Capital Contribution Recommendations for Corporate Loan

The process is relatively simple for a foreign corporation seeking to create a subsidiary in the United States. In fact, no minimum capital contribution is required, meaning a corporation can be formed with just $1 of initial capital. However, while there might not be a minimum contribution to creating a US subsidiary, it may be worth contributing a more significant amount to secure future loans for the corporation.

Lenders want to ensure that their loans will be repaid, and they will look at several factors to determine whether or not to approve a loan. These factors include credit rating, industry risk, and debt-service coverage ratio (DSCR). The DSCR measures a corporation’s available cash flow to pay its current debt obligations. A corporation with a DSCR of 1.0 has precisely enough operating income to pay off its debt. Therefore, lenders will usually set a minimum DSCR requirement of 1.2-1.5. By increasing its initial capital contribution, a corporation can show lenders that it has adequate cash to pay off any debts accrued.

Finally, a good rule of thumb for corporations is to have enough capital to cover its costs for six to eighteen months. However, every corporation is different, and each corporation should base its decisions on its personal business needs and goals.

By contributing greater than the minimum amount of initial capitalization, corporations put themselves in a better light for lenders and increase the likelihood that they will be able to receive corporate loans.

BridgehouseLaw is happy to help you navigate company formation.

The Bureau of Economic Analysis and Its Forms

The Bureau of Economic Analysis (BEA) is the United States Department of Commerce federal agency. The BEA produces economic statistics regarding US GDP, foreign trade and investment, and other industry data. Specifically for foreign business, the BEA collects its data by having corporations file several mandatory forms for various purposes. These forms are collected to measure the amount of new and current foreign direct investment in the US, which can then inform the US government on its economic policy decisions. Some of these forms include the BE-13, BE-15, and BE-12. 

If a corporation has more than 10% foreign ownership, it must file a Form BE-13 within 45 days of its formation. However, if it costs less than $3 million to create or acquire the new corporation, then the corporation files a BE-13 Exemption Form. 

BE-15 Forms are mandatory annual reports of a corporation’s financial statements. These forms are based on total assets, gross operating revenues, and net income. Corporations reporting greater than $300 million on any of these metrics file Form BE-15A, between $120-300 million file Form BE-15B, between $40-120 million file Form BE-15C, and if a corporation reports revenues less than $40 million it files a BE-15 Exemption Form. 

Finally, the BE-12 Form is the most comprehensive financial and operating data survey for foreign-affiliated corporations and must be filed every five years. Like the BE-15, BE-12 forms are split based on income range, with BE-12A for revenues greater than $300 million, BE-12B for between $60-300 million, and BE-12C for revenues under $60 million.

These forms are mandatory for corporations and are essential for the BEA to have the most accurate understanding of foreign investment in the US. Because of their significance, an experienced international accounting firm will likely file these forms as part of their routine services.

Lucas Tappa, Law Clerk, BridgehouseLaw Charlotte