Checklist for Entering the U.S. Market: Formation, Contracts, and Compliance Risks

Expanding into the U.S. market presents major growth opportunities for startups and tech companies, but it also comes with significant legal challenges. Failure to comply with U.S. regulations on entity formation, contracts, data protection, and employment law can result in delays, liability, and reputational damage. This post outlines key legal checkpoints to consider before launching operations in the United States.

1. Entity Formation: LLC vs. S-Corporation

The first step in entering the U.S. market is choosing the appropriate business structure. Two of the most common options for startups are the Limited Liability Company (LLC) and the S-Corporation (S-Corp).

LLC (Limited Liability Company)

• Offers flexible internal structure

• Pass-through taxation by default (no corporate income tax)

• Fewer formalities than corporations

• Ideal for early-stage businesses and foreign founders

S-Corporation

• Also pass-through taxed (no federal corporate tax)

• Requires U.S. citizens or permanent residents as shareholders

• Limits the number of shareholders to 100

• Cannot be owned by other corporations or partnerships

Can you start as an LLC and later elect to be taxed as an S-Corp?
Yes. An LLC can elect S-Corp taxation status by filing IRS Form 2553, provided it meets eligibility criteria. This flexibility allows founders to begin with the simpler LLC structure and shift later to benefit from S-Corp tax treatment (e.g., self-employment tax savings).

It's also important to consider Delaware vs. home state registration, and whether you’ll need to register as a foreign entity in states where you have operations or customers.

2. Commercial Contracts

• Draft key agreements such as distribution, reseller, and SaaS contracts

• Include U.S.-specific terms (e.g., limitation of liability, governing law, indemnification)

• Ensure compliance with UCC (Uniform Commercial Code) for sale of goods

• Consider local business customs when negotiating dispute resolution or exclusivity

3. Intellectual Property (IP) Protection

• Register U.S. trademarks, copyrights, and patents through USPTO

• Conduct clearance searches to avoid infringing existing marks

• Draft NDAs, IP assignment clauses, and employee invention agreements to secure ownership

• Consider IP holding entity structure if international

4. Data Privacy & AI Compliance

• CCPA/CPRA and other state-specific privacy laws now apply beyond California

• Implement a written Data Processing Addendum (DPA) with vendors and clients

• Prepare for incident response and breach notification obligations

• If targeting Europe later, ensure GDPR alignment from the start

• Monitor emerging AI-specific regulations, including potential federal legislation and evolving FTC guidance

5. Employment & Labor Law

• Offer letters and employment agreements must comply with at-will employment doctrine

• Observe anti-discrimination standards enforced by EEOC

• Independent contractor vs. employee classification must follow IRS and DOL tests

• Include proper wage/hour practices, benefits notices, and I-9 verification

6. Taxation & Compliance

• U.S. businesses must comply with federal, state, and local tax obligations

• Understand FATCA reporting, sales/use tax nexus, and state franchise taxes

• Consider transfer pricing rules if operating internationally

• Engage a CPA familiar with cross-border tax planning

• Ensure TIN/EIN is issued promptly via IRS for banking and compliance

7. Industry-Specific Regulations

• Fintech: SEC, FINRA, and state licensing laws (e.g., money transmitter license)

• Healthcare: HIPAA compliance, FDA device/drug regulations

• AI/Tech: Export control restrictions, FTC compliance, and algorithm transparency

• Check if your product requires FDA approval, CE marking, or other certifications

Practical Examples

• Startup A formed a Delaware LLC but did not file an EIN or register in California, delaying client onboarding.

• Company B neglected to file Form 2553 for S-Corp election in time, losing tax advantages for the first year.

• Startup C collected customer emails without a privacy policy, triggering complaints under California privacy law.

Questions about U.S. entity formation?

If you're preparing to enter the U.S. market and want guidance on choosing between an LLC and an S-Corp, or forming a compliant legal foundation, feel free to reach out to: sc@lexsoy.com