Cecily Zamora
Foreign companies operating in the United States are subject to US law in some instances. Foreign companies can establish unincorporated branches in the US, in which case, legal liability flows through to the parent corporation. However, most foreign companies choose to organize under a formal US entity arrangement due to potential tax and legal advantages. Foreign companies doing business in the US must be registered as a foreign corporation in the place of business and are subject to tax requirements such as paying state taxes. In general, if a foreign company is doing business in the US, it is likely subject to the jurisdiction of US courts and can be sued in the US. For example, a foreign company that sells a product in the US that causes injury or death could face a consumer lawsuit or regulatory action. US companies doing business abroad must also comply with local laws and regulations, particularly with regard to taxes, personnel, and financial regulations.
Can foreign companies be governed by US law?
| Characteristics | Values |
|---|---|
| Foreign companies sued in US courts | Foreign companies can be sued in US courts if they have sufficient contacts with a US state. |
| US law and foreign companies | US law does not always apply to foreign companies' activities outside the US, but it can in specific cases, such as human rights violations or international treaties. |
| US companies operating abroad | US companies operating abroad must comply with local laws and regulations, including financial and tax regulations, and are subject to local penalties if they breach the law. |
| Hiring practices | US companies operating abroad must navigate the differences in hiring laws, especially regarding discrimination based on race, gender, or sexual orientation. |
| Tax implications | Foreign companies operating in the US may be subject to tax requirements, such as state taxes, and may benefit from specific entity arrangements for tax purposes. |
| Legal structure | Foreign companies can establish unincorporated branches in the US, with liability flowing to the parent corporation, or choose formal entity arrangements like holding companies or joint ventures. |
| Litigation considerations | US litigation is often public and expansive, with potential exposure to the press and high costs. Foreign companies must consider the jurisdiction of US courts and the possibility of being named as defendants in legal proceedings. |
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What You'll Learn
Foreign companies and US courts
Foreign companies doing business in the United States are likely subject to the jurisdiction of one or more US courts. This means that they can be sued in US courts, particularly if they have a physical presence in the country, such as a corporate office.
US courts can hear claims related to activities within the state in which they preside (specific jurisdiction). If the state has a "long-arm statute", US courts may also hear claims related to activities outside the state that caused harm within the state. For example, if a foreign company sells a product in the US that causes injury or death, that company could face a consumer lawsuit or regulatory action.
However, US law does not always apply to activity that occurs outside the United States. For instance, in 2018, the US Supreme Court held that the Alien Tort Statute, which permits foreign citizens to bring claims in US courts for violations of human rights or international treaties, does not apply to foreign corporations. Similarly, US courts have refused to apply US law to cases concerning securities traded on foreign exchanges and overseas conduct by foreign defendants.
Foreign companies doing business in the US must also comply with registration requirements. All 50 states and the District of Columbia have enacted registration statutes requiring foreign corporations to register and appoint an in-state agent for service of process. Failure to follow specific rules regarding foreign corporations, such as adequate registration, can lead to penalties, including fines or injunctions preventing the corporation from conducting further business in that state.
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Foreign companies in the US
To mitigate legal risks, foreign companies should familiarise themselves with the basics of the US legal system and the legal environment in which they operate. This includes understanding the potential for public scrutiny, as court filings and lawsuits in the US are typically public information. Additionally, foreign companies should be aware of the impact of US laws and regulations on their business structure and operations. For instance, foreign-owned businesses in the US often establish themselves as limited liability companies (LLCs) or holding companies to take advantage of tax benefits and limit personal liability.
It is important to note that US laws and regulations can vary significantly from those in other countries, and conflicts may arise, especially regarding personnel issues and discrimination laws. US companies operating abroad must comply with local laws and regulations, including financial and tax regulations, and may be subject to penalties for any breaches. Therefore, foreign companies expanding into the US market should thoroughly research and understand the applicable laws and regulations to ensure compliance and mitigate potential legal issues.
In addition, foreign companies in the US should be aware of the reporting requirements related to financial crimes, international business relationships, and transactions with certain individuals or entities designated as "Specially Designated Nationals" (SDNs). These requirements are administered and enforced by the Treasury Department and other regulatory bodies to maintain national security, foreign policy, and economic stability. Overall, foreign companies operating in the US must navigate a complex legal landscape by understanding the interplay between US laws, state laws, and their own home country's laws to ensure compliance and minimise legal exposure.
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US companies abroad
US companies operating abroad are subject to the laws of the countries in which they are based. However, in some cases, they may also be subject to US law. For example, a US company operating in a foreign country may be required to report certain financial information to the US government, such as financial accounts in a foreign country that exceed $10,000. US companies abroad must also comply with economic and trade sanctions administered by the US, which may include comprehensive embargoes or targeted sanctions. US companies are also prohibited from certain transactions or dealings with persons or entities designated as "Specially Designated Nationals" (SDNs).
On the other hand, foreign companies operating within the US may also be subject to US law. For example, a foreign company selling a product in the US that causes injury or death may face a consumer lawsuit or regulatory action. Similarly, a company listed on a foreign stock exchange that sells American depositary receipts in the US could be held liable for violations of US securities laws. Foreign companies may also be subject to US jurisdiction based on consent.
It is important to note that the applicability of US law to US companies abroad and foreign companies operating in the US can be complex and may require a careful examination of the specific facts and circumstances involved. Additionally, the nature of a corporation (foreign or domestic) can impact its organization, such as the requirement to be registered as a foreign corporation in the place of business. Failure to follow specific rules regarding foreign corporations, such as adequate registration, can lead to penalties, including fines or injunctions.
For individuals seeking to work for a US company abroad, there are several options. One common way is to get hired by a US company in the US and then transfer to an international office after establishing oneself within the company. Another option is to apply directly to a US company's overseas office, although this may require a work visa and highly skilled qualifications. A third option is to intern for a US company at an overseas location, which can provide valuable experience and boost one's resume.
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US tax law
Foreign companies can be governed by US law in certain situations. For example, a foreign company selling products in the US that cause injury or death may face consumer lawsuits or regulatory action. Similarly, a company listed on a foreign stock exchange that sells American depositary receipts or similar instruments in the US could be held liable for violations of US securities laws.
The determination of whether a foreign corporation has a US trade or business is based on the relevant facts and circumstances. The activities must be 'considerable, continuous, and regular', and this determination can be made even if the activities are carried out indirectly through an agent or representative. Income earned by a foreign corporation that is not effectively connected with a US trade or business is taxed at a flat rate of 30% without any deductions.
US citizens with foreign business interests must also comply with various reporting requirements. For example, a US citizen who is the single owner of a "disregarded entity" foreign limited liability company generally needs to file Form 8858. If a US citizen is involved with a foreign trust, they may need to file Form 3520, and the foreign trust may need to file Form 3520-A. Additionally, US taxpayers holding financial assets outside the country must report those assets to the IRS under the Foreign Account Tax Compliance Act (FATCA).
It is important for foreign companies doing business in the US to understand the US legal system and environment to minimise their exposure to litigation and ensure compliance with applicable laws and regulations.
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US companies and foreign law conflicts
US companies operating abroad and foreign companies operating in the US must navigate complex legal landscapes. Both categories of companies must be aware of the laws of the countries in which they operate and the potential for conflicts between their home country's laws and the laws of the countries in which they operate.
US companies operating in foreign jurisdictions may be subject to the laws of those jurisdictions. US courts routinely apply the laws of other jurisdictions, particularly when the jurisdiction is another US state. In such cases, the court will read the statutes and caselaw of the other state. US courts can also apply the contract law of a common-law jurisdiction like England and Wales, as the source material will be in English and the legal principles will be familiar. However, things become more difficult when the governing contract law is that of a non-English-speaking, non-common-law jurisdiction. In such cases, the court will rely on treatises and translations, as well as expert witnesses.
US companies operating abroad must also be aware of US laws that apply extraterritorially. For example, the Treasury Department publishes a quarterly list of "boycotting countries", and IRS regulations require US taxpayers to report services performed in, with, or related to these countries. OFAC also prohibits certain transactions or dealings with persons or entities designated as "Specially Designated Nationals" (SDNs), and BIS maintains separate lists of individuals and entities with which US companies may not engage.
Foreign companies operating in the US may be subject to US laws and litigation. If a foreign company has continuous and systematic contacts in a US state, courts in that state may have the power to hear almost any claim against that company. Even if a foreign company's contacts with a state are more minimal, courts in that state may still hear claims related to activities within that state, and if the state has a "long-arm statute", claims related to activities outside the state that caused harm within the state. For example, a foreign company that sells a product in the US that causes injury or death could face a consumer lawsuit or regulatory action. Foreign companies may also be subject to US jurisdiction based on consent.
Foreign companies operating in the US must understand the basics of the US legal system and legal environment. Lawsuits in the US begin upon "service" of a complaint, and court filings are typically public documents. Civil litigation is rarely kept from the public eye, and the press often reports on major new cases before the defendant has formally responded to the asserted claims. Foreign companies must also be aware of the procedures for being served with court papers, which may depend on the Hague Service Convention.
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Frequently asked questions
Foreign companies can be sued in US courts if they have a physical presence in the US, if there is an international treaty in place, or if the laws of their home country allow it. US courts have been increasingly limiting the application of general jurisdiction to foreign defendants. However, if a foreign company is doing business in the US, it is likely subject to the jurisdiction of US courts.
US law does not typically apply to activity that occurs outside the US. However, the Alien Tort Statute permits foreign citizens to bring claims in US courts for violations of human rights or international treaties, even if the violation took place outside the US.
US companies doing business abroad must comply with local laws and regulations, including financial and personnel regulations. They are subject to the penalties applied to local citizens if laws are breached and do not enjoy diplomatic immunity.
