The UK has and continues to be a highly attractive market for international businesses. While the phrase ‘Brexit’ is impossible to ignore, there are a number of things that potential entrants can be thinking about now before the final outcome is reached. Expanding a business throws up a series of questions and challenges even prior to the setup process. In order to be successful, a universal approach that considers all factors is vital. This snapshot article takes a look at nine key legal aspects to be aware of.
- Business structure
You need to establish the appropriate business structure. This will usually include (a) the registration or incorporation of an entity in the UK, and (b) taking steps early in the process to consider the most appropriate structure from a commercial, corporate and tax perspective.
- What is the best legal structure for you?
The right structure will depend on factors such as the specific sector, business product, service and the extent to which a local presence is required. Examples include: (a) trading through a limited liability company (or a group of companies); (b) setting up a UK establishment (which until quite recently was referred to as either a “branch” or a “place of business”); (c) using a franchise or licensing model; (d) using a distributor or agent; and (e) using a joint venture with a third party.
- UK limited company or branch?
The two entities typically used by overseas companies setting up in the UK are either a limited company or a UK Establishment (often referred to as a “branch”). Most choose a limited company, which is usually set up as a wholly owned subsidiary (i.e. 100% of the shares are owned by the overseas parent). Common reasons for choosing a company include the additional commercial credibility that can be achieved by showing commitment to the UK market and the additional limitation of liability it provides. When compared to a UK establishment, it also protects the parent corporation’s financial statements from public disclosure in the UK. UK companies have accounting, tax, audit and regulatory requirements that need to be complied with. A UK company can be formed within one day.
- Bank accounts
Due in some part to the “know your client” rules which are prevalent across Europe, it can take some time to set up a bank account once a UK entity has been established. However, unlike many other jurisdictions, it is not necessary to establish a bank account before registering an entity in the UK.
When entering the UK market, international businesses will need to consider what approach they wish to adopt in relation to their contractual arrangements. Whether they contract under online terms with consumers or businesses, small-print terms attached to purchase orders or invoices, or traditional “wet” signatures on formal agreements, the bottom line is that changes will be needed to protect the business as it expands into the UK.
- Which law and jurisdiction?
While it may be attractive to the international business to keep contracting under its own governing law, many UK and EU companies will resist this approach. As such, adapting sales contracts so that they are governed by English law can smooth the sales process in the UK and EU.
- What contracts?
Existing commercial contracts of an international business can be a good starting place for those to be used by the UK entity. However, such contracts typically contain terms that cannot be enforced in the UK, and should be reviewed and updated to ensure they comply with English law. 3. IP
Intellectual property rights can arise and be protected in the UK at national level, pan-EU level and under international treaties. Different rights arise and are protected in different ways. Once the UK leaves the EU, the position is likely to change substantially. Being aware of the legal intricacies well before you enter the UK market means you can properly protect your intellectual property rights and build your business without undue risks. In the UK, there are a broad range of intellectual property (IP) rights. Some arise automatically; others must be registered. These include (by way of example only) patents, copyrights, designs and trademarks. 4. Data Protection
The EU has adopted privacy laws which, in the UK, are referred to as laws on data protection, to ensure that this information is lawfully obtained, kept securely and used responsibly for permitted purposes. Data protection is an increasingly important area of compliance for businesses across the EU, not least because the new General Data Protection Regulation (GDPR), which came into effect on 25 May 2018, introduced fines of up to the higher of 4% of annual global turnover or EUR 20m for non-compliance. Non-compliance can also trigger negative PR, brand damage and regulator enforcement and litigation. The GDPR introduces new rights for individuals and an enhanced compliance burden for data controllers and processors. It has extended territorial reach and may apply to organisations processing the data of EU individuals, whether or not they are based in an EU member state. Cross-border data transfers are heavily regulated and you will need to obtain advice as to the legal mechanisms available to make such transfers lawful.
As at the date of this publication, there is currently a lot of uncertainty surrounding Brexit and Brexit potentially affects a number of legal areas including (but not limited to) contracts, data protection and IP. For example, is the UK’s exit from the EU going to affect personal data flows to and from the UK, and if so, how? When parties are entering into new contracts, do they need to include provisions in such contracts to cater for potential Brexit-related events which might make contracts economically unviable?
Employees have minimum legal rights, including for: pay, hours of work, vacation, sick pay, family leave, notice on termination, and dismissal. Although extensive, the UK rules are less rigorous than those in other European countries. Each employee has a right to, and will expect, a written statement of their terms or a contract of employment. A simple letter offering employment, which might be more typically expected in some jurisdictions, is not enough. The contract or statement must include basic terms such as: pay, sickness absence, minimum holiday of 28 days including public holidays (for full-time employees), notice periods, grievance and disciplinary procedures.
The UK is an attractive jurisdiction from which to set up a holding company or operating subsidiary. For example, the UK has a competitive corporation tax rate of 19% which is scheduled to reduce to 17% from April 2020, and there is no withholding tax on dividends paid by companies to shareholders, irrespective of where they are located, which makes it a desirable holding company jurisdiction etc. Advice should be obtained when deciding which corporate structure to adopt so as to ensure that it is tax-efficient.
Many sectors in the UK are regulated (e.g. financial services, consumer law transactions), bringing confidence to companies and investors to do business and invest here. No business operating in the UK is insulated from some form of regulatory compliance. Non-compliance can result in potentially heavy civil and criminal penalties. It is therefore wise to take early advice on how to become and remain compliant with the laws and regulations that apply to your business (export controls, competition, consumer laws, etc).
Property is often your business’s biggest overhead – but it can also provide a significant return on investment. In the UK, you will be competing for space in a crowded market but it is important to pause and consider the long-term cost before rushing into a property deal. When deciding on the best strategy for your business, there are some key questions to answer, such as:
- Do we want to own or lease?
- Do we have a flexible exit strategy?
- What if our needs change?
- How do we manage our ongoing liabilities?
- Can we renew the lease on expiry?
If you are thinking of setting up or expanding a business in the UK and want to discuss any of the points included in this article, get in touch.
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.