International development: legal challenges | Commercial law

International development: legal challenges | Commercial law

Annabelle Gauberti

Annabelle Gauberti

April 9, 2019 12:42 PM

In order to develop one’s market and increase turnover potential, a company should widen its business internationally.

What are the legal and commercial aspects that need to be checked, in order to ensure a successful international development?

1. Draft a business plan

Firstly, international expansion starts with drafting a business plan, comprising, in particular, a budget forecasting the transaction costs, cash flow projections and cash flow statements, as well as income statements on a 5 to 7 years’ period, and a SWOT analysis (Strength, Weaknesses, Opportunities et Threats).

2. Find the necessary funds

Secondly, it is necessary to raise funds, either internally, by using the reserves or a share of the operating result, or externally, by soliciting financial support (in particular with organisations such as Oseo, BpiFrance, Coface, Business France) or by borrowing with banks. It is also possible to reach out to investors, business angels, capital-risk or capital-venture funds, if your company shows very high growth prospects and if you are ready to transfer a share of your company’s shareholding capital.

3. Be well protected

3.1. Insurances

Moreover, and in parallel with the steps described above, it is appropriate to reduce all the risks, in particular legal, linked to the international expansion.

In particular, it is necessary to check the professional indemnity insurance policy which covers your company, as well as its international transactions. IF so, on which geographic territories are you covered? Up to which amount? Are there any exclusion clauses to the insurance cover abroad ? Which ones?

3.2. Intellectual property

Moreover, it is essential to protect your brand well and, if possible, the designs of your company, internationally, within all the territories where you intend to expand your activity. Thus, it is recommended to register your trademark in the countries which manufacture your products as well as in the countries where these products are sold. International extension of your trademark – French or European , is therefore de rigueur.

The same applies to designs which constitute the most important intangible assets of your company. For example, a bag which is the cash cow of your business, because its sales represent more than 20% of your annual turnover, must be protected through the registration of a design with the EUropean Union Intellectual Property office and, if possible, other intellectual property offices abroad.

4. Growing your business abroad, either on your own or through a third party

International development can occur in various ways:

  • either the company will invest on its own, by leasing some premises or a shop located on the desired foreign territory;
  • or the company will delegate the management of the international expansion to a third party, such as an agent, a distributor, a licensee or a franchisee. It is therefore necessary to set up and negotiate appropriate agreements, which will rule the relationships with the landlord, in case of a direct expansion by the company, or with an agent, distributor, licensee or franchisee. These contracts are complex and often set out some mandatory provisions required by the law in force. It is therefore necessary to obtain legal advice, from counsel located in the foreign jurisdiction in question, before signing anything with the other party.

If you develop your business on your own, abroad, you will have to ask yourself whether you need to incorporate, or not, a new company which will be located on the territory which is the object of such expansion. Will this new company be a subsidiary, a branch, the parent company, a sister company of the French company? What is the most advantageous for you, from a tax and accounting standpoint? Again, in this case, it is necessary to seek advice from your lawyer, so that your counsel may conduct in depth research on the pros and cons of each option. Your counsel may also connect you to competent chartered accountants, in the country where the international expansion is taking place, who will be able to manage the accounting of the new legal entity.

5. Make sure to comply with local consumer law

If your business sells products and services to consumers, there is a high probability that a legal framework is in place, in the country where you intend to expand, to protect its consumers. You therefore need to inform yourself about such regulatory framework, before starting to sell your products and services to consumers abroad, in order to ensure that your wares will be offered in compliance with the laws in force. Otherwise, beware of administrative, legal and even criminal proceedings and actions which may target your company, especially if you sell products off premises (on internet, at fares, markets, trade shows, etc.).

International expansion is a dynamic and fascinating project for your company, which may increase exponentially its sales’ impact. However, risks are high, from a legal and tax standpoint, and it is necessary to prepare with details such international adventure, in order to minimise all these risks. To this effect, seek advice from a specialised lawyer becomes indispensable.

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