Before setting a real presence of the company in the US, a company has to consider if it worths it. They have to consider the cost of the presence as the cost of HR, staff, offices, insurances, consultants, compliance, the product liability and the approach to the market, the Law, distances, consumers’ habits and if there’s a different language. A company can consider different entry strategies and different organizational models.

1. THE COMMERCIAL DISTRIBUTION IN THE US MARKET
Despite facing challenges at the domestic level along with a rapidly transforming global landscape, the U.S. economy is
still the largest and most important in the world. The U.S. economy represents about 20% of total global output, and is
still larger than that of China. Moreover, according to the IMF, the U.S. has the sixth highest per capita GDP (PPP). The
U.S. economy features a highly-developed and technologically-advanced services sector, which accounts for about
80% of its output. The U.S. economy is dominated by services-oriented companies in areas such as technology,
financial services, healthcare and retail. Large U.S. corporations also play a major role on the global stage, with more
than a fifth of companies on the Fortune Global 500 coming from the United States.
Even though the services sector is the main engine of the economy, the U.S. also has an important manufacturing
base, which represents roughly 15% of output. The U.S. is the second largest manufacturer in the world and a leader
in higher-value industries such as automobiles, aerospace, machinery, telecommunications and chemicals.
Meanwhile, agriculture represents less than 2% of output. However, large amounts of arable land, advanced farming
technology and generous government subsidies make the U.S. a net exporter of food and the largest agricultural
exporting country in the world.
The U.S. is the 2nd leading exporter of goods and services in the world and the number one leading importer The U.S.
has consistently run a trade deficit, mainly due to the dependence on foreign oil to meet its energy needs and high
domestic demand for consumer goods produced abroad, however thanks to advances in domestic oil production, the
energy gap is closing. The main trading partners of the U.S. are Canada, China, Mexico and Japan. Canada is the main
destination for U.S. exports, whereas China is the main source of imports.

2. Before setting a real presence of the company in the US a company has to consider if it worths it. They have to
consider the cost of the presence as the cost of HR, staff, offices, insurances, consultants, compliance, the product
liability and the approach to the market, the Law, distances, consumers’ habits and if there’s a different language.
A company can consider different entry strategies and different organizational models.
About the distribution model, a company can distribute directly through a subsidiary in the US and it can be by agents
or by distributors, or directly by sales representatives or indirectly through third party distributors.
In the US a great importance is given to the written contracts. A company must consider also the brand protection,
eventual visas for the employees, the Law and the compliances to export products in the US.
Distribution models:
Distribution: a company buys the products and it earns with the mark up. In this model exists a market risk, there’s the
need of a warehouse and for these characteristics it’s an expensive model.
Agents: in this model the agents don’t buy and resell the products but they earn only a commission.
Franchise: the company has the license of the brand and it pays a “franchise fee”. There’s a control on the sales
process.
The written contracts in the US (distribution, agents, sales, joint ventures, etc) are very long due to cultural
motivations, litigation risk, freedom of bargaining, and because the Civil Code is less strict.
It is foundamental to prepare contracts to manage the following risks:
· In stores: prices, timing of payments, description of products or services, ownership, etc.
· Legal risks: warranties, compensation, dissolution, arbitration, etc.
A bound contract could be not written (verbal, purchase orders, email, correspondence).
In a contract there are fixed clauses:
1. Warranties: declared in the contract or implicit (Uniform Commercial Code, Article 2 for the trade of goods,
warranties for “merchantability” and “fitness for intended purpose”). The implicit ones are inaccurate in favor of the
buyer, often on the trade of specialized goods between merchants. They are applicable if they are not expressly
excluded (magic language).
2. Indemnification: area, restrictions, direct damages and indirect/consequential damages, lost profits.
3. Territory
4. Duration
5. Obligations of the distributors: objectives, minimum of selling, marketing, limits to distribution to authorised
retailers.
6. Resolution: predict causes which attribute rights of termination and generally the termination is required from
one part and it doesn’t give rise to compensation cause.
7. Autonomy: provide the total autonomy of the Italian Company in respect to the counterparty in order to avoid
the responsibility for act of the distributors or qualification of the counterparty as employer.
8. Antitrust: Vertical Restraints – Rule of Reason

3. How to choose the legal entity
The advantages of set up a new company (NewCo) instead of a branch in the US are that in the US the set up of a
NewCo is faster and cheaper than in Italy, there are less formalities, the disclosure is limited to the parent company
and the shareolders, there's the need of a minimal capitalization even if there’s a thin capitalization for credibility on
the market and with the Authorities. It’s important to decide where to open the New Co (Delaware vs other states).
Another aspect to consider is the kind of entity the company wants to set up: a Corporation or a Limited Liability
Company.
A Corporation is the most known legal and fiscal entity with limited liability. From the fiscal view it has a permanent
establishment and it doesn’t need to file the Income Tax Return of the parent company.
The hierarchy includes stakeholders, directors and officers and there’s also a Board of Directors (“The business and
affairs of the corporation shall be managed by, or under the direction of the Board of Directors”- Delaware GCA
Section 141a).
A Limited Liability Company has only a legal personality (“pass through”) and its consituition is more expensive but at
the same time it’s more flexible.
Distribution Agreements under US Law
(Excerpts from Chapter 19 of “International Commercial Agency and Distribution Agreements: Case Law and Contract
Clauses”, Second Edition, published on April 20, 2017 (Wolters Kluwer))
Understanding the interplay between federal and state statutory and common law in the US legal system is important
to understanding the regulation of exclusive distribution agreements in the US. Under the US Constitution all power
not specifically reserved for the federal government remains with the states. Federal law has exclusive jurisdiction
only over certain types of cases (e.g., those involving federal laws, controversies between states and cases involving
foreign governments), and share jurisdiction with the states courts in certain other areas. In the vast majority of cases,
however, state law has exclusive jurisdiction.
Furthermore, because a distributor is typically an unaffiliated third party acting on its own account rather than on
behalf of the supplier as principal, distribution agreements are subject to greater regulation under US federal and
state antitrust law. Such law, among other things, (i) regulates whether and the degree to which a supplier in a
distribution arrangement may seek in a contract or otherwise to dictate the price at which the distributor will resell
products supplied; (ii) imposes restrictions on suppliers that engage in “dual distribution”; and (iii) may limit the
suppliers’ ability to sell product to different distributors at a different price. Antitrust law also regulates exclusivity and
selective distribution arrangements, as well as distribution relationships in certain industries.
Under the law of most states (including New York), exclusive distribution exists when a supplier grants a distributor
exclusive rights to promote and sell the contract goods or services within a territory or to a specific group of

4. customers. Exclusive rights in a distribution arrangement are often granted by the supplier for the distribution of high
quality or technically complex products that require a relatively high level of expertise by the distributor, including
staff that is specially training to sell the goods or specialized after-sales repair and maintenance or other services. In
contrast to a distributor, a commercial agent does not take title to product, does not hold inventory and typically has
no contractual liability to the customer (including risk of customer non-payment). Conversely, a distributor, in line
with the greater risk of its activities, typically can expect greater upside economically in terms of margins on resale
relative to an agent’s profit through earned commissions.
Sub-distributors:
Under the law of most states (including New York), a distributor may appoint subdistributors absent any restrictions to
the contrary in the agency agreement. Commercially, the appointment of a sub-distributor may have an adverse effect
on the supplier by reducing the supplier’s control over its distribution channel activities or increasing the supplier’s
potential liability exposure given the increased number of distributors whose actions may be attributed to the
supplier.
Rights and Obligations of the Exclusive Distributor:
Sales organization: suppliers are not required to establish sales organizations in exclusive distribution agreements.
Sales’ target: there are no mandatory rules under federal law or state law (including New York) generally regarding
sales targets in exclusive distribution agreements.
Guaranteed minimum target: minimum sales requirements are common in exclusive distribution agreements. As a
commercial matter, a supplier as a requirement to give, or maintain, exclusivity with one distributor, will seek through
such requirements to ensure that economically the distributor is performing satisfactorily.
Minimum stock: there are no mandatory rules in federal law or the law of the majority of states (including New York)
regarding minimum stock. A supplier may seek to have the distributor agree, contractually, to maintain adequate
levels of stock relative to market demands as well as to store the product properly.
After-sales service: the parties to a distribution agreement are generally free to agree as they deem appropriate with
respect to after-sale service regarding products.
Resale Prices: the Exclusive Distributor is free to fix the resale prices. State law (including New York law) generally
does not limit the ability of an exclusive distributor to fix resale prices. A supplier’s ability to set resale prices for
distributors is subject to limitations under federal and state antitrust law.
Rights and Obligations of the Supplier:
Exclusive Distributor undertaking to supply: generally, state statutes do not specifically provide that a supplier in a
distribution relationship has a duty to supply specific levels of product to a distributor, with such obligations generally
be established by contractual provision. However, a supplier does have an implied covenant of good faith and fair
dealing toward the distributor under state law generally, which generally requires that a party to a commercial
agreement not do anything which injures the right of the other to receive the benefits of the agreement. Under the
foregoing, a supplier may be deemed to have an obligation to supply product to a distributor. However, even where
such a duty were found to exist, the quantity and frequency of product supply and other details often remain unclear.
Pricing Policy of the Supplier;
Retention of title: typically, in sales transactions on credit in the US, title is passed at the moment of initial sale. The
buyer typically grants the supplier a security interest in the goods purchased, which if proper perfected under state
law, affords the supplier with a priority position relative to other creditors with respect to the products provided
(inventory) in the event of non-payment and enforcement.
The supplier and distributor can allocate third-party liabilities and related attorneys fees as between themselves
through warranty and other indemnification provisions.
Exclusive-dealing provisions – under which the distributor undertakes not to distribute competing products in the
territory – are quite common in distribution agreements.

5. Commercial Agency Agreement under US Law
To understand the regulation of commercial agency agreements in the US, it is helpful to remember the interplay
between federal and state statutory and common law in the US legal system.
Commercial agency is regulated at the state level rather than by US federal law. Almost two-thirds of the US states
have adopted specific legislation for commercial agency relationships with non-employees. Most state statutes
regulating commercial agency relate to the relationship between a principal and an agent that solicits orders for the
purchase of the principal’s products, mainly in wholesale rather than retail transactions (although state law often has
special rules for agency relationships with respect to real estate transactions and insurance policies). A second,
overarching theme of note to understand the regulation of commercial agency agreements in the US is the primary
importance of the doctrine of freedom of contract under state law jurisprudence.
General Legal Provisions Applicable to Agency Agreements:
As noted, commercial agency is mostly regulated at the state level in the US State laws on agency mainly address
commissioned agency, and, where in force, is primarily aimed at ensuring that the principal timely pays the agent the
commissions that are owed by imposing liability on the principal for a multiple (often two to four times) of unpaid
commissions, as well as for reimbursement of the agent’s attorneys’ fees and costs incurred in collecting the unpaid
amount.
Formalities for the Creation of an Agency:
New York law does not impose particular formalities for the creation of an agency relationship. In fact, under New
York law, absent circumstances under which New York’s general Statute of Frauds rules apply as set forth in § 5-701 of
the General Obligations Law, parties may be deemed to be in an agency relationship even without signing an
agreement evidencing the agreement consideration or any writing which evidences their agreement. New York law
does regulate the payment of sales commissions under New York labor law. New York labor law defines a sales
representative as an independent contractor who solicits orders in New York for the wholesale purchase of a
supplier’s product or is compensated entirely or partly by commission.
Agency Elements and Purpose:
Under the law of New York and the majority of states, an “agent” is a person or entity who, by agreement with
another called the “principal,” represents the principal in dealings with third persons or transacts business, manages
some affair or does some service for the principal. The key elements of an agency are: (i) mutual consent of the
parties; (ii) the agent’s fiduciary duties, and (iii) the principal’s control over the agent. A principal may act on a
disclosed, undisclosed, or partially disclosed basis in dealing with third parties.
A defining element of agency under New York law and the law of the majority of states is the principal’s control over
the agent. Indeed, whether the principal will be bound by the agent’s acts will depend, in large part, on whether the
agent had actual or apparent authority to act on behalf of the principal. Two of the many factors taken into account in

6. determining whether such a relationship could be characterized as one of employment include whether the agent: (i)
provides the services according to her own methods and (ii) is subject to the control of the principal.
Appointment of Sub-agents:
Under New York law and the law of the majority of states, a principal may authorize an agent to appoint another
agent to act on the principal’s behalf. The second agent may be a subagent or a co-agent. A “subagent” is commonly
defined as a person appointed by an agent to perform functions that the agent has consented to perform on behalf of
the agent’s principal and for whose conduct the appointing agent is responsible to the principal.
Rights and Obligations of the Agent:
Generally, the following are the most important duties of the agent under state common law: (a). Agent must not act
outside of its express and implied authority. (b). Agent must use care, competence and diligence in acting for the
principal. (c). Agent must obey the principal’s instructions as long as they are legal. (d). Agent must avoid conduct
which will damage the principal’s business. (e). Agent must not act for an adverse party to a transaction with the
principal. (f). Agent cannot compete with the principal in the same business in which the agent acts in such capacity
for the principal without the principal’s consent. (g). Agent must provide the principal with information relevant to the
marketing of the principal’s products. (h). Agent must separate, account for and remit to the principal all collections
for the principal’s account and other property of the principal. (i). Agent must not receive compensation from any
third party in connection with transactions or actions on which the agent is acting on behalf of the principal. (j). Agent
must maintain the confidentiality of, and not misuse, the principal’s confidential information.
Rights and Obligations of the Principal:
The following are the most important duties of the principal under state common law: (a). Principals must promptly
pay terminated agents the commissions that they are owed; in most states, failure to pay can result in penalties,
including multiple-damages.
(b). Under the law of some states, an agency arrangement must be in writing, and certain formalities complied with,
for the agency arrangement to be binding.
State law generally does not contain mandatory provisions on exclusivity. Indirectly, certain rules (such as the Statute
of Frauds under New York law that requires that exclusivity provisions be in writing if they will exceed one year) may
apply. Otherwise, parties to a commercial agency arrangement generally may agree contractually on the terms of
exclusivity.
Franchise Agreements under US Law
The interplay between federal and state statutory and common law in the US legal system is important to
understanding the regulation of franchise agreements in the US. Franchise arrangements in the US are regulated at
the federal and state levels. At the federal level, franchise arrangements are regulated by the US Federal Trade
Commission (“FTC”) under the so called “FTC Franchise Rule,” while at the state level franchise arrangements are
typically regulated by state agencies. In New York, franchise arrangements are regulated by the New York Antitrust
Bureau under New York’s General Business Law. The FTC Franchise Rule applies everywhere in the US, while generally
state franchise legislation requires contact with the state.
Under the FTC Franchise Rule, a franchise exists if the following elements exist: (i) the franchisee is given the right to
distribute goods and services that bear the franchisor’s trademark, service mark, trade name, logo or other
commercial symbol; (ii) the franchisor has significant control of, or provides significance to, the franchisee’s method of

7. operation; and (iii) the franchisee is required to pay the franchisor (or an affiliate of the franchisor) at least US$USD
500 before (or within six6 months after) opening for business.
If a franchise is deemed to exist under the FTC Franchise Rule or under state law (and an exemption under such law is
unavailable), the franchisor is required to comply with requirements that generally fall into three categories:
disclosure laws, registration laws and relationship laws.
Formalities (registration, etc.):
Registration laws like disclosure laws are pre-sale laws. There is no federal registration requirement. However,
fourteen US states have registration laws (including California and New York). In the remainder of states, franchisors
that comply with the Franchise Rule’s disclosure requirements can sell in states that do not require registration
without having to file their document with any governmental authority.
Under most state registration laws, a franchisor must: (i) register in the jurisdiction before offering to sell or selling
franchises in the jurisdiction by filing its FDD (or FOP), plus various application forms with the jurisdiction’s applicable
regulatory agency, and (ii) update or renew its registration annually. As of 2016, franchise registration initial filing fees
range from USD $250 (Hawaii, Michigan, North Dakota and South Dakota) to USD$ 750 (New York).
A franchise agreement typically grants the right to operate the business using the franchisor’s marks and system at a
particular location and/or within a particular territory.
Sub-franchisee:
There are two typical structures for franchise agreements: (i) a one tier structure consisting of a franchise agreement
between a franchisor and a franchisee, or (ii) or a two-tier structure through a master franchise agreement where the
franchisor grants the right and imposes a duty on a franchisee to operate the franchise itself within a particular
territory, and to grant subfranchises to third parties within that territory.
Rights and Obligations of the Franchisee:
· Fees and Royalties: under a typical franchise arrangement the franchisee is required to pay the franchisor an up-
front franchise fee and royalties over time, in order to join the franchise network. Franchise fees can be large with a
substantial profit element, or smaller to assist the franchisee to set up the franchise in a target territory. Because a
franchise fee is a requirement under the FTC Franchise Rule and the laws of many states in order for a franchise to be
deemed to exist, there is considerable jurisprudence on the question of what is considered to be a “franchise fee” for
these purposes.
· Marketing: typically a franchisee is required by the provisions of a franchise agreement to undertake advertising
of the products in strict accordance with the franchisor’s instructions. A franchisor normally is prohibited from
carrying out advertisement and promotional activities in a manner that could harm the franchisor’s brand or is
inconsistent with the franchisor’s other advertising efforts.
· Compliance with the franchisor’s standards: maintenance of consistent appearance, operations and array of
products and services across multiple franchises is a hallmark of franchise arrangements in the US Most franchise
agreements require that franchisees strictly abide by specifications, standards and operating procedures, each of
which is built into the agreements. Given the difficulty of providing for all of these standards in a franchise agreement,
many franchise agreements afford franchisors the right periodically to modify and increase the applicable
specifications, standards (e.g., accounting) and operating procedures, usually by providing updates to the base
operating manual.
Rights and Obligations of the Franchisor:
(A) Communication of know-how: initial know-how that may be communicated from franchisor to franchisee often
relates to the specifications, standards and operating procedures that relate to the products to be sold and related
site that are built into franchise agreements, as discussed above.
(B) Ownership of improvements and modifications: franchise agreements typically contain acknowledgement by the
franchisee that the trademark (and intellectual property generally) licensed under the franchise agreement and all
related goodwill are property of the owner of the trademark (usually the franchisor). Therefore, all improvements to
such intellectual property are property of the licensor.
(C) Assistance to the benefit of the franchisee: there are no statutory obligations on the federal and state level for
initial or continuing assistance by the franchisor for the benefit of the franchisee.

8. Summary of Changes under U.S. Tax Law Affecting U.S. Subsidiaries of Non-U.S.
Manufacturing Groups
The 2017 Tax Cuts and Jobs Act (the "TCJA"), signed into law by President Trump on December 22, 2017, introduces
sweeping changes in U.S. tax law, affecting businesses of all kinds. This Practice Note focuses on a few key provisions
of the TCJA particularly relevant to non-U.S. manufacturing corporations with U.S. distribution subsidiaries. These
changes in U.S. tax law may impact these companies operate now, as well as future plans for entering the U.S.
market.
Federal Corporate Income Tax Rate:
Most significantly, the US federal corporate tax rate has permanently been reduced from 35% to 21%. In addition, the
corporate alternative minimum tax (which applied when higher than the regular corporate tax) has been repealed.
The reduction of the headline U.S. federal corporate tax rate to 21%, which is a lower rate than in many of the home
countries of non-U.S. corporations, will obviously benefit non-U.S. manufacturers with existing U.S. subsidiaries, and
may influence those who sell directly into the U.S. to consider forming US subsidiaries and expanding their U.S.
presence.
Under the TCJA, net business interest deductions are generally limited to 30% of "adjusted taxable income," which is
essentially EBITDA (taxable income plus depreciation and amortization deductions) for years 2018-2021 and EBIT
(taxable income without adding back depreciation/amortization). Disallowed interest expense is carried forward
indefinitely. Before the TCJA, interest was generally deductible when paid or accrued, subject to numerous limitations,
including debt/equity ratios and taxable income. U.S. corporations - other than small businesses (average annual
gross receipts under $25 million, on an affiliated group basis) - are subject to these limitations.
The TCJA's limitation on interest deductions are designed to protect the U.S. tax base. As a result, non-U.S.
manufactures with existing U.S. subsidiaries, and those planning to establish U.S. subsidiaries, may decide to reduce or
limit the amount of debt in their U.S. subsidiaries.
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