Conquering Unknown Markets: The Legal Aspects

For many businesses looking to expand into overseas territories, it is often a leap of faith that is required after overcoming initial fears and an internal cultural change for both managers and employees. Quite often the focus is so much on culture (both internal and local), relationships and day to day operational matters, that the legal implications can often get overlooked.

However, getting the legal side of operating in a new territory right from the outset is vitally important. This is where a relative small initial investment in some professional advice from lawyers and accountants (amongst others) can look like a drop in the ocean compared to the potential consequences and costs – in terms of your finances and reputation – of getting it wrong.

The factors that need to be considered

The main factor to be considered is how your business is going to actually operate your overseas operations. Can you (or should you) do it through the existing UK based company direct into the various overseas territories you want to target, or is there a requirement to formally set up some form of limited company equivalent or branch registration in the relevant territory before doing so. This often brings financial and tax implications and should be carefully considered.

If you go down this route there are multiple factors and queries to be addressed from which laws and regulations apply to the contact between your business and your overseas customers: How do you get paid and in what currency? How do you protect against currency fluctuations and the risk of non-payment (where getting involved in overseas litigations may make it virtually pointless trying to recover monies you are owed or reclaim goods you have supplied)? How do you protect and exploit your intellectual property rights (especially in certain countries perceived as “an intellectual property rights blackhole”)? What insurance do you need in place and are any local licences, consents or permits required to be in place before you commence trading in the relevant territory?

In addition, are there any local taxes that apply on the import and sales of your products and are there any local laws that apply to your goods or services that may be vastly different from the English laws and regulations you are familiar with? This may include things like product safety requirements and packaging regulations as to what the packaging and labelling on your goods has to say.

Local help may pay off

If trading direct into a new territory is a step too far, you might consider working with a partner in the relevant territory either through some form of joint venture company set up in which you both have a shareholding and say in decision making. Another option is via some form of distribution arrangement (where you sell the products to a distributor based in the relevant territory (at a lower margin price), who then sells the goods on in that territory (at a mark-up which the distributor retains). You may consider using an agent, who negotiates sales between you and customers in the territory and takes a percentage cut of sales concluded.

Quite often having a local representative on board helps by either shifting the burden onto the local partner for issues around local laws, licences and compliance issues or at least providing assistance in relation to these matters by someone who understand the local laws and regulations as well as the local customs and culture, the importance of which is often underestimated.

Once you have decided on your structure you need a carefully drafted agreement, governing the relationship where each of the parties fully understand the law that applies to the contract and any quirks under that law that may impact on what the parties intend.

One example here is the appointment of an agent in the European Economic Area where the role of an agent is governed by European wide legislation that often, frequently unbeknown to businesses but well known to the agents, favours the agent in terms of termination payments (which can be substantial), if you try and terminate the agency agreement at some point in the future.

Who can help you succeed overseas?

This documentation needs to be drafted with the benefit of legal advice from qualified legal advisors in all relevant territories. For example, you may agree to have an agreement governed by English law for the sale of goods to another territory. However, if the legal position in the territory concerned prevents the sale of the goods in question or overrides the choice of English jurisdiction, then you would not know this unless you get a lawyer from the relevant territory involved as well.

From personal experience the UKTI (UK Trade and Investment) offers an invaluable service to businesses looking to expand overseas into new territories. This ranges from local market research all the way through to making introductions and hosting meetings via the embassies in the territories concerned and we have heard nothing but good words spoken by clients who have expanded overseas in relation to the help, assistance and support they have obtained from UKTI.

For further advice on getting the legal side of expanding your business overseas, please do not hesitate to contact Christian Mancier at Gorvins Solicitors christian.mancier@gorvins.com.

You can also follow Christian to on Twitter @mancier.