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To : The Board of Directors Ultra-Educators Software Limited From : Date : 29 March 2011 Title : WEIGHING THE POSSIBLE ISSUES INVOLVED IN EXPORTING CHOCOLATES TO RUSSIA Before the Ultra-Educators Software Limited makes its final decision whether or not to venture into the export of chocolates into the Russia Federation, there are several things to consider first…
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Download file to see previous pages Alongside this matter is the important consideration of the costs entailed in doing business in the Russian Federation. Possible Legal Risks Involved There are several legal issues, some of which take the form of risks, involved when entering a foreign market. Legal issues involved laws that affect the conduct of a particular business in a particular place. Laws that will be involved in conducting a business in Russia will be, necessarily, Russian commercial laws, international trade laws and international sales transactions and regulations. The risk, however, in conducting a business in a foreign state can be categorised into the following: effectiveness of the judiciary; rule of law; risk of contract repudiation; corruption, and; risk of expropriation.1 It is best to conduct business in a country that has a stable political condition and is known as business friendly. Although there is always risk, political risks of countries vary in degrees. Political risk is defined as “risk of loss when investing in a given country caused by changes in a country’s political structure or policies such as tax laws, tariffs, expropriation of assets or restriction in repatriation of assets.”2 Relevant to this discussion is the case of RosInvestCo UK Ltd v Russian Federation3 where a UK company has brought arbitration proceedings against the Russian Federation for invalid expropriation, which is contrary to the UK-Russian BIT. This case is thoroughly discussed on the UK-Russian BIT paragraph. In weighing the political stability of a country, its history might provide a good indicator of such a risk as countries with a history of stability and consistency are more likely to be less risky than those with opposing history.4 Unfortunately, Russia does not have a history of stability and consistency considering the number of political disarray it had in the past. The Best Form of Corporate Entity to Take There are, at least, four ways by which the Ultra-Educators Software Limited may engage in the business of selling chocolates in Russia. One is by selling directly by establishing its own branch or subsidiary; two, through retailers; three, through an intermediary or distributor, and; four, through a representative or agent company.5 Each of these methods has its own advantages and disadvantages. In making decisions about this matter, the following must be considered: the financial strength of Ultra-Educators; its connections; extent of its business commitments, and; the present state of its personnel, equipment, and status.6 If the Company intends to sell directly, it must set up an entity in Russia that will directly take charge of the business of selling the chocolates that the Company will be exporting to that country. It can either set up a branch or a subsidiary. A branch is a part or division of a company whilst a subsidiary is a separate entity independent from the company. Thus, the liability of a branch is that also of the main company, but not that of the subsidiary because it is deemed separate from the company.7 Moreover, if the branch has taxes owing to it by virtue of the business it is conducting in the foreign state, the main company is liable for such taxes. This is not so in the case of the subsidiary.8 ...Download file to see next pagesRead More
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