Running an international business in multiple jurisdictions is an exciting endeavour, however there are a number of legal issues you should be aware of. Running an international business in foreign countries means that you have to comply with all relevant domestic laws if your business is about to prosper. The best advice in such situations is to consult trustworthy local legal counsel. It is worth however to have an idea what to expect beforehand.
“A successful economic development strategy must focus on improving the skills of the area’s workforce, reducing the cost of doing business and making available the resources business needs to compete and thrive in today’s global economy.”
– Rod Blagojevich, American politician
This article lists the most general legal issues you should be aware of when running an international business.
The first thing you will have to do when expanding your business to another country is to register the appropriate business structure. This can be a branch or a subsidiary of your own company, or a new entity, the choice is all yours. Whatever you decide you must consider the relevant company laws.
Not all countries have a business-friendly legal climate. Request the advice of local consultants to have adequate knowledge of the appropriate procedures, bureaucracy and amount of time you will need before being able to start operations.
Running a global business means you will employ staff in different locations. Employment laws differ substantially from jurisdiction to jurisdiction and are usually applied strictly by the local authorities. Making sure you comply with all relevant wage, health and safety and other legal requirements is a must for the proper operation of your business. Here are a few other key legal considerations covered by LegalVision.
Please note that violating employment laws may lead to severe penalties from the governmental authorities and even closure of the business.
Corruption Issues When Running An International Business
Corruption is still a major issue in most of the countries in the world. When doing business internationally, you will notice that every different State has various customs regarding the way business is done. In that regard, it often appears that certain payments or presents are asked in order to foster the development of your business on local soil.
Please be extremely cautious with such payments, as they can be considered a corrupt practice in other parts of the world. Especially if you fall under the jurisdiction of the US Foreign Corrupt Practices Act, you can get prosecuted for a payment that was presented to you as completely ordinary customary practice.
When deciding whether to expand your business to a different country by investing there, it is worth having a look if there are any investment agreements in place between your home country and country in which you intend to invest. There are numerous bilateral (between two states) and multilateral (between more than two states) agreements which goal is to promote foreign investment and afford substantial protection to investors.
Making use of such treaties is really beneficial, as they impose a number of obligations to the receiving state as to the level of legal protection they should afford to foreign investors.
Another important issue for businesses that operate on an international level is the respect for the fundamental difference between legal systems. There are generally two legal regimes – the Civil law and the Common law systems. The UK and USA are representatives of the common law culture, where legal precedent is the leading factor. Continental Europe is the core of the Civil law countries, where mandatory legal rules are the primary source of law.
The discussion of the differences between the two cannot be even slightly touched in such an article. As a basic consideration, it is worth knowing that such differences exist, and not to be surprised if the legal regime looks greatly uncommon to your previous experience when operating in a different jurisdiction.
Tax Laws Running An International Business
Compliance with tax regulations is a major part of the legal obligations a business has. When doing business internationally, you will have to pay taxes in all different locations. There are international agreements between states which support and ease such activities, and help businesses plan their tax obligations.
However, as tax laws differ substantively from country to country, it is worth seeking advice from a competent tax adviser in all locations your business operates. Tax is always one of many big issues for all businesses so don’t take this lightly.
IP Rights When Running An International Business
Intellectual property rights usually are assigned in each country you have applied. This means that if you have your company name trademark registered in one state, protection will be afforded only in this jurisdiction. The same premise is valid for patents. In practice, the consequences of this regime are that in order to have your IP rights protected, you should apply for such protection in any country you are seeking it.
If your business is operating in multiple jurisdictions, you have to apply to all of them one by one. Please note that this is not the case in the European Union, where there is a possibility of applying for a Community trade mark or for a European patent.
If you operate in a number of EU states, this is the best solution, as you will have to apply only once and will be entitled to protection in the entire European Union. You can see more about this here from NI Business Info.
Exclusive Distribution Agreements
Often times when entering a new market, you will be offered the opportunity of signing an exclusive distribution agreement with a single distributor, who will be the only permitted entity to sell your products. There are certain benefits to entering into such an agreement – usually, it allows faster and easier entry into the market.
On the other hand, however, it limits significantly growth perspectives, as you will not be permitted to allow a different distributor to sell or deliver your goods or services. Moreover, such agreements have stringent conditions and are hard to terminate.
Another disadvantage is the distributor who holds exclusive rights generally controls your business in this country, therefore can have substantive power over it. When offered such possibility, evaluate the pros and cons and consider carefully your decision based on your specific situation.
Final Words: Running An International Business
There you have it, the most important legal issues you must be aware of when running an international business.
Running an international business is an exciting endeavour but you must make sure your business complies with all legal requirements. Otherwise, you could find your business being derailed because of it.
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