UK Companies — Choosing a Legal Entity to Operate in Texas

Gary W. Miller

August 25, 2010

Once a UK company has decided to begin doing business in Texas, an important choice must be made as to what legal entity will be selected or created to operate in Texas. Options include:

  • qualifying the UK company to do business in Texas
  • forming a new corporation in one of the states in the US
  • forming an entity other than a corporation in one of the states in the US

In the US, forming an entity or qualifying to do business is done on a state-by-state basis. If an entity is formed in one state and conducts business in other states, it will be necessary to qualify that entity to do business in each of the states in which it is doing business. What constitutes “doing business” is a question of law. While just making an occasional sale into a state may not constitute “doing business” for purposes of requiring qualification, having an office in the state or maintaining employees in the state will generally constitute “doing business”.

Most UK companies do not simply qualify their existing UK entity to do business in the US. They do not want to subject the “mother company” to liability in the US (too many fears about litigation in our court system), and they do not want the UK company to pay taxes in the US. Some UK companies may incorporate a “single purpose” UK company and then qualify that entity to do business in the US. Most UK companies operating in the US and primarily in Texas, however, will incorporate a new corporation under the laws of Delaware (famous for its pro business attitude) or Texas. Most UK companies do not form other types of legal entities such as limited partnerships or limited liability companies, since those entities are usually formed to achieve a tax status that flow through to the parent company. UK companies generally use a corporation that pays taxes in the US, and distributes its earning to the parent through dividends.

Sometimes, the first indication to a UK company of the requirement for qualifying or incorporating in Texas is the refusal of a Texas bank to open an account until this step has been taken. Qualifying a UK company to do business in Texas or forming —a new entity in Texas is not usually an expensive or time consuming project, but does take some advance planning and cooperation between your tax experts and US attorneys.