Setting Up the Business Entity in the U.S.



Formation of a business entity in the U.S. is done at the state rather than the national level.  Thus, the parent company chooses its state of incorporation and the type of entity it wishes.  Most U.S. subsidiaries are incorporated as corporations, although there is a trend to form the subsidiaries as limited liability companies for reasons discussed below.  If there is no particular state where the operations of the subsidiary will be centered, then Delaware is the usual state of formation for the subsidiary.  Delaware offers ease of formation, favorable tax treatment (there is a privilege tax -- known as a franchise tax -- assessed each year based on a notion known as par value; these taxes are quite manageable and for small subsidiaries with insubstantial assets is usually $100- $200 per year), a business-friendly environment, and a business-savvy court systems that understands the realities of operating a business.  Delaware does have a state corporate income tax based solely on taxable income derived from business activities in the state of Delaware.  Thus, for most corporations, the Delaware state income tax will not apply to them because few if any of their operations will involve Delaware-based activities. 

 
If most of the business activities of the U.S. entity will be centered in one state, it is often desirable to just establish the U.S. business entity in that state.  You should discuss this alternative with your U.S. based corporate attorney.