Published On: April 4, 2026
Category: Business Formation
The United States remains one of the largest and most attractive markets for international business expansion. For many German companies, entering the U.S. market is a natural next step.
In addition to strong consumer demand, the U.S.—and Colorado in particular—offers advantages such as competitive energy costs and access to a skilled workforce. These factors make it an appealing location for German manufacturers and other businesses establishing U.S. operations. These key considerations for German companies doing business in the United States include the appropriate business structure, the information required to form a U.S. entity, and basic employment issues.
Choosing the Right U.S. Business Entity: Corporation vs. LLC
When expanding into the United States, German companies typically form a U.S. subsidiary as either a corporation or a limited liability company (LLC). Each structure offers limited liability, but they differ in taxation, ownership, and administrative requirements.
Corporation Structure for U.S. Operations
A corporation is a separate legal entity owned by shareholders, similar to a German Aktiengesellschaft. Ownership is represented by shares, and the corporation itself is responsible for filing its own tax returns and paying corporate income taxes.
Because the corporation is taxed at the entity level, and shareholders are taxed again on dividends, this structure may result in double taxation. However, shareholder liability is generally limited to the amount invested in the company.
Corporations are commonly used by foreign parent companies because they separate the U.S. entity’s tax obligations from those of the parent company.
Limited Liability Company (LLC) Structure
An LLC combines limited liability with “flow-through” taxation. Instead of shareholders, an LLC has members who hold ownership interests in the company.
In most cases, the LLC itself does not pay federal or state income taxes. Instead, profits and losses pass through to the members, who report them on their own tax returns. While the LLC may still be required to file informational returns, the tax burden generally falls on the owners.
Like corporate shareholders, LLC members are typically not personally liable for the company’s debts or obligations.
Tax Considerations for German Parent Companies
Although both entities offer limited liability, tax treatment is often the deciding factor for German companies.
If a German parent company owns an LLC, it may be required to file a U.S. tax return and pay U.S. taxes on income connected to U.S. business activities. This can create additional reporting obligations, including the need to disclose certain foreign-source income to the Internal Revenue Service (IRS).
These requirements can increase administrative complexity and may expose the parent company to a broader risk of IRS review.
Why Many German Companies Choose Corporations
For these reasons, many German companies choose to operate through a U.S. corporation rather than an LLC. A corporation files and pays its own taxes, thereby limiting the parent company’s direct involvement in U.S. tax filings.
This structure can simplify compliance and reduce the likelihood that the parent company will be subject to U.S. tax reporting and audit exposure.
Consult a Tax Advisor Before Choosing a Structure
The choice between a corporation and an LLC depends on your company’s specific tax and business objectives. You should consult with qualified U.S. and German tax advisors before making a decision to ensure your structure aligns with your overall compliance strategy.
What is a Delaware Corporation?
All corporations must be formed in one of the U.S.’s 50 states. The state in which the entity is incorporated or formed need not be the state where its offices or headquarters will be located.
Each of the 50 states has its own statutes (the Corporation Code) that govern corporations. Most states’ Corporation Codes are based on Delaware’s, which was the first state to enact a comprehensive corporation code. Hence, the corporate codes of each state are substantially similar to those of other states. There is no federal law governing corporations.
Advantages and Disadvantages of Incorporating in Delaware
Delaware is typically the desired state of incorporation for companies that expect to have their shares registered with the Securities and Exchange Commission and listed for sale to the public on a stock exchange. More than 50% of Fortune 500 companies are incorporated in Delaware. Delaware offers the following advantages:
- Delaware’s general corporation law provides flexibility for management in running a business.
- Delaware state income tax generally is not levied on corporations not doing business in Delaware.
- The Delaware Court of Chancery is arguably the most respected business court in the United States.
- Delaware has a long-established and respected body of corporate law.
However, forming a corporation in Delaware is generally more expensive than forming one in a state such as Colorado. In addition, annual maintenance of the corporation, including maintaining a registered agent in Delaware and paying state fees each year, is generally higher than in other states.
We therefore advise German clients to form their wholly-owned U.S. subsidiary companies in the state where they plan to locate their primary place of business in the U.S.
How to Set Up a U.S. Corporation
Forming a U.S. corporation is relatively straightforward. There is no minimum capital investment (Stammkapital) required at formation, and a corporation may be owned by a single shareholder.
Information Required to Form a U.S. Corporation
To form the corporation, we will need to know:
- The name of the U.S. corporation that you want to use;
- Address of your local operation;
- Name and address of a registered agent (we can provide this service);
- Names and addresses of the initial shareholders
- Names and addresses of the initial board of directors
- Names and addresses of the initial officers
You must also determine the number of shares to be issued and the amount of capital the initial shareholder will contribute. This initial capital is typically used to cover startup expenses such as leasing space, obtaining utilities, hiring personnel, and paying legal and filing fees, although additional capital contributions can be made later.
Finally, the corporation will need to obtain an Employer Identification Number (EIN) from the Internal Revenue Service. This process is generally more efficient if at least one corporate officer is a U.S> citizen or resident with a Social Security number, as this allows for faster processing of the EIN application. The EIN is required before the company can open a U.S. bank account.
Corporate Governance Structure in U.S. Corporations
U.S. corporations follow a defined governance structure that separates ownership, oversight, and day-to-day management. This structure typically includes shareholders, a board of directors, and corporate officers.
Shareholders: Ownership and Control
A corporation is owned by its shareholders, who hold shares that represent their ownership interests. Voting power is generally based on the number of shares owned, with each share entitling the holder to one vote.
As a result, a shareholder who owns a majority of the shares—such as 51 percent—can control major decisions, including the election of the board of directors. This gives the majority shareholders significant influence over the company’s direction and management.
Board Of Directors: Oversight and Strategic Decisions
The board of directors is responsible for overseeing the corporation and setting its overall direction. The number of directors is determined by the corporation’s bylaws, but minimum requirements are generally tied to the number of shareholders.
A corporation with one shareholder must have at least one director; a corporation with two shareholders must have at least two directors; and a corporation with three or more shareholders must have at least three directors. Companies may choose to appoint additional directors beyond these minimums.
The board appoints corporate officers and approves significant business decisions. These decisions typically include matters such as hiring or terminating senior management, approving major expenditures, authorizing loans, and entering into significant contracts, including real estate transactions.
Corporate Officers: Day-to-Day Management
Corporate officers are responsible for managing the company’s daily operations. Common officer roles include the President, Vice President, Secretary, and Treasurer. Many corporations also establish additional roles, such as Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Operating Officer (COO), or Chief Technology Officer (CTO), depending on the size and needs of the business.
These positions are defined in the corporation’s bylaws, and one individual may hold multiple roles if appropriate. The board of directors determines which officer positions are necessary and appoints individuals to those roles.
Only corporate officers have the authority to enter into contracts that legally bind the corporation. For this reason, it is important to appoint a president or other authorized officer at the time of formation so the company can begin conducting business without delay.
Employment Law Basics in the United States
Understanding U.S. employment practices is essential for foreign companies establishing operations in the United States. Employment rules differ significantly from those in many other countries, particularly in areas such as contracts, wages, benefits, and worker classification.
Employment Contracts in the United States
Most non-management employees in the U.S. do not have written employment contracts. Instead, a letter containing the hourly wage to be paid and a brief description of benefits, vacation, sick leave, etc., is common.
In many cases, companies require their employees to sign confidentiality agreements to protect the corporation’s trade secrets and other confidential business information.
Wages, Hours, and Overtime Requirements
In the U.S., full-time employees typically work 40 hours per week. Employees may work more than 8 hours per day but not more than 40 per week unless they are paid overtime.
For employees who work more than 40 hours in a week, standard overtime is the employee’s hourly wage multiplied by 1.5, and work on holidays is compensated at the employee’s hourly wage multiplied by 2.0.
Vacation and Paid Time Off
Paid vacation is not required by law, but if offered, 2 weeks (10 days) per year is common. Some companies offer 3 weeks (15 days) of paid time off per year to long-serving employees. Three weeks or more of paid vacation is less common.
Holidays and Time Off Practices
The United States does not require private employers to provide paid holidays, but many companies choose to observe major federal holidays. These typically include New Year’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Some employers also offer additional paid holidays, such as Martin Luther King Jr. Day, Presidents’ Day, and the day after Thanksgiving or Christmas Eve, depending on company policy.
Sick Leave and PTO Policies
Like vacation time, paid time off for an employee’s illness is not required, as a general rule, by state law. For companies that offer time off for illness, it is common to grant employees 5 paid days off per year.
There is a trend to combine sick days and vacation days into a single category called Personal Time Off (PTO) to make accounting for time off easier.
Health Insurance and Employee Benefits
Small businesses (companies with fewer than 50 full-time employees) are not required by law to provide employees with health insurance, but many small companies still offer it to attract the best workers.
If a corporation chooses to offer health insurance, all corporate employees must be offered the same benefits. Insurance is normally offered to cover only the employee, but the employee is often given the option to purchase family coverage.
Also, the employee normally pays a percentage of the health insurance cost (up to 50% is common), but again, this is not required by law. It is up to the employer. In addition to health insurance, dental, vision, life, and disability insurance are commonly offered.
Wage Payments and Payroll Practices
Employees in the United States are typically paid on a weekly, biweekly, or semi-monthly basis. Monthly payroll is less common, and there is no requirement for a “13th month” payment as seen in some other countries.
Employers are responsible for withholding applicable federal and state taxes from employee wages. While direct deposit is increasingly common, paper checks are still widely used, particularly among smaller employers.
Employment Eligibility Verification
All employers are required to verify that employees are legally authorized to work in the United States. This is done through federal Form I-9, which must be completed and maintained for each employee.
Salary vs. Hourly Classification and Overtime Risk
All employees who earn less than $47,476 per year (effective as of December 1, 2016) must be paid on an hourly basis and are entitled to be paid overtime if they work more than 40 hours in a week.
Many employers do not want to track an employee’s hours and prefer to pay the employee a flat weekly salary. The problem is that the employee often works more than 40 hours per week and then claims overtime pay later.
Since the corporation has no records of the employee’s actual hours, the corporation normally cannot prove that the employee did not work the overtime claimed. The Department of Labor will then require the corporation to pay the employee overtime plus interest and to pay the government a penalty.
Independent Contractors vs. Employees
U.S. law distinguishes between employees and independent contractors, and this classification is closely scrutinized by both federal and state authorities.
While some employers attempt to classify workers as independent contractors to avoid payroll taxes and benefit obligations, strict legal tests are used to determine whether a worker is truly independent. Misclassification can result in significant liability, including unpaid taxes, interest, and penalties.
Because of the legal and financial risks involved, companies should carefully evaluate worker classification and seek legal guidance before engaging independent contractors.
Expand into the U.S. Market with Confidence
Expanding into the United States offers significant growth opportunities, but it also requires careful planning and compliance with U.S. corporate, tax, and employment laws. Proper entity formation and governance are essential to establishing a stable, legally compliant U.S. operation.
Lantz Law Group assists German companies at every stage of establishing and operating a U.S. subsidiary, including selecting the appropriate corporate structure and addressing key governance and employment considerations.
If you are considering expanding into the United States, contact Lantz Law Group to discuss how we can help you establish a strong and compliant foundation for your U.S. business operations.