Taxes and Legal Constraints Business Law - Essay Example

 As per the instructions and facts provided, Country X has a very good market for importing chocolates from Definitely Maybe, the company that belongs to Sir Alan Brandon. However, there are a number of legal risks that are involved with the process of exporting to the country that need to be looked into in order to avoid any kind of constraint the company might have to endure. Exporting is one of the main ways by which the company can grow and prosper as well as make its products available to a wider consumer market. Thus, even though it cannot fully eliminate any kind of risks involved with it, Definitely Maybe can at least hope to mitigate the risks or reduce the impact that they might have on the company. For the company, it might become a little tough in order to ascertain the kind of recognition or worthiness that the buyers in Country X might have. This can make it very difficult for the company to take any legal action against the buyer in order to recover any kind of debt. Selling huge amounts of the chocolates in bulk or distributing them in the country thus can be a problem as recovery of any kind of debt might become impossible. That is why; the company must first ascertain its buyers, wholesalers or retailers in order to have smooth functioning in terms of selling or exporting. Moreover, since the country is different from the United Kingdom where Sir Brandon operates, the business market and sphere is also quite dissimilar to that of the UK. The language is different and so are the preferences and demands of the buyers. These risks if not looked into, can lead to the creation of an overall loss for the company. The company must check its entire cash flow statement and ascertain the kind of finances that it will require for the proper distribution in Country X. Many a times, deliveries are delayed, leading to financial losses. Country X might also have a weaker economy in comparison with the host country of Definitely Maybe; this also means that the exports might not be in large numbers leading to a further loss for the company. Thus, in order to check this, the accounts of the company in terms of its financing decision for Country X need to be made with a special provision allocated for meeting contingencies that crop up due to Country X. If this is not done, it might lead to a real financial hazard in terms of exporting to Country X. The total working capital of the business must be checked so that a proper amount can be set aside for the purchase and sale of the raw materials, supplies as well as promotion and distribution costs in Country X. The company also needs to look into matters pertaining to the exchange rate or foreign currency rate of X so that it is able to deal clearly in the transactions to and fro. In the process, if the rate of exchange of foreign currency in the foreign market is more than the domestic market of Definitely Maybe, then it will be able to make a further profit too. If not, then the company needs to understand and make a provision of how to minimise such extra costs. Furthermore, details regarding the value added tax as well as other taxes with respect to sale of goods like service tax, sales tax etcetera need to be properly calculated in a way that there is no financial loss faced on the part of the company. The intellectual property rights of the company also have to be preserved so that no problem arises in the foreign country with respect to similar property rights. Thus, the company should be well registered internationally and not just domestically. Therefore, these were the main risks that the company Definitely Maybe will be exposing itself to while embarking upon spreading its market in Country X and establishing a well knit export system there. Moving on to Ultra-Educators, the best form of corporate entity that is ideal for them in the Country X would be a wholly owned subsidiary. This would indicate that all the common stock that the company has will be in the hands of a holding company. This makes the software company a wholly owned subsidiary. If it were in the form of a branch, then it would mean that the company would not have full ownership or access to the stock or full rights of the base company. Also, the owner will then be able to get the full value for the subsidiary and not just part value which would be achieved through obtaining the rights over just one branch. Thus, the investment decision involved with a wholly owned subsidiary would be much better than one with having only a branch as a corporate entity. The procedure for the formation of a wholly owned subsidiary is a little complicated however, very much the same as that of forming a company. To establish a subsidiary, a certain amount of minimum authorised capital is required in order to start up, and so is a minimum specified amount for the paid up capital. The paid up capital forms a part of the authorised capital that the company may invite potential shareholders to subscribe to. There must be two common directors who are also two of the major shareholders of the company. Thus, these properties make the subsidiary a distinct and legal entity in the eyes of the law as it has its own taxations and regulations in matter of remaining a part of the base or parent company. In order to open up their business in Country X, Ultra-Educators may have a local partner. Having a local partner helps to make things much easier in terms of the following; gaining supplies, understanding the business environment in a foreign country as well as reaching out to the target market and potential customers better. As discussed earlier, setting up and establishing a business elsewhere requires a large amount of prowess in terms of the legal structure and framework of the business more than anything so that it complies with the rules and regulations that have been laid down by the government of the foreign country too. This helps the business to avoid any kind of extra financial losses and even helps it to stay clean in the records of the law. After being registered or co partnered with a local company thus; Ultra-Educators will be able to comply with the rules of the government of Country X better. The company will also be able to have someone watching its back, or basically have a source it may rely upon in times of trouble. This will enable it to work better in a foreign environment; or a market where it has not encroached upon earlier. Double taxation means imposing two taxes on the same income or asset. Between the UK and Country X there is a double tax avoidance agreement. A double tax avoidance agreement is an agreement which works on the basis of avoiding the imposition of a tax twice on the same income or asset (as written above.) For example, with respect to UK and the country X, if certain income is received by the UK from the sale of chocolates or export of chocolates to X, a tax may be imposed on the income or revenue earned. However if another tax is imposed on the same revenue that is being sent to the UK, by Country X then it will lead to a further cutting down on the total profit made by the company. This in turn will not give a true picture of the total revenue which then adds to the gross domestic product of the country in terms of computing the national income for the country. It might lead to overriding or the problem of double counting. This is the reason why double tax avoidance agreement has been signed between the two countries and thus the companies may make use of the same by trying to increase their revenue and cut down on the payments in order to bring about cost effectiveness, at the same time. Certain terms and conditions have also been specified for the investment and functioning as well as company / subsidiary structural framework that the UK based companies may take in Country X. These have been specified with the help of bi lateral investment treaties or trade pacts between the two countries on the basis of export and import duty rules, terms for the demand and supply of the products and services as well as other contracts that include things like labour rights, social provisions and other natural resource usages. Expanding further from this, the question arises whether or not to use the local people for the purpose of employment. Both skilled and unskilled labourers are present in Country X and a personal opinion based on research would provide that the UK based companies make use of the local employment of country X for the purpose of export and working of the software company in that country. This is because of a number of reasons ranging from cheap sources of labour easily available to the employees knowing their country better than foreigners and thus being able to provide better scope for functioning of the company. The locals would have a better idea about the target market, consumers as well as how to go about selling the product in terms of effectiveness and maximum amount of efficiency. Thus, even though it is not a rule or mandatory to hire any local employees, it is highly suggested to do so because it will help the company to soar and reach new heights. It will help it to save on a lot of costs as well. The local employees would also be able to have a better hand on certain situations pertaining to their country. That is why; some of the better of them should also be promoted to higher levels in key management positions because these employees will be able to handle the other employees better; they might know the same language, have the same ideals of carrying out tasks or simply feel more comfortable working with people from their own country, thus working towards tapping more human resource potential and working to the best of their abilities. In conclusion, there are a number of aspects that the company must look into before it goes into an investment decision with respect to Country X and the two companies at hand. These above mentioned risks and causes have been mentioned at length for the perusal of the company so that it goes into an in depth research about the country and with the help of these mentioned solutions to the problems and analysis, it will be able to fare better during its stage of establishment in the foreign country. Works Cited “What Is a Wholly-Owned Subsidiary?" WiseGEEK: Clear Answers for Common Questions. Web. 30 Mar. 2011. . Business Support, Information and Advice | Business Link. Web. 30 Mar. 2011. . Kakati, Rituparna. "Minimizing Risks in Export Business." SME Times - India Small Business, India Small Business News, Business News,World Business,Indian Economy News,India Industry,SME News,India Business News, India SMEs, India News Online, India SME. Web. 30 Mar. 2011. . "UK Subsidiaries and Branches of International Companies." London Accountants - Goodman Jones Chartered Accountants UK. Web. 30 Mar. 2011. . Read More