Q4, 2024—"Navigating US Corporate Compliance: Key Considerations for Canadian Businesses Operating Across the Border"

By Rex McKeon

As Canadian businesses expand into the United States, particularly into strategic markets like New York, understanding the evolving corporate compliance landscape is critical to maintaining successful cross-border operations. Changes to US federal and state laws and regulations can significantly affect Canadian companies doing business south of the border. This article highlights a few key federal, New York, and Delaware legal updates that Canadian businesses should be aware of to ensure compliance.

1. State-Specific Compliance Updates: New York and Delaware Labor Law Changes

Canadian companies employing US workers need to stay informed about labor law changes, particularly in states like New York and Delaware. Both states have introduced new rules that will impact wage and employment practices in 2024.

New York:

• Minimum Wage Increases: As of January 2024, New York has increased its minimum wage to $16.00 per hour for New York City, Long Island, and Westchester, while upstate areas, including Buffalo, have increased minimum wage to $15.00 per hour. Canadian businesses must adjust their payroll practices to comply with these changes or face potential penalties for wage violations.
• Expanded Paid Family Leave (PFL): New York has broadened its PFL program, now allowing employees to take leave to care for siblings with serious health conditions. This may increase the cost and administrative burden on companies with New York–based employees, as contributions to the state fund must reflect this expanded coverage.

Delaware:

• Healthy Delaware Families Act: Delaware recently passed a new paid family and medical leave law, set to be implemented in stages starting in 2025 and going into full effect on January 1, 2026. The law provides paid family and medical leave of up to 12 weeks, with employers and employees contributing to the funding program. Requirements and exemptions are located here. While not immediately effective, Canadian businesses with Delaware operations should begin preparing for compliance. 
• Equal Pay Enforcement: As Delaware continues to bolster its efforts to enforce equal pay laws, companies doing business in the state must ensure compliance with gender and race pay equity laws. Barclay Damon’s Labor & Employment Practice Area attorneys are available to discuss your business’s policies, procedures, and potential exposure. 

2. Corporate Considerations: US Subsidiaries

Corporate Transparency Act (CTA): Effective January 1, 2024, the CTA mandates that US companies, including those owned by Canadian entities, report their beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN), a division within the US Department of the Treasury. Noncompliance can lead to significant fines and potential criminal penalties. Entities formed on or after January 1, 2024, must file a BOI report within 90 days of formation, and those entities formed prior to 2024 must file a BOI report by the end of 2024. Filing BOI reports is built into Barclay Damon’s business formation workflow, so any entity we assist with forming for Canadian clients will comply with the CTA. Canadian companies with US subsidiaries need to implement systems to track and report this information accurately, and Barclay Damon’s Corporate Practice Area attorneys are happy to assist. 

IRS Withholding for Cross-Border Workers: With the growth of remote and cross-border work arrangements, Canadian companies must ensure proper tax withholding for employees working in the United States. The Internal Revenue Service has emphasized enforcement of withholding requirements under the US-Canada tax treaty. Failing to comply with these rules can result in penalties, tax audits, or double taxation issues.

New York LLC Transparency Act: The New York Limited Liability Company Transparency (NY LLC) Act, enacted in December 2023, introduces new reporting requirements for both domestic LLCs and foreign LLCs registered to do business in New York State. This legislation mirrors the federal CTA. 

• Who Must File?: Starting January 1, 2026, any LLC formed or authorized to do business in New York State and classified as a reporting company under the CTA must submit a disclosure statement identifying its beneficial owners to the New York State Department of State. LLCs that qualify for one of the CTA’s 23 exemptions are not required to submit a disclosure statement under the NY LLC Act but must instead file an attestation of exemption. 
• Public Disclosure: As amended on March 1, 2024, the NY LLC Act prohibits public disclosure of the information reported under the act. Access to this information is limited to government agencies and officials through judicial orders. Other states, including California, Massachusetts, and Maryland, are also developing their own versions of the CTA. More on the NY LLC Act is available here.

Delaware Franchise Tax Updates: As the preferred state of incorporation for many businesses, Delaware has maintained its status as a corporate haven. However, it also updates its franchise tax rates from time to time. Companies incorporated in Delaware, including US subsidiaries of Canadian companies, need to monitor these changes to avoid unexpected tax bills. Delaware offers a graduated system for franchise taxes, and failing to timely report can lead to penalties. More information on Delaware’s franchise taxes is available here.

3. US-Canada Trade Relations: Impacts on Cross-Border Operations

For Canadian businesses involved in cross-border trade, updates in trade laws and tariff regulations between the United States and Canada are of ongoing importance.

Federal:

• USMCA Enforcement: The United States-Mexico-Canada Agreement (USMCA) continues to regulate trade between the three countries. US Customs and Border Protection (CBP) has stepped up enforcement in 2024, particularly regarding the rules of origin requirements for goods entering the United States. Canadian businesses exporting to the United States must ensure they meet the origin requirements to qualify for tariff-free treatment under the USMCA.
• Section 301 Tariffs: While much attention is focused on US-China trade, Canadian businesses should also remain vigilant about potential updates to Section 301 tariffs, which could affect global supply chains and the cost of imports to the United States. Any changes may directly or indirectly impact Canadian exporters.

4. ESG Compliance in the United States: Focus on Environmental, Social, and Governance Reporting

Environmental, social, and governance (ESG) considerations are becoming increasingly important, and both New York and Delaware have been at the forefront of driving corporate responsibility initiatives. Federal proposals that are in development could impact ESG disclosures.

New York:

• Climate Leadership and Community Protection Act (CLCPA): New York’s aggressive climate law sets ambitious emissions reduction targets. Canadian companies operating in high-emission sectors, such as transportation or manufacturing, in New York must ensure they comply with these reduction targets. Failure to do so may result in fines or restrictions on operations.

Delaware:

• Delaware’s Sustainability Reporting Initiatives: Delaware has been pushing for more corporate sustainability and social responsibility reporting. Companies incorporated in Delaware should start considering ESG reporting frameworks, even in the absence of mandatory reporting rules, to meet investor and regulatory expectations.

Federal:

• SEC Climate Risk Disclosures: The US Securities and Exchange Commission (SEC) has proposed regulations that would require publicly traded companies to disclose climate-related risks and ESG data. While these rules are still in development, Canadian businesses listed on US exchanges or working with US partners should prepare to meet these disclosure standards. Many large institutional investors are already requesting this information.

5. Conclusion

For Canadian businesses expanding into the US market, particularly in states like New York and Delaware, staying compliant with evolving labor, tax, and ESG requirements is critical. With new regulations at both the state and federal levels, understanding these changes and adapting to them will help ensure that cross-border operations remain smooth and legally compliant.
If you have any questions about how these updates may affect your business or your client’s business, or if you need assistance navigating the US legal landscape, please do not hesitate to contact a member of Barclay Damon’s Canada-US Cross-Border Team, which includes attorneys from each of Barclay Damon’s practice areas.