Setting Up a US Subsidiary: What to Know Before You Open an Inc

The excitement of the American flag

There is a moment in the life of every growing company when someone says "let's open an Inc in Delaware." It sounds serious, grown-up, American. Suddenly you are an international company with a US presence. The accountant is excited, the lawyer is excited, and everyone forgets to ask the important question: what for.

Setting up a US subsidiary is a tool, not a goal. It solves certain problems and creates certain costs. If you open one without a problem it solves, you are left with only the costs.

When you actually need a subsidiary

A US subsidiary makes sense when at least one of these is true:

• Customers require it. There are industries, especially large enterprises and government, that simply will not sign a contract with a foreign entity. They want to pay an American company, in dollars, on American terms.
• You are hiring people in the US. To legally employ local salespeople, you need a local entity.
• Tax and structure. Sometimes there is a tax or legal reason to hold the US activity in a separate entity. That is a conversation for your accountant, not me.
• Credibility with customers. A US address, a local phone number and a local entity lower the friction with a buyer who is wary of working with a distant company.

The common mistake: opening before there are sales

The mistake I see again and again is opening a subsidiary as the first step into the market, before there is even one customer. The company invests in setup, in accountants, in lawyers, in an address, in a bank, and then discovers it still does not know how to sell in the US. Now you have an American entity bleeding costs with no revenue.

The right order is the opposite. First prove you can sell in the US market, even through the home entity, even on the first deals only. Once there is a sales motion that works, the subsidiary turns from a gamble into infrastructure that serves real growth.

What to do before you open an entity

Before you invest in a subsidiary, make sure you have answers to these:

1. Who exactly is your US customer, and why do they buy.
2. Have you already closed deals in the US market, even early ones.
3. What pricing works in the US, not in your home market.
4. Who owns sales there, and what is their experience in that market.

If you do not have answers, a subsidiary will not solve it. It will only add cost to a problem you have not yet solved.

The bottom line

Setting up a US subsidiary is the right move, at the right time, for the right reason. The right time is after you have proven you can sell there, not before. Build the sales engine first, then wrap it in the right entity. Whoever does it backwards pays twice.

If you are unsure whether you are at the right stage, let's talk. I help companies sell in the US hands-on, and build the infrastructure in the right order.

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