Guest post by Steve Wilson, Osborne Clarke
One of the clearest trends in recent years is that overseas expansion is becoming a consideration for every business almost from the point of start-up onwards. It used to be the case that you wouldn’t need to worry about overseas operations until you had a minimum of 3 rounds of funding under your belt, but those days are gone. The internet is truly viral and the result of that is that anyone anywhere can access your website and buy your goods or services. Unless you pro-actively restrict access to US residents only (or in certain countries, the government will kindly put the restrictions in place for you!), you are likely to receive interest, orders and even complaints from customers located outside the United States.
If your business is focused on B2B transactions, then you face fewer issues than if your customers are consumers. Corporate customers will often be willing to trade on your terms of service, deal with the import and trade regulations and comply with the local tax themselves. They will however, also insist that products delivered comply with local safety standards, include adequate labeling and packaging and are fit for them to onward sell. Care must be taken on the contractual arrangements entered into with resellers, to avoid claims that they are employees or protected by other laws (in Europe, commercial agents have rights to compensation on termination).
If your business deals with consumers, then the level of compliance increases significantly. In Europe, each country has its own laws, language, currency, taxes and culture: all of these combine to create numerous hurdles which most start-ups are neither equipped nor interested in dealing with. As a result pragmatic approaches need to be taken to reduce risk, whilst while servicing customers and attempting to grow markets overseas. Many tech companies approach these barriers by looking to comply across regions, rather than countries. Although Whilst it’s not perfect, it does allow an element of compliance, recognizes that certain steps needs to be taken to protect consumer rights and provides a first line of defense if a serious complaint is made or action by an overseas regulator is taken.
To this point, it’s been assumed that there is no physical presence in-country. As soon as an employee is engaged, a number of additional filings, registrations and steps need to be taken. One of the most basic errors that companies make taken when expanding overseas is to assume that doing business must follow the same approach as at home. This could not be further from the truth. Not only does the concept of employment-at-will not exist in Europe, but employees have numerous rights and are well known for using them. Incentivizing employees in the US through the issue of stock options is often vital in the war on talent: in certain overseas countries, it is neither expected nor advisable. Tax rules can often make cash bonuses a better (and simpler) alternative or sometimes, with some basic amendments you can amend your US stock plan to be tax-efficient for overseas employees.
Setting up overseas subsidiaries is often advisable and needs adequate preparation on what entity to use, how long it will take and how much it will cost. Each country has different filing requirements, many of which are the responsibility of the local directors. Sometimes, the Board can be made up of parent company officers and other times a local resident must be on the Board or appointed to a particular position.
Not surprisingly, covering such a wide topic in a single blog is impossible. However, hopefully the above illustrates the need to prepare, take proper advice and consider what approach you want to take to overseas sales. There are lots of pitfalls for the unwary, but there are also lots of resources to help guide you through unfamiliar territories. The world really is getting smaller, so it’s worth recognizing that from the word go!