Top 5 Cross-Border Pitfalls
UK Tech Founders Must
Avoid in the US

Many UK founders set up an LLC thinking it mirrors a UK Ltd., only to find themselves facing unexpected tax liabilities and investor pushback. Choosing the wrong structure can limit funding opportunities and create costly compliance issues.

The Mistake:

• UK founders frequently default to an LLC, believing it operates like a UK Ltd.
• An LLC is a pass-through entity, meaning profits are taxed at the individual level.
• This can result in double taxation for UK-based founders, as earnings may be taxed in both countries.

Why It’s a Problem:

• Many investors won't fund an LLC due to tax complexity, making it harder to raise funds.
• C-Corps are the preferred structure for start-ups, offering stock-based compensation and a familiar framework for investors.
• Switching from an LLC to a C-Corp later can be expensive, requiring legal restructuring and additional tax considerations.

How to Avoid It:

• Assess and choose your US entity based on your long-term funding and tax strategy.
• If seeking investment, a C-Corp is usually the better choice, with Delaware being a common state for incorporation due to its investor-friendly corporate laws.
• Consult tax professionals familiar with both UK and US regulations.

US tax laws are anything but uniform. tate tax nexus—triggered by factors like revenue, employees, or operations—can leave UK founders with unexpected tax bills, compliance headaches, and financial penalties if not properly managed.

The Mistake:

• Companies unknowingly trigger state tax obligations due to nexus rules.
• Many assume they only need to register for federal tax, overlooking state-specific requirements.
• Nexus can be established by factors like revenue, employees, or even warehousing products in a state.

Why It’s a Problem:

• Nexus rules can require you to register, collect, and pay taxes in multiple states, even if you don’t have a physical office there.
• Failure to comply can lead to penalties, back taxes, and legal issues.
• Some states have aggressive enforcement policies, making it risky to ignore these rules.

How to Avoid It:

• Assess whether your activities trigger state tax nexus before expanding.
• If selling in multiple states, consult a tax expert to determine your registration and filing obligations.
• Stay compliant by keeping track of state-specific tax requirements and filing on time.

Registering a company in the US isn’t as straightforward as it is in the UK. Many founders overlook key legal requirements, such as appointing a Registered Agent or meeting state-specific compliance rules. Skipping these steps is a common business mistake that can delay incorporation or even lead to fines.

The Mistake:

• Many founders don’t realise that appointing a Registered Agent is a mandatory step in US company formation (or even understand what a Registered Agent does!). This agent serves as the official point of contact for legal and tax documents.
• Some states may also require a local director for compliance purposes, which can complicate governance for UK-based founders.
• Overlooking these rules can lead to missed filings, legal risks, and incorporation delays.

Why It’s a Problem:

• Without a Registered Agent, your business may not be legally recognised, delaying incorporation.
• Some states impose fines or even dissolve non-compliant companies.
• A bad agent could also mean missed legal notices and costly penalties.

How to Avoid It:

• Hire a Registered Agent in your state of incorporation to ensure compliance. Learn more about global compliance before expanding.
• Check whether your state requires a local director and plan accordingly.

Sales in the US move faster, harder, and more aggressively than in the UK. Founders who rely on relationship-driven, slow-burn sales tactics often struggle to gain traction with US investors, clients, and partners who expect direct pitches and quick decision-making.

The Mistake:

• UK businesses often favour relationship-driven sales, expecting deals to develop over time.
• Many founders underestimate how fast-paced and competitive American business culture is.
• Sales in the US are fast-paced and results-driven, which can feel aggressive to British founders used to relationship-first selling.

Why It’s a Problem:

• In the US, investors and clients expect direct pitches, fast decision-making, and results-driven sales tactics.
• A slower, relationship-first approach can put UK start-ups at a disadvantage in high-growth industries.
• Contracts are more detailed and legal-heavy, requiring a solid understanding of US business norms.

How to Avoid It:

• Hire local sales talent who understand US market expectations and sales cycles.
• Work with a mentor or consultant who has experience navigating US business culture.
• Refine your pitch and decision-making speed to align with US investor and client expectations.

US employment laws differ drastically from UK protections, and misclassifying workers can land founders in legal trouble. From at-will employment to contractor vs. employee rules, misunderstanding US regulations can lead to fines, back pay claims, or lawsuits.

The Mistake:

• Misclassifying workers by treating contractors as employees or vice versa.
• Assuming UK-style protections, like unfair dismissal laws, apply in the US.
• Overlooking at-will employment, which allows US companies to terminate staff without notice in most cases.

Why It’s a Problem:

• Misclassification can lead to tax penalties, back pay claims, and lawsuits.
• Employees may expect health benefits and legal protections that aren’t automatically required in the US.
• Failure to comply with state-specific employment laws can create unexpected liabilities.

How to Avoid It:

• Understand US employment classifications before hiring to avoid missteps.
• Consider using Employer of Record (EoR) services, to streamline compliance and payroll, if you don’t have a US entity.
• Consult a US-based HR or legal expert to ensure contracts and policies align with local laws.

The US is ripe with opportunity for tech scale-ups, but international expansion comes with challenges. Getting it right means preparing early, understanding key differences, and seeking expert advice when needed.

By avoiding cross-border pitfalls, UK tech founders can set themselves up for success in a fast-moving and competitive market. From choosing the right business structure to navigating complex state tax laws, having local expertise can make all the difference.

The ConnectaVerse platform connects you with trusted local experts who specialise in US expansion, from legal advisors to HR and tax professionals. Whether you're setting up your first US entity or scaling your operations, our network provides on-the-ground insights tailored to your needs.