The Top 5 Reasons Why Canadian Businesses Should Pursue Incorporation in the US
- March 28, 2022
So you have a successful business based in Canada. You see the United States right there, filled with opportunities and clients that would benefit so much from your products. Maybe the paperwork seems overwhelming; there’s too much red tape. What if there were options to make this transition seamless? Here are our top 5 reasons why incorporation in the US can not only facilitate your market entry, but also benefit your business as a whole:
1. Reduce Product Liability
The United States present incredible business opportunities, but they are also one of the countries with the highest number of lawsuits per capita in the world. Thankfully, US incorporation provides good protection against these by adding another step between an angry client and a lawsuit against your business. The client would need to finish litigating the entity in the US before moving onto the lengthy process involved in suing a business in Canada. Rest assured, it is unlikely that your Canadian business would be held liable for a US claim.
Although this protection might not be impermeable, the amount of red tape involved in what lawyers call “piercing the corporate veil” (i.e., the act of making an individual or a person responsible for the mishandling of a corporation) or suing a parent company internationally is very unappealing and even difficult. Even if this type of lawsuit was to be pursued, the courts are very resistant to discuss it due to jurisdiction issues. Unless there has been serious misconduct, it is too expensive and time consuming to process an international enquiry after a similar lawsuit has been previously launched in the US. Not to mention, it discourages foreign trading and in most cases is entirely unnecessary.
2. Access to the US Client Base
You probably already know that prospective customers prefer buying goods from their country of origin. These purchases have lower shipping rates, faster delivery times, and support local communities in a sustainable manner. Being a US entity provides the great benefits of easy partnering with other US businesses as well as opening up a new client base. Thus, it’s crucial to be recognized by the American government and the IRS (Internal Revenue Service).
In the United States, all businesses are required to register with the IRS, who assigns them an Employer Identification Number (EIN). It is the equivalent of a Social Security Number, but for a business. While it is possible to get an EIN for your business as a foreign entity, the process is lengthy, includes a lot of paperwork, and does not provide equivalent benefits. Incorporation in the US completely erases this hurdle as it provides you with both an EIN, and a complete American presence to the US government and to your client base.
3. Open a Bank Account With a US Bank
Having a corporate American bank account provides more control over fluctuating exchange rates between the US and Canada for your business. Without your EIN and an American address, you cannot open an account with an American bank. Being able to transfer money effortlessly without international hiccups makes it much easier to deal with clients and other US business suppliers. You can also create accounts with US corporations or shipping companies. In addition, investments in the US market are available to your business. Diversifying investments across markets is important and provides financial stability.
4. Easier Transfer of Goods Across the Border
With all the paperwork, tax tracking, and shipping permits, it can be expensive and time consuming if one of these procedures goes wrong at the border. Incorporation in the US means that shipping falls under “intercompany shipping” regulations, making the whole process easier. Both Canadian and American customs look favourably at the paperwork involved in intercompany shipping. This means your goods can be shipped in larger quantities, with faster and efficient delivery times.
5. Your Business Pays Less Tax
It is possible to take advantage of the difference in Canadian and American taxes when you have a US incorporated business. You can choose in which country you prefer to present higher profits based on which has lower taxes. Let’s say you provide your goods to the incorporated company at an increased cost. This would mean there is less profit margin on those goods, and therefore lower taxes should be paid in the US. On the other hand, a Canadian entity will pay the taxes on a higher margin. This is subject to state, province, and federal tax rates, but it definitely has some appealing advantages. For further details, speak with an accountant that specializes in cross-border taxation.
Hopefully, we have provided you with enough reasons to answer the big question: Why incorporate? Incorporating your Canadian Business in the US brings down so many roadblocks to a successful expansion into the US market. Make sure you choose a trusted service so that your incorporation in the US is straightforward and painless. Good luck with your US venture!
About Business America Services
With over 20 years in operation, Business America Services (BAS) is a cross-border logistics and US order fulfillment company. Based in Swanton, Vermont, just five minutes away from the US Customs and Border Protection Highgate Springs Port of Entry, BAS provides effective solutions to small- and medium-sized Canadian businesses to improve their US operations, shorten order fulfillment deliveries and enhance their clients’ experience.
Trusted by thousands of partners, and highly rated by the Better Business Bureau, we are devoted to providing excellent service across all of our business solutions. We consider you as our partner, thus we grow when you grow!