Friday, September 19, 2008

Things you wish you had thought of when you established, invested in or acquired your foreign subsidiary - Part 2

This is a continuation of our prior comments, using India as an example. Our clients often enter new markets by contract or investment -- what are some of the legal issues in establishing a new foreign company or investment that will have an important impact on operating the company and possibly later selling it?

Following the Letter of the Law vs. Local Practices - How to Strike a Balance? In entering into a lease, other contracts or in gaining operating approvals, there is often a local way of getting things done and the “overly theoretical and cautious approach taken by foreign companies that do not really understand how business is done in my country.” We are not necessary speaking of questionable payments here, but the kind of approvals and arrangements that may not be in full compliance with the law but are followed by many if not most local companies. An example is in entering into a lease or a “leave and license” agreement (a form of non-leasehold lease) in fast-growth Indian municipalities with landlords that may not have full approval for the development of their sites and buildings.

Perhaps more need not be said about deals that depend upon the right officials looking the other way and would be harmed by a change in policy, landlords that may agree to take care of any future contingency through indemnity or otherwise and a later buyer of your subsidiary that may not be quite as understanding in inheriting a business built on questionable arrangements. Local (and national) officials don’t last forever, and (as a general principal of international business and not meant to single-out India) enforcement against visible foreign companies can serve as a convenient example to others.

Forming the Right US-India Legal Team. What is the right mix of in-house counsel, US-based counsel and in-country foreign local counsel? A team lead by India-experienced US counsel can help to minimize the day-to-day details that can distract US management yet also be familiar with the bigger-picture structuring issues that can save real dollars and rupees.

In today’s information-soaked environment, a little Googling will allow a sharp high school student to locate many well-regarded foreign local counsel for just about any country. No list of names or membership in yet another “world lawyers network” is a substitute for a track record of cross-border experience and more than a few good working relationships built with local counsel in more than a few local firms. And we mean experience by the lawyer in charge of your project and not the kind of fragmented “collective experience” within many of today’s large law firms that may be found by sifting through the transaction lists of a disparate group of colleagues in a disparate number of offices.

India is blessed with many fine lawyers, and the fact that India remains one of the few world commercial centers with a flat prohibition on foreign law firms (Korea is another) does not really impact the ability of experienced US lawyers to efficiently execute the vast majority of cross-border projects with the input of local counsel. (Apart from a smaller segment of mega-deals and special cases that may benefit from an integrated bricks-and-mortar multi-country law firm, most of the world’s cross-border projects are executed by a few lawyers in one market working with a few lawyers in the world’s independent law firms another market). We have found that some of the better local Indian accountants and consultants can also be a good practical supplement to local Indian lawyers

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