Generally, when a foreign client starts a new business in the U.S., we form a new corporation for both business and legal reasons. Recently, however, I had an interesting experience helping a foreign client set up a branch office without forming a new legal entity.
The client acknowledged the benefits of a new corporation. However, procedural issues for the client (located in Southeast Asia), would result in the necessary approvals taking too long. As a result, the client asked that I first provide help setting up a branch office in Silicon Valley. That branch office later would be used by a new California corporation that we would form.
Definition of Branch Office
The problem was that there is no standard definition of what constitutes a branch office! We decided to take the following steps:
- The client rented a virtual office from Regus.
- I obtained an Employer Identification Number (EIN) for the client.
- I obtained a business license for the client.
- I qualified the foreign client to do business in California.
Challenges Concerning Qualification (Step 4)
California requires that the Statement and Designation by Foreign Corporation be accompanied by a Certificate of Good Standing (CGS) from the jurisdiction where the foreign entity was formed.
The first challenge was that the client’s jurisdiction was not familiar with the concept of a CGS. However, the national tax authority ultimately was able to issue a satisfactory document.
The second challenge was that California does not specify formalities for the translation of the CGS into English. Some states, for example, require that a translation be “certified” or “under oath”. My filing service had to inquire at the Secretary of State, which said that only the name of the translator is required.
In summary, because a branch office is not a legally-defined entity, setting one up requires some effort to determine and implement the features that the branch office should have.
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.