Globalizing your business can be both exhilarating and nausea-inducing. Instead of worrying about monsters lurking in the dark recesses of international business, an executive’s attention should be focused on maximizing the impact of global opportunities.
To help demystify the process, here are big legal questions every company contemplating global expansion should consider:
1. Labor and Employment Law
No matter what business you are in, you can only operate through your people. If you are hiring or subcontracting in a foreign country, you will be subject to that country’s labor and employment laws.
This is where an employer of record (EOR) partner like Velocity Global is key. Velocity Global can help with compliance, benefits, and risk mitigation to make going global easier. Note that it is much more difficult to get rid of underperforming agents and distributors, so pick your partners wisely!
2. International Trade Compliance - Import/Export, Sanctions, and Corruption
Whenever business crosses borders, it invokes the national security and economic interests of at least two countries. Depending on the venture, you will probably have to navigate regulations on getting products out of one country (export) and getting them into another (import).
Businesses also have to be careful who they do business with. Some countries (like Iran and North Korea) are basically off-limits. No matter what the expected business practices are in a foreign country, U.S. persons can be fined or serve jail time for bribing foreign officials. Yikes!
3. Corporate Structure for Doing Business
If your proposed business goes beyond making sales in a foreign country, you will probably need to consider the best in-country corporate structure to achieve your purposes. This can run the gamut of establishing your own foreign subsidiary or representative office or working with an employer of record (EOR).
Each option carries its own unique costs, timelines, capital requirements, and tax consequences, depending on the country.
Speaking of taxes…some of the greatest threats and opportunities in global business show up in the form of taxes—particularly at the corporate entity level. You will want to carefully examine whether the foreign country has a tax treaty with the U.S.
You will also want to know what the particular tax consequences are of doing business there. In some cases, tax treatment can be the difference between the success or failure of a venture.
5. Intellectual Property
Whether in the form of patents, copyrights, trademarks, or trade secrets, some of the most valuable assets of a company are often its intellectual property (IP).
The first thing you should realize is that by-and-large, your IP protections in the U.S. won’t help you abroad. The cost of securing and then enforcing those rights overseas can be expensive. However, your IP risks can also be mitigated through carefully crafted licenses, employment agreements, and a host of other contractual arrangements designed to protect your IP.
6. Payment, Finance, and Exchange Controls
Payment rarely requires the use of much brainpower in domestic transactions; although brawn can sometimes help speed things up. The currency and method of payment are commonly assumed or easy to facilitate.
However, the movement of money across borders adds some complexity to an otherwise simple exchange. Potential pitfalls in this area can be handled without excessive concern. They need not impede otherwise beneficial trade but they can prove costly if ignored.
Foreign currency exchange controls and more secure methods of payment (letters of credit, split payments by wire transfer, etc.) are some examples of the areas where it is advisable to focus on getting the details right.
7. Termination of the Business
Terminating a business relationship is a tough conversation to have. This is one area that can get messy quickly if not addressed early on. For example, it can be a lengthy and costly process to wind up a business in many foreign countries. Government approvals might be necessary and there could be significant tax consequences—not to mention creditors’ and even employees’ rights upon termination.
It is usually best to consider an exit strategy at the outset of an international venture.
While not every question raised here will apply to you, it is highly likely that at least some of these questions will apply to your company’s international activities. This list is not intended to provide legal advice. Lawyers are still the first and last line of defense for questions or concerns.
If you don’t already have a lawyer, the attorneys at the Polaris Law Group can answer your questions.
About the Author
Tyler Rauert is a partner at the Polaris Law Group, a boutique international business law firm focused on making global commerce accessible to small and medium-sized enterprises.
Tyler counsels companies doing business overseas. His practice focuses on cross-border business transactions, entity formation and funding, intellectual property protection, regulatory compliance, dispute resolution, and international trade policy.
Tyler’s law practice is built on a decade of experience working in foreign policy and national security for the U.S. government. He helped negotiate a range of agreements with European, Russian, Chinese, Arab, Israeli, Turkish, Afghan, Pakistani, Indian, and Iranian partners.
If you'd like to get in touch with Polaris Law Group, contact them here.