International Business Law Organizational forms of entering foreign markets Mgr. Tomáš Gongol, Ph.D. International Business Law PEM/NPPMO Organizational forms More extensive prospectus oAdvantage: §More accurate operating and controling of company activities – unlike operating of contract partners §First-hand contact with customer oDisadvantage: §High cost for maintantance §Impact of foreign revenue tax measure §Foreign jurisdiction – czech company can be sued abroad §Possibility to highly protect empoyees by labour-law provisions §Plenty of formalities – foundation, during operating Organizational forms of entering foreign markets •joint venture •Subsidiary company establishment oEstablishment of organizational branch abroad oEstablishment of foreign form of corporation abroad •Establishment of community interest company •Acquisition •Merger • Joint ventures Form of business or production agreement between subjects from at least two countries, co-venturers share revenues, expenses and assets and also losts Corporate ventures •Creates incorporate person (most commonly corporate enterprise and single-person corporation) •Advantages: stableness, often bigger capital •Disadvantages: long time and expensive founding of a company, rigidity and time-intensive concerning changes and liquidation • Joint ventures Contractual ventures •Doesn´t create incorporate person –investors just signed up to cooperate and their discretions and duties are regulated •Advantages: elasticity and less financial costingness •Disadvantages: some of field of international business can be are reserved only for incorporate person Joint ventures examples Partners who take benefit from their the other partner •Foreign company can offer e.g. Financial capital, well-known brand... •Domestic company puts in knowledge of local market – very often in the area of electrotechnics •KONE – TELC (institutional joint venture) oFinnish KONE and Japanese Toshiba Elevator and Building Systems Corporation (TELC) oEstablishment of independent corporation „Joint-venture“ in China §Kone - production line §TELC - technology oKONE has 70 % and TELC 30% of shares oToshiba lets KONE produce high-speed double-floor lifts with technoloy based on proven brand of Toshiba and Toshiba gets access to new markets •Škoda - Volkswagen • Establishing of subdivision abroad Non-independent subdivision - branch (organisation unit) oLegal entity identical with the exporter oContractual relations with foreign business partners are concluded through an organisational unit. The contractual party is always the czech exporter. oSubdivision which is driven by a leader represented the parent company is “only” a mediator in closing deals (concluding, mediate) Establishing of subdivision abroad Independent subdivision (local business company) oIndependent foreign legal entity - „daughter company“ oNot only negotiating but also entering into contracts on its behalf and on its own responsibility oSubdivision doesn’t have to be established only by one czech founder but also can be established in cooperation with other entities. They will be participating on its activity finacially or otherwise Widespread legal forms of business companies in Europe Favorite versions of Czech „s.r.o.“ oGerman „GmbH“, §Minimal basic capital 25 000 EUR oBritish „Ltd.“ §Minimal basic capital 1 GBP oDutch „B.V.“ §Basic capital 18 000 EUR Favorite versions of czech „a.s.“ oGerman „AG“ §Minimal basic capital 50 000 EUR oBritish „Plc“ §Minimal basic capital 50 000 GBP oDutch „N.V.“ §Minimal basic capital 45 000 EUR • Tady jsem jen zlehka upravila sjednoceni. Zaprve nejdriv cislice pak menu a zadruhe jsem anglicky prelozila jako British ne English, z duvodu ze Anglie neni Britanie a tak by vyraz English mohl byt zavadejici. Stejne jako Dutch – Holland. Current situation of corporate law in EU •The EU single market: oGuarantee for all companies which are established under the law of EU member states, so called “national treatment” §Enterpreneurs have the same rights as national entities •Legal regulations of member states are harmonised (european standards) •E.g. publicity of index data, cunsumer protection, protection of minority shareholders • Enterprise of foreigners in accordance to Trade and Commercial Code (national treatment ) Enterpreneurship – Trade Code (§5/2) oForeign person can do business under the same conditions as citizen of the Czech republic §te. Has to obtain business license in Czech §If the person is not from EU: there is need to document a proof of visa or residence permit Enterpreneurship - Commercial Code (§ 21/4) oAnthorisation of foreign person to enterpreuting in territory of the Czech republic is created at the day of registration the person (or organisation unit) to the Commercial Register §exception.: doesn’t apply to natural person which is citizen of EU member states or EC or Switzerland. • Cross border services providing •Act. No. 222/2009 Coll., on the free movement of services •The cross border services principle oAllows provider to provide services temporarily and occasionally on territory of another member state (using business license from home country) •Providing services by entrepreneru which has not been settled in country where the service is provided oE.g. interpreter, who gets an offer from spanish company to interpret for czech visitor in their spanish branch; or czech carpenter who is supposed to manufacture beams in the construction of church in Slovakia Cross border services providing •Self-employed persons do not have to apply for qualification recognition if they want to provide cross-border service oIt’s enough is they have permission to provide those services from home country oSome services were excluded (permanently) oE.g. postal, transport and financial services, providing of health care • •Law has a system of approving documents and meeting the critirie •Land also principle of silent partnership oIf trade license office won’t respond within the deadline, it’s understood that the permission is approved Participation of foreign subject in legal entity •§ 24/1 Comercial Code: A foreign person can for business purposes: oParticipate in formation of Czech legal entity or oParticipate as partner or member in czech legal entity already established oAlso can establish czech legal entity by itself • In practise it’s the most common form of contributing foreign capital to Czech republic Place of business relocation •Favorable tax conditions •Better position of majority partner towards minority one •Less strict liability of partners •Weaker or no participation of employees in Supervisory Board •Higher quality of workforce •Lower labour costs •Financial suport from local agencies •Providing better access to local market •More flexible and quality legal system Possibility of place of business relocation within the EU area ? The question of harmony with Community law – i.e. freedom of establishment Addressed to the European Court of Justice (ECJ) several times Daily Mail case 1988 oIt was about the possibility to relocate the place of business because of tax reasons. From United Kingdom to Netherlands. European Court of Justine excluded this possibility. The primary freedom of establishment belongs only to individuals. Centros case 1998 oIt’s not possible impose a ban on registration of a brand with justifying that the company was established according to legal order of country (in this case UK) where has no activity Inspire Art case 2003 oMember state of EU where the branch of the company is cannot change or regulate any law concerning minimum capital of partners of that company Competition of legal order in EU Conclusion of ECJ decisions: 1.Relocation of settlement abroad is not possible 2.Establish a company abroad is possible 3.Locate a branch of a company abroad is possible => Decision of ECJ allowed so called competition of legal orders oentrepreneur chooses a legal order which suits him the best for the establishing (e.g. requires the lowest minimal capital, etc.) oEntrepreneur moves his activity to other country by establishing there a branch which performs subject of business. oE.g. Czech entrepreneur formally established company in UK. Also establish one brand in Germany where will be actually operating the business. • How to proceed with “relocating settlement” according to valid Czech legal order? •Fundamental for establishing new business company according to legal order of member state which suits the entrepreneur the best: •Relocate the place of business of the company is not possible, i.e. it’s necessary to cancel the company in Czech and establish a new one in another country • •Putting in of a company (assets) into national company to capital of new company •Establishing some of supranational companies (Societas Europaea) • European supranational companies •Advantage: possibility to move the settlement within EU • •Forms of European supranational companies oEuropean Economic Interest Grouping oSocietas Europaea oEuropean Cooperative Society ™ •In future: European Private Company European Economic Interest Grouping Legally oEEC Council Regulation No. 2137/1985 on the European Economic Interest Grouping oAct No. 360/2004 Coll. On the European Interest Grouping • The purpose of this grouping is to make easier or develop economic activity of its members oIts purpose is not to make profit for use of the grouping §Any profits arising from grouping activity is considered as profit of its members §EIG cannot: §Perform directly or infirectly controlling or managing authority over activities of its memebrs or activities in different company §Hold shares or stocks of any kind of form in member company §To employ more than five hundred people §To be used by company for provide loans to CEO or any person connected with CEO, if those loans are limited or anyhow controlled by legal acts of member states relating to companies §Be member of another European Economic Interest Grouping • Establishing and settlement of EEIG •Establishing by contract on grouping •Created by the day of notation to certain registration list in country where is the settlement (member state of EU) •In Czech it’s Commercial Register •Prerequisite for creation of EEIG is that it consists of two members (individual and legal entity) from different countries of EU •Settlement of the grouping can be replaced within the EU area • Example Inter Pool Cover Team, European economic interest grouping The IPC Team is a European Economic Interest Grouping (EEIG), an alliance of 15 European Companies which have agreed to act in partnership to secure and fulfil contracts throughout Europe. Offers telescopic, rotated and fixed enclosures, 25 shapes, super flat and safe ground rails, the World novelties 3Seasons, Universe T, Neo Line - dome-shape & oval spa enclosures from IPC Team. The IPC Team is a European Economic Interest Grouping (EEIG), an alliance of 15 European Companies which have agreed to act in partnership to secure and fulfil contracts throughout Europe. Tyto informace jsem vzala z oficialnich stranek: www.poolcove-ipc.com Societas Europaea •Legislation of Societas Europea (SE) oEU Council Regulation no. 2157/2001 – 8th of October 2001 on the European Company Statute (hereinafter only “SE Regulation”) oAct No. 627/2004 Coll., on European companies • •Cannot be so-called “Greenfield project” •European company prerequisite is already built business structure exceeding borders of one member state. •E.g. cross-border mergers – min. 2 joint-stock companies, establishing cross-border mother holding company, transformation of joint-stock company which has a daughter company at least for two years on the territory of another country • •Registration takes place in the country of settlement •SE can relocate to another member state of EU • The most used types in practice MERGER HOLDING CHANGE OF LEGAL FORM Creation of merger by integration or incorporation Newly established SE 100% daughter company 100% daughter company Less used types in practice CREATING OF DAUGHTER COMPANY DAUGHTER COMPANY OF OTHER SE Newly established daughter company Conditions for SE •Capital in amount of 120 000 EUR •Liability in the amount of subscribed capital •Possibility of choosing internal bodies of SE oMonistic model – Management Board with authority of Board of Directors and Supervisory Board headed by Chairman oDualistic model (Board of Directors and Supervisory Board) §In both is minimum required member one person § •Among the biggest European companies are: Allianz, BASF, Strabag or Porsche Automobil Holding • European Cooperative Society (ECS) •Council regulation No. 1435/2003 on European Cooperative Society Statute •Act No. 307/2006 Sb., on European Cooperative Society •Main purpose: oMeeting the need of its members and developing their activities abroad, esp. by concluding contracts with members to deliver goods or provide services •Minimal capital is 30 000€ •It is possible to relocate the settlement without liquidation Other forms of entering new markets •Acquisition oTake over a fully operating business or part of it §Buying a company (e.g. buying shares) or majority of shares enough to control oAcquisitions of competitive companies or service organisations are quite often •Merger oCan be by integration – or incorporation Ex. 1 / chap. 2 Partner of domestic Ltd. (seller) Mr. Adam signed 26.1.1994 during meeting with foreign partner in Dijon, FR a contract. It was about delivering goods in fourth quarter of the year 1994. Buyer urged this deliver in January 1995 by phone and fax. After what buyer claimed his right to compensation of loss, Mr. Adam who was supposed to deliver the goods rejected it with reasoning that the contract was not legally concluded, because partner exceeded the limit of own authority while signing the contract. Buyer insisted on proceeding and when even after other negotiations the Mr.Adam’s opinion didn’t change, he turned to the Regional Court in České Budějovice. The Court recognized the contract as valid. Executive Director then lodged a claim to Mr. Adam for loss compensation as a result of his unlawful behavior towards the buyer. Answer these questions: 1.How and under what legal standards would you judge this case? 2.How and under what legal standards would you decide the dispute between domestic Ltd. And acting partner – Mr.Adam? •