September, 2008
InternationalCounsel Legal Update
Cross-Border Corporate Change                                                                       
In This Issue
Avoiding Mistakes in Establishing and Later Selling a Foreign Company
Sourcing Deals Outside of the US
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Avoiding mistakes in establishing and later selling a foreign company:  Things you wish you had thought of when you set-up, invested in or acquired your Indian company

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?

Taking India as an example, our blog comments on this topic were inspired by our recent work on the sale of a US company's Indian subsidiary. The comments are also relevant to the many US companies in the process of restructuring their foreign operations, whether due to the changing economics of manufacturing in China or business process outsourcing in India, and recent examples of "on shoring" back to the US or moving production to a third country.

Part 1 of our comments expand upon the following:  Click here for the full discussion

Though India is Now More Open to Foreign Investment, Set Realistic Time and Budget Expectations. In establishing, operating and later selling an Indian company, US companies can find Indian procedural formalities to be frustrating. This is also true for companies operating in other developing economies - but what are some of the factors that set India apart and what can a US company do to better cope?

Appointing Directors - Take Into Account Practicalities and Local Rules. An Indian private company is required to appoint two or more directors. They do not need not be Indian nationals or residents, and meetings can be held outside of India. Yet, we find that foreign companies do not take adequate account of practicalities in India, including the fact that meetings cannot take place through teleconferencing or videoconferencing. What are a few simple considerations?

So You Want to Sell Your Indian Subsidiary? A Few Stock Transfer Issues. Indian government approvals or even simple reporting of share transfers are generally not required for a transfer from one foreigner to another (such as the sale by a US parent to another US parent), yet some steps are required for the transfer from an Indian resident shareholder to a non-resident. Why does this matter for a later sale?

Is Holding the Indian Company Through an Offshore Holding Company Really Worth Considering?  In our February 2008 article, we noted the advantages of acquiring an Indian company through a Mauritius holding company. US companies may prefer a more straightforward holding of the Indian company directly by the parent or a US-based special purpose subsidiary. Our blog entry describes why this may be a mistake.
 
Hiring Employees - Hope for the Best, But Set Realistic Termination and Non-Compete Expectations.  Adjustments to contract language can help limit the chances of a dispute with an employee, particularly post-termination, as well as help protect confidential information accessed by the employee. In addition, some countries (as well as some US States) do not allow a non-compete to extend beyond the period of employment. This is the case for India. What about governing law and dispute resolution?


Part 2 of our comments conclude with the following: Click here for the full discussion

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 locally" (sound familiar?) Yet, 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 understand the bigger-picture structuring issues that can save real dollars and rupees. We conclude with a few observations on sources of legal input. 



Sourcing Deals Outside of the US: Suggestions from Mid-Market and Larger Companies    
                                           
ACG Chicago's International Committee hosted an invitation-only breakfast roundtable with corporate executives responsible for international expansion. Some of you may have received an invitation for this mid-summer event -  held on July 30 at Chicago's Standard Club. Stand-by for future roundtable discussions.

The informal discussion included senior executives from companies such as Illinois Tool Works, IDEX Corporation, Littelfuse, and WMS Industries and focused on ways to encourage deal flow through their own business unit leaders, suppliers and other internal parties.  Among other topics, our participants shared how their companies internally communicate objectives, manage deal flow and motivate internal operations people to generate ideas for new transactions.

Click here for a summary of the roundtable discussion, and let us know of other cross-border themes that would be of interest for future roundtable discussions.
About InternationalCounsel

InternationalCounsel offers an "in-house equivalent" cross-border legal team to companies which lack such internal capabilities as well as to substantial companies seeking a supplement to their existing legal teams.

We assist companies with their foreign investments and cross-border transactions, including through acquisitions, manufacturing agreements, outsourcing deals, licenses and agency and distribution arrangements. We also advise on import and export matters, including US customs issues. While our experience is world-wide, we have a particular competitive advantage for Asia, including India, China, Japan and Korea.

Best Regards,
 

David Laverty
InternationalCounsel

312.575.0601
[email protected]