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Legal Considerations for Setting up a U.S. Life Science Business

Trade Mission of the State of Minnesota, USA June 2013 Barbara Müller bmuller@fredlaw.com Fredrikson & Byron, P.A. Legal Considerations for Setting up a U.S. Life Science Business. Your Products. Assumption:

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Legal Considerations for Setting up a U.S. Life Science Business

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  1. Trade Mission of the State of Minnesota, USA June 2013 Barbara Müller bmuller@fredlaw.com Fredrikson & Byron, P.A. Legal Considerations for Setting up a U.S. Life Science Business

  2. Your Products Assumption: You have obtained all necessary certifications, permits, and/or licenses to manufacture, market and sell your product in the US.

  3. Your Options • Contractual Relationships • Sales agents • Distributors • Technology license • Contract manufacturing • Contractual joint venture • Investment • Start a new business • Invest in an existing business • Purchase an existing business

  4. Contractual Relationships • Sales agents / Distributors: • No statutes comparable to EEC Council Directive from 12/18/1986 on the coordination of the laws of the Member States relating self-employed commercial agents (86/653/EEC) • No statutes comparable to Commission Regulation (EU) No. 330/2010 of April 20, 2010 (“Block Exemption Regulation” / BER). • In general, sales agent / distributor contracts in the Life Science field are freely negotiable.

  5. Contractual Relationships • License Agreements / Contract manufacturing / Contractual joint venture • Your intellectual property has to be adequately protected in the US. • No generally applicable restrictions have to be complied with (Freedom of Contract).

  6. Investment Foreign Investment in the US is largely unregulated: • No approval needed to establish company • No foreign exchange controls • No government registration of equity capital or loans • No minimum capital requirements • No limits on repatriation of profits

  7. Investments Limited Exceptions to Rule of Non-Regulation of Investments: • Anti-monopoly regulations • National security concerns • Embargos and trade restrictions • Investment in certain sectors is limited • Ownership of agricultural land is limited • Reporting requirements

  8. Most important entities for doing business in the US • Corporation • Liability is generally limited to Corporation • Income taxed at company level, dividends are taxed when paid to shareholders (“double taxation”) • Same type of entity for publicly traded and privately held companies • No statutorily fixed minimum share capital (potential problem: undercapitalization can result in the “piercing of the corporate veil”)

  9. Most important entities for doing business in the US • Limited liability company (LLC) • Limited liability like a corporation • Income not taxed at company level (US treats LLCs as “pass-through” entities) • Owners are taxed on company’s income even if dividends are not paid • Suitable only for companies that will not be listed on an exchange • Potential Problem for foreign owners: mandatory withholding

  10. Registration of Entities • Corporate law is state law. • Consequence: no national / nationwide registration of business entities. • Same day registration is standard, i.e. no waiting period, no need to acquire a “shelf company”.

  11. Registration of Entities • Any entity that is registered in one state and is “doing business” in another state has to be qualified to do business as a “foreign entity” in the other state. • Isolated sales of products from one state into another usually do not qualify as “doing business”. • Example for “doing business”: having employees in the other state.

  12. Employment • Combination of federal and state law. • Significant differences between states (example: post- employment non-competition). • Minnesota: employment-at-will, i.e. both parties may terminate employment relationship, with or without cause, at any time without notice.

  13. Employment • US Employer has the obligation to verify that any employee is legally authorized to work in the US. • Form I-9 has to be completed and kept in personnel file.

  14. Employment / Visas • Temporary business visitor (B-1) • Short/term business or professional activities such as business meetings, training, contract negotiation, consulting with business associates, litigation • 6 month initial stay, 6 month extension possible under certain circumstances

  15. Employment / Visas • Intracompany transferee (L-1) • Individual is entering the US from qualifying foreign entity to fill executive/managerial / specialized knowledge posigion • Individual must have worked for the qualifying legal entity for at least one year • 3 year initial stay, 2 year extensions (maximum : 7 year for manager/executive, and 5 years for specialized knowledge employee)

  16. Employment / Visas • Immigrant Investor (EB-5) • Standard capital investment requirement: $1 million; requirement for investment in high unemployment area or rural area: $500,000. • Investor must demonstrate that his/her capital investment will create or preserve at least ten jobs for qualified US workers within the US. • “Qualified US workers” are US citizens, permanent residents, asylees or refugees (not: members of investor’s family).

  17. Employment / Visas • Temporary specialty worker (H-1B) • Employment in specialty occupation that requires at least a bachelor’s degree or equivalent • 6 year total: 3 year initial stay, 3 year extension (extension beyond 6 years only under very limited circumstances) • Cap for fiscal year 2014 (begins 10/1/2013) was reached in April 2013.

  18. Employment/Visas • B-1, H-1B, and L-1 are non-immigrant visas, i.e. individual must be able to show that he/she intends to return to his/her home country. • If you want to rely on an employee from your home country to build your business in the US, advance planning is crucial.

  19. Federal and State Taxes • Method of calculation: • Calculate “taxable income” • Revenue minus permitted deductions and adjustments • Multiply taxable income by applicable tax rate (see below) • Then subtract applicable credits

  20. Federal and State Taxes • Federal income tax rates • Corporate: 15% to 39% However, because of deductions and other exclusions, average US corporate tax rate actually paid over past 30 years is 19%, and only 13% in fourth quarter of 2012 • Individual: 10% to 39.6% • Withholding tax on dividends paid from US under applicable tax treaty: 15%

  21. Federal and State Taxes • Corporate and Individual Taxes (as well as tax incentives) differ significantly from state to state • Minnesota: • Corporate Franchise Tax: 9.8%Minimum Fee: from $190 (for sales, property, payroll from $500,000 to $930,000) to $9,340 ($20 million to 37.36 million) • Individual: 5.35 to 9.85%

  22. Intellectual Property Think about the countries where you need to protect your IP when you make the initial filing. • Patents • Trademarks

  23. Summary • Due diligence and advance planning are crucial to your success in the US. • Talk to legal and tax specialists at home and in the US as soon as you determine that the US may be an attractive market for you.

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