This is the second part of a series on steps to take while planning, launching and executing your expansion abroad.
As mentioned in previous blog entries, I am sharing the experiences we gain at Hull Speed Associates as we assist our clients in expanding abroad. The experiences I share are real situations of how we encourage our clients, and the pragmatic steps we take to help them in this process. I urge you to share your comments by clicking the comments button below. Oh, and please subscribe to the blog if you have not done so already ;-).
The second step is the beginning of the expansion phase, choosing a location(s) to establish the legal entity(s). I have chosen the UK as an example as a place to start.
The UK has several legal entity options but on average our clients choose one of the following three: a Place of Business (“Representative Office”), a Branch company, or a UK Limited. Here are a few highlights of a Representative Office.
A Place of Business (Representative Office) are premises where a physical or visible indication exists that the company may be contacted there, or a particular location where the company habitually does business from. Basically a US company “hangs a shingle” as the US company in the UK.
A few items to note:
- The Representative Office does business as the overseas company, not as a UK establishment.
- You must register the overseas company with Companies House showing that the overseas company is doing business in the UK.
- The Representative Office does not trade, thus does not generate revenue. Rather, the overseas company does. Contracts are established and signed between the customer and the overseas company directly.
- The staff is employed by the overseas company rather than by a UK establishment.
- Profits and losses are part of the overseas company it represents instead of as a stand-alone company.
- Liabilities extend back to the overseas company it represents. Ouch!
- Corporate documents of the overseas company are registered and filed with Companies House and must be presented in English. If you are registering a foreign company whose corporate language is not English, certified translated documents will need to be prepared and filed.
- Once the registration is complete there are no further filing requirements including tax returns and annual financial information filed with Companies House.
- If your overseas company home language is English it will make it easier to communicate.
- There is no UK establishment, thus causing a perception issue.
- Liability extends back to the overseas Company.
- Finding qualified staff can be a real challenge.
These are just a few.
One question for me kind of sums it up: “When would this option make sense…?”Well, actually there are cases where it would make sense, especially over a Branch. For companies who want to expand into the UK but for reasons may not want to establish an incorporated entity there are cases where companies receive tax breaks and government development grants by continuing to be incorporated in their home country. Another argument, and for a lot of US companies this is a strong one, it gives them the opportunity to “test the waters” before jumping into the annual reporting requirements and related costs. For a lot of companies this is used as a “First Step” into Europe before making a commitment by establishing an incorporated company.
However, given the liability, lack of qualified talent and perception issues mentioned above, clients do not use this as a long-term option. Once they meet certain internal milestones they then establish a UK Limited company.
I would like to thank Paul W. from our UK service provider for contributing to this entry.
In the next entry I will address “UK Limited”.