5 Legal Considerations For Businesses Going International

Taking your business international is a major milestone. However, there are legal issues you should know about. Operating your business in a foreign country means complying with local laws. It is best to consult a local legal counsel to keep your business in compliance. The following are five legal considerations for businesses going international.

Business Structure

When you expand your business to another country, you need to register the right business structure. You may create a subsidiary or branch of your company. Or you may choose to create a new entity. Whatever you do, you must comply with the laws in the country you will operate in.

Many countries are not business-friendly. You will need to work with lawyers in that country to understand the bureaucracy to start and protect your business.

Employment Laws

Running an international business means hiring people in different countries. The employment laws in the United States differ greatly from employment laws in other countries. Even within the same country, employment laws can change from municipality to municipality.

Your business must comply with safety, health, and wage requirements. Violating employment laws can lead to massive penalties. Most governments scrutinize foreign businesses. Foreign businesses are held to a higher standard than their domestic counterparts.

Corruption and Customs

No country has a monopoly on corruption. However, corruption is more blatant in some countries. You may find that corruption has been baked into the legal process. Your business may not get the needed permits or licenses without paying a bribe. They may present bribes as payments to foster local development. At the end of the day, it’s really a bribe.

In other countries, corruption is prevalent but hidden. You may be required to pay a bribe to move things forward, but the bribe is illegal. If you get caught paying a bribe, you may find yourself on the wrong side of the law.

There can be legal consequences for you in the United States as well. The Foreign Corrupt Practices Act (FCPA)means that you may be prosecuted for paying a bribe even though the bribe was presented as if it were a customary practice.

Tax Laws

Complying with local tax laws is a major part of operating on foreign soil. When you do business internationally, you need to pay taxes in several locations. Just look at how Amazon started and charged different taxes based on the states and countries it ships products to. As an international company, they need to abide by international agreements when paying their tax obligations.

Being successful internationally requires the ability to mix knowledge with risk-taking. Operating internationally for businesses like Amazon is a risk. However, Jeff Bezos is not afraid of risk. He will be the first to point out that many of the ventures Amazon engaged in domestically did not work out. Jeff is quoted as saying, “Nine times out of 10, you are going to fail. However, every once in a while, something is going to work out.”

Many business owners are afraid of being on the wrong side of a foreign country’s tax laws. They prefer to play it safe. The returns they get line up with their risk tolerance. Jeff Bezos, and other entrepreneurs like him, push the boundaries and see the results.

Exclusive Distribution Agreements

When you operate in a new market, you may be given the opportunity to sign an exclusive distribution agreement. Only one distributor may sell your products.

Agreements of this sort can be beneficial. It is easier and faster to get your products to market. However, your growth perspectives are limited. You won’t be able to let another distributor sell your products. These agreements usually have strict conditions that can be difficult to end.

The distributor who has exclusive rights to your product or service controls your business in that country. This gives them power over it. It is good to look at the pros and cons of these legal documents before committing to exclusivity.

Conclusion

Legal considerations are important when running an international business. Doing business internationally is exciting. However, if you don’t understand the laws where your business operates, you could lose a lot of money and have a lot of legal problems.