Establishing and maintaining a foreign office can be an excellent idea, and for many businesses it’s a necessity in today’s global economy. But to make foreign operations successful, you need to develop a thorough plan that accounts for a host of considerations that may not apply to your domestic operations. Not surprisingly, many of these considerations relate to local laws.
In this post, I’ll give you a brief outline of some of the legal matters you need to consider when setting up and maintaining overseas operations.
Some background on this blog post and series
It’s worth providing some context for this post, because one can argue that “legal matters” affect virtually every aspect of international expansion and operations. And indeed, Vistra employs dozens of advisors who provide information and recommendations on everything from setting up a bank account to winding down operations and all areas in between, and each area is ultimately governed by local laws. Our experts have written and will continue to write blog posts and other resources that provide information on a full range of legal-related topics, from host-country immigration requirements to employer obligations to corporate tax structuring and more.
As head of Vistra’s legal line of service, I help our clients and prospects address specific challenges within this spectrum. The advice I provide includes but is not limited to areas such as host-country entity establishment or modification, compliance with local laws governing legal entities and, more generally, the drafting of contracts under local laws. Those are the areas I will address in this post.
This is also in effect a “kick-off” post for a new legal-related blog series, similar in some ways to my colleague Gareth Jarman's “Future of the Global Workplace” series, which addresses evolving international HR considerations. In future posts, I’ll address some of the legal-related considerations listed below in greater detail.
And so, let’s now address some of those considerations in outline.
One of the first legal matters most expanding businesses must address in a new country is leasing office space. It can be difficult to find the right space, especially in popular areas of business expansion like London or Hong Kong where inventory is tight and valuations are high. Working with a property agent won’t solve all your problems. You’ll need to review leases carefully, as they often contain provisions not included in US agreements. For example, the UK has a requirement to pay business rates on leased (but not serviced) accommodations. And in some parts of London, for example, business rates can nearly equal the rent itself. In developing countries, accommodations are sometimes arranged by a handshake rather than a lease, so establishing trust and rapport with the landlord is essential.
Deposits are also handled differently. In some countries, such as Panama, they are turned over to a government office rather than entrusted to a landlord. In Paris, don’t expect your deposit to be returned — the joke there is that it’s “amortized” over your lifetime.
In almost all cases it’s worth having a legal review of your leases before you sign. Even standard agreements aren’t set in stone, and it is important to consider how it may be necessary to modify clauses to protect your interests.
Change of name
Businesses expanding globally often seek a name change as part of a rebranding program. To do this, you will need to file certain documents with local authorities and potentially with other parties. In the UK, for example, an established business that only seeks to change its name will in theory retain its UK Company Number, which is registered at Companies House. It will also need to notify the UK tax authority (HMRC) of the change, as well as banks, landlords, any relevant compliance authorities and any third-party contractors it deals with.
Whether you plan to hire workers on-staff or as contractors, you will be dealing with contracts. Make sure you understand the language in a contract — some use unfamiliar acronyms, and others contain important clauses that get lost in translation. If a contract seems one-sided, don’t be afraid to question it and find out if it can be modified, and if not, what recourse you have if you can’t meet its demands. Some companies use standard contracts that cover a wide variety of situations and include clauses that don’t apply to you. These will require negotiation to reflect the preferred position.
Contract negotiation is not always straightforward, particularly since negotiation style varies by culture. In some countries, for example, negotiators may be indirect in stating what they want. Listen carefully and be sure to articulate your own needs clearly.
Business communications and privacy
Countries have different standards for balancing accessibility and privacy for office documents. If you’re in the habit of monitoring your employees’ email and other business communications, you should seek legal advice to make sure you remain compliant. Email communications are also subject to defamation law, so it’s critical to apply the same standard of care in writing them that you would use for your most important company documents.
You should also become versed in what kind of documentation you might have to release pursuant to an “access request” under the UK’s Data Protection Act (or its equivalent in other countries).
Advertising and marketing
Marketing communications are often regulated. The UK, for example, has an Advertising Standards Authority (ASA), which creates CAP codes for sales promotions and broadcast advertising. Singapore has an Advertising Standards Authority that reviews ads and has the authority to remove them and publish information about infractions for companies that violate the rules.
China recently overhauled its advertising laws for the first time in decades. The new laws, which went into effect in September 2015, restrict advertising for tobacco and baby formula. They also hold celebrity endorsers legally responsible for false claims, ban children under 10 from appearing in ads and require that anyone who promotes a product must have actually tried it. If you plan to advertise anything in China, you should seek advice on the position of both local as well as national authorities before publishing. There’s still a lot of uncertainty about related laws, and the application of laws in China can vary by region. If in doubt, seek advice.
You will need to get several types of insurance for your overseas operations. Generally, you will need to consider whether liability and property damage policies purchased in the United States extend beyond the US and Canada. Even if they do, some countries will nonetheless require you to purchase insurance from local providers.
It is critical to read your policies carefully, as coverage may not be what you expect. For example, many foreign fire insurance policies cover damage caused by a fire, but not by the sprinklers or water used to put it out.
Determining the type and level of your insurance coverage should be part of an overall risk assessment prior to establishing overseas operations. Crime, strikes, espionage — each country poses its own set of risks you should be prepared for. In Mexico, for example, some businesses obtain kidnap and ransom insurance. For any insurance contract, make sure you understand policy nuances before you sign.
Legal disputes and professional negligence
Most businesses operating abroad aren’t firmly grounded in the host country’s legal system. One reason is that the US is largely governed under the principles of English common law, while many other countries use a civil law system. Many of these countries place emphasis on the process of mediation and arbitration to avoid the necessity of going to court. The discovery process, which governs the mutual disclosure of documentation obtained by both sides, also varies by country and in some countries it doesn’t exist.
Prior to operating abroad, it is important to gain a basic understanding of civil law in your country of operation, including how to protect your business from an assertion of professional negligence. Learning a little about the European Union’s legal system and international business law can also be beneficial.
Patent rights in the US do not extend to foreign countries, but the Patent Cooperation Treaty allows US businesses to seek protection in up to 115 countries with a single international filing.
Depending on the country, a copyright can be automatic. Nations that are members of the World Trade Organization or the Berne Convention grant copyright protection to fellow members under their treaties.
For country-specific information, the US government offers intellectual property toolkits for the UK and other countries.
Paul Sutton, Head of Legal Advisory Group, contributed to this article.
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