Trading Overseas Driven by results
A guide to trading overseas This short guide highlights the main areas for consideration when establishing a business presence overseas. It covers a number of main legal issues experienced by UK based businesses when doing business overseas. This guide does not constitute legal advice. For tailored and detailed advice and guidance on the areas discussed below, please do not hesitate to contact any member of our International Team. Each country has its own laws and practices and these can be quite different to the position in the UK. In addition, some countries also have different laws and requirements at state or regional levels. It is therefore important to take advice concerning the country and region into which you are considering trading. There is also often a level of formality we do not have in the UK, in that public bodies will often require that any service providers, whether lawyers, accountants, banks, trade mark attorneys, patent attorneys etc. have a Power of Attorney from you before dealing with your providers. In some cases these documents will require legalisation (at the UK embassy or high commission of the country concerned or at the Foreign and Commonwealth Office) or notarisation by a notary in the UK. Some public bodies will also require documents such as certificates of good standing. These are all relatively simple processes and we can address them on your behalf. However, as the recipient of the Power of Attorney may have broad power to act on your behalf, these should be carefully considered. You should also be aware that some UK laws, for example in relation to bribery, corruption, data and intellectual property, are applied to UK businesses and individuals in respect of their activities and possibly the activities of others on their behalf overseas. It is permissible for a UK company director to be prosecuted for bribery offences where the bribery was conducted by an overseas third party on behalf of the company. 2
How can you trade overseas? There is no set legal structure which you must adopt to trade overseas. Each country will have its own corporate structures and particular requirements when establishing a presence in that country. You must also be aware that some countries have different laws and requirements at state or regional levels. As there is often no set legal structure, you will have the choice as to which trading vehicle you adopt for trading in an overseas country. Where you have a relationship with a third party as part of your chosen vehicle, whilst we would always recommend that you have a written contract with the third party, some countries will require this. Incorporating a company One method of establishing a local presence in another country is to incorporate a company in that country. If you currently trade through a company in the UK, the overseas company would be a separate legal entity to your UK company. It could be incorporated as a subsidiary and form part of your group. Many countries have a similar incorporation process to the UK, but there can be additional requirements. This can include the company having a minimum capital level upon incorporation (this often applies in Germany), registering with the local tax office and having a bank account in the country concerned. Benefits of using a company Many countries often retain the benefits of using a company in that liability is limited, a company is generally perceived as having a greater permanency and profits and losses can be kept separate from the rest of your group whether in the UK or overseas. In some circumstances, incorporating an overseas company may be your only option. For example if the relevant country requires that you have a local company in order to obtain regulatory licences or employ staff. It is not unusual for countries to have requirements that the shareholders and directors of companies are individuals and that those people are based in the country concerned. There can also be requirements that the company is more than 50% owned by individuals based in the country concerned. To comply with these requirements it is common to instruct a lawyer, accountant or other intermediary to hold shares or accept an appointment on your behalf. Some countries do not make as much company data public as Companies House does in the UK. As a result, some countries or states are used more than others as trading companies to minimise risk and liability when trading. For example, when trading in the USA, many businesses incorporate in Delaware. Ongoing administration A company is a more formal business entity and there are generally ongoing requirements which may include: Formal accounts and returns are to be filed. Information to be shared with directors, secretary and/or shareholders. Changes in the business must be recorded and filed. This can include the appointment of new officers, amending the company s rules, articles of association or memorandum of association, changes to share capital and changing the company s name or registered office. The company may have formal books that must be kept up to date. 3
The name of the company may need to be displayed at its main office and on stationery and websites. Forming a partnership or LLP Partnership Some countries recognise partnerships. A partnership is where two of more legal persons (individuals or companies) work together. There are generally no incorporation requirements. A partnership will begin once the parties start working together. We would advise that you have a written contractual agreement in place to govern a partnership. It is not unusual for countries to have requirements that a partner is or a majority of the partners are based in the country concerned. Limited Liability Partnership An LLP is a mix of a company and a partnership. There are no directors or shareholders but it has limited liability and the relationship of the parties involved is contractual. Where this is available, the incorporation process is often similar to that of a company. Creating a branch Many countries allow the establishment of branch or other place of business. A branch includes a place of management, an office, a factory or a workshop. The creation of a branch of your existing UK company can be the simplest way to establish a local presence abroad. This arrangement does not involve the creation of a separate legal entity as the branch forms part of your UK company. It is likely that a branch created in a country abroad will require registration with that country s companies registrar. 4
Acquiring a local business When acquiring a local business abroad, you will need to decide whether to acquire the assets of the business or the shares in the company. In either case, it is likely that detailed due diligence will need to be carried out by an overseas lawyer. Bear in mind that any acquisition will need to satisfy local requirements as to ownership of the acquired business. Joint Venture with a local partner This can be a lower risk method of expanding your business abroad as the local partner will have knowledge of the market and is likely to have an established local name or brand. You may also require the involvement of a local partner to trade in a particular area or take advantage of preferable taxation environments. One example of this is the Free Trade Zones in the Middle East. This option would involve a carefully drafted joint venture agreement governing the working relationship which our experts would be able to advise you on. Appointing a sales agent, reseller or distributor There are several forms and practices under which you can appoint a third party overseas to act on your behalf. The main options are: An agent markets your products or services and refers all interest generated to you; An agent sells your products or services and refers all orders generated to you; A reseller buys your products from you and resells these in the country concerned; A stock of products is maintained and called off by a reseller in response to sales; A distributor buys your products and sells these in the country concerned, typically to wholesalers and retailers as opposed to the general public. This option can give you a greater presence in the market than exporting directly to end customers, however, the costs can also be greater. Legal advice should be sought prior to appointing an agent as agency laws can be complex, particularly within Europe. There are often requirements that agents are compensated at the end of the relationship and some countries require that agents are also able to sell their agency, which could mean you are left with an agent you haven t approved. Some countries have particular laws dealing with the contracts with distributors. For example, you must set the prices at which you supply French distributors by 31 March each year. 5
Licensing and franchising You may choose to grant a licence of your intellectual property rights to an overseas business allowing them to manufacture and/or distribute your product. Alternatively, franchising would involve you granting a license to a business abroad which entitles them to trade as their own businesses under your brand. Direct exporting This can involve lower costs than the options listed above and your UK business would retain complete control of the operation. However, this is not always possible and some countries require a presence in their country. A disadvantage is that you would be distant from the market which could impact on your ability to meet customers needs. The UK Trade and Investment s website contains useful information regarding this area including export guides specific to individual countries. Legal advice should be sought prior to exporting directly abroad, particularly in relation to your standard terms and conditions of business. UK Trade and Investment s website: https://www.gov.uk/government/organisations/uk-tradeinvestment Export guides specific to individual countries: https://www.gov.uk/government/collections/exporting-country-guides You will need to be aware that countries often have their own laws in respect of particular services, such as gaming and as to advertising products and services. For example, images of people in swimwear are unacceptable in some Middle Eastern countries and gambling services are generally unlawful in the USA. Some countries, such as the USA employ export controls for products and capital. Electronic commerce This area is often heavily regulated in most countries and you will need to take expert advice to ensure that you are compliant with the relevant legislation and regulations. Some countries stipulate that you must incorporate a company in their territory prior to setting up an online business. 6
Commercial premises Property overseas can usually be secured by way of a purchase or by taking a lease. Where property is leased you will pay a rent (quarterly or monthly) which is based on market conditions at the time. At the end of the term of the lease you can either negotiate for a renewed lease or leave the property, depending upon your commercial and practical needs. You should always take legal advice when entering into a lease arrangement as the law surrounding property can be complex and tenants can be asked to take on some fairly onerous responsibilities - we can advise and negotiate on your behalf to ensure the arrangements are as advantageous as possible. Property will often attract a range of taxes, such as stamp duties, wealth tax and usage taxes. It is not uncommon for tenants to be asked to provide some security for the payment of rent, such as a bank guarantee. Some countries will not permit payment of deposits in cash. This can especially apply where the tenant does not have a trading record in the country concerned. Some countries require that deposits where a sum of money is held by a third party on behalf of the landlord as security, can be drawn from if the tenant has not paid its rent or has committed some other breach of the terms of the lease. Some countries apply rules that property interests can only be owned by individuals and businesses based in the country concerned. As mentioned above, the law of property interests can be extremely complicated and tenants and buyers of property are always strongly advised to take legal advice before entering into any arrangements. The earlier a buyer or tenant appoints a lawyer, the better. 7
Employment When starting to trade, you are likely to need staff. If you are moving your own staff to the country concerned there are likely to be immigration and qualification issues in the country concerned. Most countries will provide employees with a range of legal rights which include: You may be required to give every employee a written statement setting out the terms of their employment There may be a national minimum wage which depends on the age of the employee. There can be a limit to how long an employee can work in a week. There may be requirements as to providing pensions for employees You may be required to pay statutory sick pay in certain circumstances Workers may be entitled to a minimum amount of paid holiday leave There may be leave periods for parents and carers Employees may be protection of their employment There may be flexibility requirements There may be anti-discrimination laws You may also consider engaging consultants to perform services. Typically this is in areas such as IT. Consultancy agreements can be more flexible and can avoid many of the requirements of employees but need to be carefully entered into. 8
Commercial issues Standard terms and conditions Most businesses operate under their own standard terms and conditions. There may be restrictions on what can go in standard terms and conditions and common issues relate to payment terms, delivery terms and limitations on liability. Some countries require that liability clauses are in block capitals. There are also extra rules when trading on-line and selling to individual consumers. It is quite normal to have different terms when you are buying goods and services and when you are selling goods and services. Many countries apply different laws whether you are selling to other businesses or to individual consumers. You may also have contracts with third parties in the supply chain, such as freight forwarders and these may be based in other overseas countries. There are rules about which party s terms apply to a relationship. You will need to take care to ensure your terms apply. It is possible to retain ownership of products sold, allowing you to enter your customer s premises and take back goods which have not been paid for. This is called retention of title and is common in supply contracts. You should consider whether such a term (if recognised in the country in question) is practically enforceable, i.e. will you be able to go to the customer and recover your products? Incoterms are recognised and widely used in international commercial contracts. Some countries will not allow a choice of the law applicable to the contract or how disputes are resolved. You will need to ensure that there is an appropriate means of resolving any dispute which may arise and that any resolution can be enforced against any third party overseas. Insurance You should ensure that your insurance cover applies in the countries concerned. Many insurance policies which are described as Worldwide, will often exclude the USA and Canada. You should also make sure you are aware of and comply with any regulatory and testing requirements which may apply to your products. For example, if you export an alcoholic drink, the age at which customers may purchase the product will differ from country to country. Credit checks It is not always easy to conduct credit checks and searches on third parties and customers. In particular some countries are purposefully opaque in respect of corporate information. Taxation You should ensure your overseas activities comply with local tax rules and also with the rules in the UK. You should take specialist tax advice as the position can be complex and there are particular rules which apply when trading overseas or when exporting products and services. 9
Intellectual property Intellectual property rights are territorial and you will need to protect your IP within the overseas countries into which you intend to trade. As a general rule we would advise that you protect your rights in every country in which you have an interest, such as where products are sold and where they are manufactured. The main intellectual property rights recognised overseas are: Copyright this prevents another from copying the work in question. Protection often arises automatically and usually lasts for many years. Some countries require that copyright is registered to be enforced or that by registering your copyright, you are more easily able to enforce your rights or claim a higher level of damages. Patents in order for an invention to be patentable, it generally has to be new, involve an inventive step and be capable of industrial exploitation. Patent protection must be applied for and gives the owner a monopoly to exploit the invention. There are various patent treaties and systems which allow applications to be more easily made overseas, for example, there is the European Patent. The rules on patentability differ between countries as some countries will, for example, allow patents for computer software. Design right a right that prevents the copying of the appearance of a product. Some countries address this as a form of copyright. The rights in designs can be unregistered and sometimes registered, some countries allow both. There are also some design rights which apply across many countries, such as the European design right (which has both registered and unregistered forms). Some countries recognise utility models and design patents which are often thought of as combinations of patents and designs. Trade marks can be registered or unregistered. Registration gives the right to stop others using a trade mark in connection with a particular class of goods or services. Registered trade marks are generally easier to enforce than unregistered trade marks and sometimes you can receive assistance from public bodies to stop infringement. This can include customs officers seizing infringing products when entering the country. Protection can be obtained by registration either in individual countries or in regional blocks (such as the Community Trade Mark covering all member states of the European Union), bodies such as the World Intellectual Property Office can also assist. You should register marks before entering a country as some countries allocate trade marks on the basis of who is first to apply to register the mark and not who is first to use the mark in commerce. Some countries are members of trade mark groups which allow full or partial recognition of each other s trade marks in particular circumstances. For example in South America there is the Andean Pact. 10
The International Team Jeremy Shulman Head of International Services Direct Line: 0113 297 7722 Mobile: 07949 175 679 jshulman@shulmans.co.uk Dawn Carlisle Commercial Property & Portfolio Management Direct Line: 0113 297 8957 Mobile: 07950 723 121 dcarlisle@shulmans.co.uk Rob Lucas Head of Intellectual Property Direct Line: 0113 297 8941 Mobile: 07950 722 468 rlucas@shulmans.co.uk Jim Wright Employment Direct Line: 0113 297 8938 Mobile: 07974 193 992 jwright@shulmans.co.uk Maria Fert Commercial Property Direct Line: 0113 288 2738 mfert@shulmans.co.uk Shulmans LLP 10 Wellington Place Leeds LS1 4AP Shulmans LLP 2016 11