Top ten legal considerations for international business

UK companies are increasingly looking to do business in foreign jurisdictions. They might be looking to act as a service provider or supplier of goods to a foreign entity abroad or establish a branch or entity overseas. There are a number of considerations to take into account when conducting international business, such as differences in culture, language and legal systems, which will greatly influence the success or failure of international business.

1. Due diligence

Do your homework to understand more about the entity that you are contracting with, especially if you don’t know who they are. Ultimately, how easy will it be to enforce the terms of a contract against an international counterparty – especially in their home territory? We suggest that time is spent on understanding who the international counterparty’s owners are, their influence in the territory and their reputation in the market, especially when doing business with foreign companies.

2. Contract terms

When doing business abroad, it is essential to ensure that a clear and well-drafted contract is agreed to and signed. In particular, any such terms will need to be enforceable in the country where goods and services are being provided. You will want to tailor your terms to each country in which you do business, and ensure that they are legally enforceable in each jurisdiction.

It is important to consider whether there are any peculiarities to take into account, for example, how does the contract need to be signed? Does it need to be registered? Will an English language version of the contract prevail over a local language version? There could be differences when operating in a Civil Law jurisdiction as opposed to a Common Law jurisdiction. If relying on terms provided by the international party, the risks associated with entering into such a contract will also need to be considered, especially from a local law perspective. If something were to go wrong, what could potentially happen to your business there? How easy is it to terminate the contract when things go wrong?

3. Business structure

UK businesses that are looking to set up an establishment abroad, should decide on the right structure. Tax reasons aside, these structures can differ from jurisdiction to jurisdiction. A business should consider whether it wants to limit its liability in the host country and establish what is required domestically to do that.

Consideration also needs to be given to any restrictions for foreign businesses and the need for a local partner. For example, in some Gulf countries, there are foreign ownership restrictions but countries such as the UAE and Bahrain have started to relax these.

When considering business structures, also take into account the requirement to employ staff and whether there is a requirement to employ local staff. Some businesses may prefer to contract with a local joint venture partner or appoint an agent. Any business looking to enter a new market should carry out its due diligence on such partners as discussed above to ensure that it properly knows such a partner and puts in place mechanisms to ensure that it is protected.

4. Intellectual property

If you are expanding from the UK, protecting your intellectual property (“IP”) can become very important, especially when it comes to sharing ideas with an unknown entity. IP protection from the UK will not always apply in other countries. International businesses may find it difficult to protect their intellectual property while conducting business overseas, mainly due to the lack of information related to IP. It is important to consider the territorial nature of these rights, as that which is registered in one country is not protected in another.

Therefore, it becomes important to register any patents, trademarks, design rights, or copyrights in every country in that you want to sell your products. There is the option of either applying in each country and following the respective procedures for the registration of IP, or you may consider whether there is an international route available for the registration of IP. The World Intellectual Property Organization (WIPO) administers the Madrid, Hague, and PCT Systems, which conduct the international registration of trademarks, designs, and patents.

5. Data protection

Any business that transmits personal data outside of its own country needs to now be increasingly aware of the issues surrounding the protection of personal data. It must ensure that any personal data collected or processed is protected and secure.

It is important to consider the local laws around handling personal and sensitive customer data and that breach could expose a business to sanctions and fines. Many governments around the world are now adopting data protection legislation and the rules vary from country to country.

6. Security bonds

It is common for certain clients to expect suppliers of services to provide security or performance bonds, especially in relation to large projects with government entities. These requirements can be onerous and sometimes be a critical barrier to providing services in jurisdiction. Careful negotiation is required around this issue.

7. Governing law

The governing law of a contract is often heavily negotiated by UK companies. It is common for UK companies to insist on the governing law being English law and the courts of England and Wales having jurisdiction. If a foreign party agrees to this, it is important to consider whether the courts of that country will recognise such a provision. Similarly, even if it does, will the courts in the jurisdiction enforce judgments of a court in England and Wales without reopening the merits of the case?

8. Arbitration

To settle conflicts, some businesses prefer to rely on arbitration instead of adjudication by a local court. Arbitration offers a good alternative to courts provided that the courts of the local jurisdiction recognise arbitration awards and clauses. It is important to check if the host country is a signatory to the New York convention which ensures that signatories recognise such awards in the same way as domestic awards.

There may also be local requirements that need to be followed by a party to ensure that it can be bound to an arbitration clause. Considerations such as seat of arbitration, arbitration rules and language should also be considered.

9. Free trade agreements

The UK has signed a number of bilateral agreements with various countries setting out certain obligations affecting trade and goods and services between the countries. It is worth considering whether any such agreement is in place between the UK and the host country, as this may facilitate doing business in that country. The UK is currently negotiating a number of free trade agreements including one with the Gulf Cooperation Council.

10. Culture and customs

Whilst not a legal issue, consider where you are doing business and the cultural considerations involved in negotiations and successful business practices.

It is essential to use legal advisors who regularly advise businesses dealing with foreign countries. Likewise, lawyers who have practised or qualified in certain jurisdictions will have unique, specialist knowledge in engaging with local firms and doing business internationally, making them well-placed to provide the right advice.