?
    49. 49. Intellectual property protectionPatent registrationTrademark registrationCopyright registrationAdvantages of registering IP
    50. 50. IP General Discussion• Intellectual Property – Patents—New and useful inventions – Copyrights—Original works of authorship (e.g., software) – Trade secrets—Confidential information, know-how and non- patented inventions – Trademarks—Brands and logos used to identify goods or services• Registration
    51. 51. IP A Challenge to My TrademarkHas a US-based service provider conducted a UStrademark search for my company’s name andother key brands?• Remember Sam? Well, her company is fully operational and has been selling products and services for several months.• One day, Sam receives a cease and desist letter from a US company that offers competing products and services using a mark that is similar (but not identical) to the mark used by Sam.• Sam asks how this could have happened. She had searched the US Patent and Trademark Office trademark database to see if the name was being used by another person and found no matches.
    52. 52. IP Owner of My Own Domain NameIs my company identified in publicly availabledomain name databases as the owner of record forall its domain names?• Tom’s company’s website operates under a domain name that was obtained for Tom by the company that hosts the website.• During its due diligence, counsel for a VC investor asks Tom to confirm that the company will continue to control its domain name if the contract with the web-hosting company terminates.
    53. 53. IP Joined at the ProfitsDoes my company jointly own IP or technologywith any other individual or entity?• Tom’s company and a US software developer entered into a joint development agreement that says that all developments will be jointly owned.• Tom’s company begins commercializing some of the developments that it was primarily responsible for creating.• Six months later, the joint development partner demands half of the proceeds of Tom’s company’s commercialization efforts.
    54. 54. IP Partner ConfidentialWhen do my company’s non-disclosure agreementsterminate?• Tom’s company is considering a strategic partnership with a US company.• Before making any disclosures, Tom makes sure that the parties enter an NDA with a one-year term limit.• Tom then discloses to the potential partner some of his company’s key proprietary processes and systems.• As business would have it, the partnership never gets off the ground.• One year later, the potential partner uses those proprietary processes and systems to compete with Tom’s company.
    55. 55. IP Confidentiality ConundrumAre the terms or existence of my company’scontracts with partners or customers confidential?• Tom’s company enters into a technology license agreement that states that the terms of the agreement are confidential and may not be disclosed to third parties.• The parties end up not being on the best of terms, and the counterparty is constantly looking for a way out.• During its due diligence, counsel for a VC investor expresses concern that Tom’s disclosure of the license agreement in the diligence process constitutes a breach and that the other party can now terminate the agreement.
    56. 56. IP IndemnificationHas my company agreed to indemnify partners orcustomers for IP infringement claims resulting fromtheir infringing actions?• Tom licenses his company’s software in object code form to a US licensee that intends to combine it with its own internally developed software and market the combined product.• In the license agreement, Tom’s company agrees to indemnify the licensee for third-party infringement claims arising in connection with the licensee’s use of Tom’s company’s software.• Years later the licensee is sued for infringement in connection with its distribution of the combined product and looks to Tom’s company for indemnification.
    57. 57. IP EscrowFor escrowed source code to which my companyhas obtained a license, when does the licensebecome effective?• Tom’s company licenses software from a US licensor and requires the licensor to put the source code in escrow to ensure access in case the licensor files for bankruptcy.• The license agreement states that the license to use the source code becomes effective only after the licensor’s bankruptcy.• After bankruptcy filings are made, the debtor/licensor’s trustee argues that the license is ineffective as an impermissible transfer of rights from a bankrupt entity.
    58. 58. ImmigrationESTA Program (Visa Waiver)Work Visas: L-1, E-1, E-2, H-1BPermanent Residence (Green Cards)Comprehensive Immigration Reform
    59. 59. Visa Waiver ProgramESTA Program (Visa Waiver) – When – How Long – Restrictions – Timing to change to a work visa
    60. 60. Work Visa: L-1L-1 Intra-Company Transferee Visa  Organizations which qualify  Employees who qualify  New Office L-1s  Process  Duration  Derivative Beneficiaries (Spouses/Children)  Spousal Work Authorization
    61. 61. Work Visa: E-1, E-2E-1 Treaty Trader & E-2 Treaty Investor Visas  Companies which qualify  Employees who qualify  Process  Duration  Derivative Beneficiaries (Spouses/Children)  Spousal Work Authorization
    62. 62. Work Visa: H-1BH-1B Specialty/ Professional Occupation Visa  Annual Quota  Position requirements/Academic credentials  Wage Requirements  Process  Duration  Derivative Beneficiaries (Spouses/Children)  Trends—Self Sponsorship
    63. 63. Permanent ResidencePermanent Residence (Green Card)  Employment-based categories  Current backlogs  Tax Issues—Worldwide Income
    64. 64. Immigration ReformComprehensive Immigration Reform  New Opportunities for Entrepreneurs
    65. 65. Any questions? Contact us.Allan J.P. Rooney Emre OzguRooney P.C. Barst Mukamal & Kleiner LLP800 Third Avenue 2 Park AvenueNew York, NY 10022 New York, NY 10016(212) 545-8022 (212) eozgu@bmkllp.comThis presentation does not constitute legal advice or counsel, and you should consult a legalprofessional about the matters contemplated herein. This presentation is for discussion purposesonly and in no way purports to constitute exhaustive legal advice on doing business in the UnitedStates. There is no attorney-client relationship between the reader or his company and this law firmunless expressly created and governed by a retainer agreement. © Rooney P.C. P.C. 2013 © Rooney
    66. 66. Doing Business in the USA@ SXSW 2013 Lunch! Sorry, no food or drink in the chamber, pretty please. Lunch & refreshments courtesy of our friends at67 #doingbiz
    67. 67. Doing Business in the USA@ SXSW 2013 Shifting Units & Making Noise: Sales & Marketing in the US Toby Daniels (@tobyd)CrowdCentric/ Social Media week GemmaCraven (@gemsie) Executive Vice President, Ogilvy SaidahNash Carter, Vice President, Thomson Reuters Todd Greene (@Id8tion) VP Marketing, Media Temple Lunch & refreshments courtesy of68 #doingbiz
    68. 68. Doing Business in the USA@ SXSW 2013 Show Me The Money: VCs, Angels & Investment Ned Hill (@NedHill) Managing Director, DFJ Mercury Jason Seats (@seats) Managing Director, TechStars Ben Metcalfe (@dotBen) Co-Founder, WP Engine Lunch & refreshments courtesy of69 #doingbiz
    69. 69. Doing Business in the USA@ SXSW 2013 Tales from the Trenches: Case Studies Jules Ehrhardt (@ezyjules) CEO, ustwo DragosIlinca (@dragosilinca) Co-founder, UberVU Jess Butcher (@jessbutcher) CMO & Founding Director, Blippar Joe Braidwood (@joebraidwood) CMO, Swiftkey Sam Michel (@toodlepip)Founder, Chinwag Lunch & refreshments courtesy of70 #doingbiz
    70. 70. Doing Business in the USA@ SXSW 2013 Networking Drinks Kindly supported by Malaga Tapas & Bar, 440 West 2nd Street Right around the corner Lunch & refreshments courtesy of71 #doingbiz