ESTABLISHING A BUSINESS IN ENGLAND & WALES (OVERVIEW)

England and Wales are among the best-performing economies in the world. One of the contributing factors is the English legal system, which is pro-business and flexible due to the dogma-free pragmatic, solution-oriented legal, commercial and fiscal tradition and environment. It also places a premium on freedom of contract – parties have a lot of leeway when deciding how to structure their dealings. It is also a relatively low-tax setting with a highly skilled workforce and business-friendly employment law.

Although the current Brexit situation brings about some challenges, it is highly likely that in the long run England and Wales, traditionally trading nations, will attract commerce by being able to tailor their own regulatory and legal regimes according to their needs.

Should we establish a direct presence or use a third party?

One of the crucial questions for any business thinking about marketing its goods or services in another country (in this case England and Wales) is whether to set up its own presence, such as a subsidiary or branch, or to rely on third parties, for example agents or distributors.

Having a subsidiary or branch is usually the more 'elaborate' option, for example due to compliance with local regulatory requirements for the direct presence. It might therefore be a safer choice to conduct the first 'exploratory' phase using a third party, which will bear the burden of regulatory compliance and, to some degree, the economic risk of the venture. A number of other factors would also need to be considered, e.g. nature and specialty of products, experiences in similar and other jurisdictions, long-term plans, etc.

Forming a subsidiary company is usually straightforward, in particular when the parent company is the sole shareholder. Apart from the usual considerations, careful thought should be given to whether off-the-shelf constitutional documents are sufficient or whether special provisions are required. The latter is especially appropriate if a number of shareholders will have a stake in the company.

Furthermore, a joint-venture company might be of interest due to reasons such as:

Some of the common issues to be considered when planning a joint venture are:

A well-drafted joint-venture or shareholder agreement (actually, any kind of agreement) will pay for itself many times over, as it will clearly structure the venture, prevent disputes and provide flexibility for future changes in circumstances.

Working with an agent or distributor

Besides the above-stated possible regulatory advantages, working with a third party might make it possible for a company to benefit from the third party’s expertise and network. Although such arrangements are generally less complicated than the establishment of a presence, they deserve very serious treatment, since they can give cause for substantial damage due to a bad choice of partner. Moreover, a light-touch documentational approach should be avoided, or at least sophisticated documentation should be adopted later as commercial dynamics can change rapidly.

In case of distributorship, competition law issues might have to be given a review. In case of agency, attention should be given to the issue of whether the agent is entitled to compensation upon conclusion of the arrangement. This is an interesting issue to keep an eye on, since currently English commercial agents profit from the EU-wide regime, under which termination payments or compensations might accrue. Post-Brexit, this area of law might undergo a change in the foreseeable future.

Employment law issues

English employment law is much more flexible and less onerous than in other jurisdictions – in particular, in some continental jurisdictions where, for example, termination of employment can be difficult, costly and time-consuming.

A well-drafted (employment) agreement is, again, highly recommended. Things to consider:

Tax

England and Wales is a relatively low-tax jurisdiction. Moreover, a number of substantial and useful reliefs and exemptions are available to businesses. Special reliefs are available for IP-heavy projects.

In summary, it is safe to say that business objectives should drive the process of considering new markets and, as a rule, legal issues should not impede progress as identified legal risks can usually be resolved or mitigated by appropriate action.