For many international companies, acquiring a U.S. business is much more than simply entering a new market. Acquisition can provide immediate access to established customers, distribution channels, technology, or local talent. This helps address specific strategic needs that are difficult or time-consuming to build from scratch.
Expanding into the United States is a common goal for many international companies. One of the most effective ways to establish a presence in the U.S. market is to acquire an existing U.S. company. However, for non-U.S. businesses, the process involves several structural and legal considerations that may differ from those in their home jurisdictions.
Below are some key steps and considerations to keep in mind when pursuing a U.S. acquisition.
Step 1: Acquiring a U.S. Business: Forming a U.S. Subsidiary
One of the first steps for a non-U.S. company planning to acquire a U.S. business is forming a U.S. subsidiary. This newly created entity typically acts as the acquiring company in the transaction.
Establishing a U.S. entity provides several advantages. It establishes a clear, efficient structure for completing the acquisition, managing ongoing operations, and limiting liability.
In addition, the subsidiary can serve as the operational foundation for growth and commercial relationships in the United States.
Most foreign-owned U.S. subsidiaries elect to be taxed as a C-corporation, which is the standard corporate tax structure for many U.S. businesses.
Choosing a C-Corp structure often works well for cross-border ownership because it helps keep the foreign parent company mostly outside the U.S. tax system. This can make it easier to repatriate profits, reduce the risk of double taxation, and simplify your reporting obligations.
Because of these benefits, it is generally advisable to have the U.S. subsidiary formed and properly documented before beginning negotiations with the target company.
Step 2: Expect a Structured Acquisition Process with a U.S. Entity Purchase
Once the U.S. entity is in place, the acquisition process itself will feel familiar to most business buyers. The typical steps often include:
- Negotiating a letter of intent (LOI)
- Conducting due diligence
- Negotiating the purchase agreement
- Finalizing the closing process
However, one area that frequently surprises international buyers is the depth and formality of U.S. due diligence.
U.S. transactions tend to involve extensive documentation and verification, particularly when reviewing:
- Employment matters
- Tax compliance
- Intellectual property ownership
Compared with other jurisdictions, U.S. due diligence often emphasizes thorough documentation and written records.
Step 3: How Does U.S. Employment Law Differ from Other Countries?
Another area where foreign buyers often encounter surprises is U.S. employment law.
In the United States, most employment relationships are considered “at-will.” This means employees can be terminated for any lawful reason, and employers are not typically required to provide advance notice or severance pay unless a contract or company policy states otherwise.
At the same time, senior executives and key employees often have detailed employment or offer agreements that outline:
- Salary and bonus structures
- Equity or stock option grants
- Change-of-control protections
- Severance arrangements
- Non-compete or non-solicitation obligations (where enforceable)
For companies accustomed to different employment frameworks abroad, this level of contractual detail may seem extensive, but it is standard practice in the U.S. market.
Summary for International Buyers
For non-U.S. companies considering a U.S. acquisition, a few foundational steps can help make the process smoother:
- Form a U.S. subsidiary, typically taxed as a C-corporation, to act as the buyer.
- Prepare for a structured and documentation-heavy acquisition process, particularly during due diligence.
- Understand U.S. employment and executive compensation practices, which may differ significantly from international norms.
Entering the U.S. market through an acquisition can be an effective strategy for global growth. By establishing the right structure and understanding the legal landscape early in the process, foreign buyers can reduce risk and position themselves for a successful expansion.
If you are interested in exploring M&A contracts and related items, connect with Richards Rodriguez & Skeith.
