Starting A Business Abroad: How To Choose The Right Structure

Posted on 18. Dec, 2009 by Emmanuelle Archer in Blog, Expat Entrepreneurs, Expat Life
2 comments

First step to turning your business dream into reality: setting up your company.
Which essentially means choosing the right legal structure for your business.
The specifics vary widely from country to country, so here is a list that will allow you to find out what you need to know, no matter where in the world you live.

Where to get information

- Get your information directly from the source, i.e. a government office or an organisation dedicated to helping small businesses (tip: bring a book with you to survive the long wait, and dress in layers – for some reason, government offices are always either freezing cold or overheated.)

- If you’re not completely fluent in the language, bring a translator. You need precise, accurate information, so anything less than understanding and being understood 100% is not good enough here.

- Be aware that in some cultures, government workers will not volunteer additional information unless you specifically ask for it. It’s only when you try to drop off a form that you’ll learn you need to fill another three, without which your file won’t be processed. Go online or chat with fellow business owners beforehand, to get a feel for what questions to ask.

What to watch out for

- Complexity and cost:

• How much paperwork is involved? What are the fees?
• Do you have to set up a complicated legal structure, or are there simpler options (like a sole proprietorship) that would fit your situation better?
• Can you do the legwork yourself, or do you have to hire a lawyer? How much is that going to cost?
• What type of reports and statements are you legally required to file, and how often?
• Can you file part of the paperwork online?

- Taxes

• What tax rates apply to your business structure? How do they compare with other structures?
• Will you be taxed twice (corporate income and personal income)?
• What expenses can you deduct? What is tax-exempt?
• Are there any sales taxes, or other taxes, that you must collect from your clients? How does it work?
• Can you file your company’s tax returns yourself, or do you need to hire an accountant?

- Protection

• Is your company name protected?
• What happens should a client sue you? Can they go after your personal assets, or just those of the company?
• What if your business partners don’t fulfill their obligations? How well do the local laws protect you? How much do you stand to lose?

- Image

• How does your legal structure reflect on your company’s image?
• Does it say “fly-by-night side business”, or does it show that you’re here to stay?
• Is it worth setting up a more complex/costlier structure if it will instil more confidence in your clients?

- Flexibility

• Can you easily change your business name?
• What happens if you outgrow your current structure (e.g. you want to bring in business partners, or your income grows and you need a more favourable tax rate)?
• Can you make changes to your legal structure, or would you have to dissolve your company and create a new one?
• Should you need to part ways with a business partner, what happens to the company?
• How easy would it be to sell your company?

Specific situations

- Look into the lightest, simplest business structure available in your host country (similar to a sole proprietorship), if:

• You’re setting up a side business
• You will be leaving the country in a couple years’ time
• You’re doing freelance work under your own name

- For all other cases, a more sophisticated structure (similar to an incorporated company) is worth considering:

• Your assets may be better protected
• Tax rates may be more favourable
• Your business will look more solid and gain credibility

- Be extra cautious if you’re setting up a partnership or joint venture

• Hire a lawyer to set up the business structure, and consult an accountant to discuss tax implications
• Think of the worst-case scenario (underperforming partner, litigation, having to dissolve the partnership…) and develop a solid contingency plan
• Clearly spell out every objective, responsibility and expectations – remember that not every culture sees partnership the way you do, nor does it necessarily have the same idea of what’s “fair” or “normal”
• If you partner up with someone from a different background, expect cultural differences to come into play and possibly cause conflict. Getting some cross-cultural training beforehand may be a good idea
• Be aware that in some countries, a signature on the dotted line hardly means an etched-in-stone commitment. Many partnerships are struck with a handshake, and fluctuate depending on a subtle network of family relationships, ethnic or religious lines, or plain old self-interest

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Emmanuelle

Images by jk5854 (top) and crysb (bottom), both via Flickr Creative Commons