What is your regulatory burden in the US?

6 Nov 2018

By Tosin Agbabiaka

Is your business operating in a regulated sector? If so, you’ll likely be subject to the rules of a number of regulatory agencies. Applying for licenses is straightforward, if time—consuming in a few instances. You’ll need counsel to establish which licenses you need and what regulation you’ll be subject to. The days of entering a market, gaining market share and getting regulator blessing retrospectively are ending – regulators are taking an increasingly harder stance on this front and want to be approached pre-launch. A significant regulatory variation between states is in taxes, which we will cover separately.

Data privacy

Unlike the EU, the US does not have a single overarching privacy law. On a federal level, the United States maintains a sectoral approach towards data protection legislation where certain industries are covered and others are not. This has significant commercial implications for direct-to-consumer digital marketing, for example. If you are purchasing Facebook ads in the US, you have a much more expansive set of targeting criteria and tools than in Europe, where there are more extensive limitations on what customer data can be made available. Given the current privacy regulation landscape, your ability to use these tools may be further restricted in the near future.

At a state level, most states have enacted some form of privacy legislation. This may have an impact on where you want to locate your HQ.

Resources:

Legal challenges after expansion

Applying for licenses and permits

General Data Protection Regulation

Specialists in the field:

Cheryl Young – Securities Compliance Advisors (SCA), focus on Fintech

Ingrid Brydolf – Davis Wright Tremain, focus on healthcare

Ashford Tucker – Fross Zelnick Lehrman & Zissu, focus on healthcare

Heidi Lawson & Greg Hoffnagle – Cooley LLP, focus on insurtech

What legal considerations are key?

The American approach to law is very different from Europe, and legal counsel is part of the cost of doing business. ‘Lawyer Up’ during the planning phase or you risk falling over the complicated laws in place across the US.

Companies in the US spend nearly triple the amount on legal services for every dollar of revenue than their counterparts around the globe: On average, 0.4% of every dollar of revenue versus 0.15% for the rest of the world.18 The substantial difference stems from both higher legal costs and requirements for more services.

In the US, each party to a lawsuit bears her own legal costs. If you’re sued, you’ll have to pay your legal bill regardless of the outcome of the case. Given the high costs of litigation, the opposing party knows you’re likely to settle instead of fighting the case in court. This practice leads to a much more litigious culture, and the threat (and fact) of litigation is used more extensively to further business outcomes.

Extensive employment regulations at the federal and estate level will influence every step of hiring, managing and terminating employees. Employment discrimination claims are common and expensive.

Because states treat business regulations so differently, it’s important to have experienced, localized counsel to evaluate the different regulatory requirements.

States will differ on legal requirements for setting up operations, hiring talent and business reporting.

The upfront cost of expert advice aimed at avoiding potential problems and crafting well-worded contracts is well invested, considering the price and disruption of a lawsuit.