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25
Aug

Allocating Management Control in the Articles of Incorporation

Whenever a new corporation is established the principals need to make certain decision about how the entity will be governed and how authority to manage and control the affairs of the entity will be distributed.  The articles of incorporation is one of the documents that can be used to define the rights of majority and minority shareholders.

25
Aug

Articles of Incorporation

When forming a new corporation it's useful to have a template ready that will guide you in making sure that the basic provisions are included and that common optional provisions are considered.  The attached form provides you with illustrative language and commentary to get you started.

18
Aug

Legal Considerations in Operating in Foreign Markets II

In my last post I discussed the complex network of United States laws that companies must understand when engaging in international business activities.  In addition, companies must pay attention to the local laws of the country in which the activities will occur must be considered since United States firms will be expected to comply with the rules and regulations that each jurisdiction has established with respect to the operation of businesses and trade and commerce involving local citizens.  For an overview of some of the areas where local laws come into play, read the following report.

18
Aug

Vendor/Supplier Due Diligence

The process of selecting a vendor, including conducting a comprehensive due diligence process, can be quite complex and time-consuming.  For significant projects and functional activities vendor selection may take anywhere from three to nine months and the costs associated with the process may be significant and should be included in the company’s analysis of the target return-on-investment for the project or activity.  Vendor/supplier due diligence is something that companies need to learn to do right.  For more about setting up procedures for vendor/supplier due diligence, read the attached report. 

11
Aug

Challenges for Strategic Planning in Developing Countries

The introduction of formal strategic planning programs among firms in developing countries has been slow.  The best candidates for planning are those companies that recognize that they are under pressure to improve their performance, either from the government or from their customers and other business partners.  Unfortunately, however, the general economic and political environment in many developing countries has often stymied the ongoing development of strategic planning.  For example, senior managers in government-owned or controlled firms are hardly secure in their position, with changes anticipated whenever a new administration assumes control.  As a result, these managers cannot be blamed if setting long-term goals and objectives, and establishing strategic plans to attain them, is not a high priority in relation to their other day-to-day activities and responsibilities.  Moreover, attempts to implement industrial policy are often marked by frequent restructuring of enterprises, thereby destroying the continuity necessary for the planning process to be accepted and successful.

One fundamental area of concern is ensuring that managers in developing countries obtain the necessary skills and training to enable them to successfully conduct the planning process.  For example, managers must develop the capacity to identify various alternative options and then select those options that are most suitable for the firm and its resources.  This requires training in decision making techniques, including cost-benefit-analysis and computation of risk-adjusted return on investment.  Managers in developing countries must also receive training and experience in planning techniques, including opportunities to actually implement their plans in their organizations.  The later element is often missing in current training programs, which are largely limited to lectures that are not tied to actual planning projects back at the firms of the participants.

Another factor that often influences the planning process in developing countries is that many locally-owned firms lack experience in formal strategic planning.  For example, it has been noted that African enterprises tend to simply produce budgets and forecasts of future revenues and use this information as a basis for requesting the funds thought to be necessary to cover operating expenses.  What is lacking in this approach is any detailed research on environmental factors, market trends, or the activities of competitors.  Also, efforts to introduce strategic planning in developing countries are often hampered by the traditional cultural beliefs that the future is best left to fate and that planning is just futile.  Moreover, the high levels of economic and political instability in developing countries tend to frustrate attempts to create reliable forecasts.  Finally, while large foreign firms in developing countries are used to sophisticated planning systems, often extending out for a number of years in the future, parastatals and locally-owned firms are rarely able to move beyond the most basic planning sequence.

A related problem in this area is the historical tendency among firms in developing countries to rely on outside consultants in whatever planning process that may be used.  Under this scenario, consultants come to the firm, interview the managers, and return with a completed plan for approval.  This approach misses important opportunities for managers to be involved in the planning process and apply knowledge and information they may have collected during training and lectures.  Moreover, if the managers are not intimately involved in the process of creating the plan, it is less likely that the plan will be implemented due to a lack of real emotional commitment to a plan that is largely the work of outsiders.

Successful planning in developing countries will also require some changes in the management style and organizational culture.  Planning is a collaborative exercise and requires that managers must be open to innovation, change, and new ways of doing business and communicating.  Specifically, managers in developing countries must abandon their traditional notions of their relationship with their subordinates and be willing to accept and embrace employee participation and set up a whole set of procedures and practices that support the employee involvement in the planning process.  For example, if the plan includes performance targets, appropriate changes in the incentive and reward systems in the firm may be required.

The content in this post has been adapted from material that will appear in Going Global: A Guide to Building an International Business (Fall 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

11
Aug

Legal Considerations in Operating in Foreign Markets I

Since commencement of some type of business activities—sales, manufacturing, logistics, financing and/or other operational activities—in at least one foreign country has now become a natural milestone for almost all growing businesses in the United States, the managers of those firms and their attorneys must expand their understanding and expertise to include "international law." 

The United States has an extensive set of laws and regulations pertaining to all aspects of international trade and commerce, including exports, imports, immigration, antitrust, inbound foreign investment, anti-corruption, embargoes, and unfair trade practice by foreign countries and firms that injure United States industries.  Companies will soon find that they are subject to regulation by a number of different agencies, sometimes with overlapping jurisdiction, and that the costs associated with compliance can quickly become material and must be factored into the level of investment necessary in order for the company to launch and maintain cross-border operations.

Before investing significant time and resources into launching new business activities in a foreign country, one must consider the impact of the following domestic laws:

  • Export Controls. Under the Export Administration Act of 1979, the Department of Commerce is responsible for implementing and enforcing controls on the transfer of items, technology, and other related services. Exporters must collect and evaluate information regarding foreign customers, comply with all applicable licensing requirements and obtain certifications from customer regarding their intended uses of controlled goods. Other types of export controls are administered by other federal agencies including the Departments of State, Treasury and Energy.
  • Anti-Bribery Laws. Compliance with the Foreign Corrupt Practices Act (“FCPA”) is a matter of concern in any foreign sales representative agreement, particularly in situations where local customs may be different from those in the United States Among other things, the FCPA, which is enforced by the Department of Justice with support from the Securities and Exchange Commission, makes it illegal for a United States exporter to "corruptly" pay or offer to pay a foreign public official for assistance in obtaining or retaining business or from paying a representative if the exporter knows that a portion of the payment will go to a public official for the same reason.
  • Import Laws. United States Customs and Border Protection, which is part of the Department of Homeland Security, is responsible for the laws and regulations concerning the importation of foreign goods. All goods imported into the United States, with the exception of telecommunications transmissions, business records and data, corpses and certain articles returned from space, must be declared to Customs. The United States also requires that every article of foreign origin or manufacture imported into the United States, with certain specified exceptions, “be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit in such manner as to indicate to an ultimate purchaser in the United States the English name of the country of origin of the article.”
  • Immigration Laws. United States immigration laws will apply whenever the proposed business activities involve the movement of foreign employees to the United States, as might occur when a United States party forms a domestic joint venture with a foreign firm, or foreign personnel are sent to the United States for training in the manufacture of products of the United States party that will be sold overseas. Visas are necessary for entry into the United States. There are two basic types of visa: non-immigrant visas, which permit foreign nationals to enter the United States temporarily, and immigrant visas, which permit foreign nationals to live in the United States permanently.
  • Trade Laws. United States anti-dumping laws address situations where imports are being sold at prices that are below their “normal value” (“dumping”) and where, as a result, material injury is or may be caused to a domestic industry. Another trade law that complements anti-dumping laws is counterveiling duty laws, which accesses whether or not imports are being subsidized by foreign governments and whether or not the effects of the subsidy are causing injury to domestic industries. If serious injury is caused by imports of a particular product, the International Trade Commission will instigate investigations and determine the appropriate measures.
  • Antitrust Laws. The federal antitrust laws prohibit practices that restrict trade and competition between business entities and monopolization. Various federal statutes, notably the Sherman Antitrust Act of 1890 and the Clayton Act of 1914 (the "Clayton Act") prohibit contracts, combinations and conspiracies in restraint of trade; monopolization and attempts to monopolize; specified discriminatory pricing practices that injure competition among purchasers of the products; and “exclusive dealing” requirements. Section 7A of the Clayton Act, often referred to as the Hart-Scott-Rodino Antitrust Improvements Act, forbids certain acquisitions of voting securities or assets unless a prior notification has been filed with the government and the specified waiting period has expired. The Federal Trade Commission Act of 1914 outlaws any "unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce." The federal antitrust laws are administered by the Federal Trade Commission and the Department of Justice.
  • Tax Laws. United States tax aspects of international business transactions can be broken down into outbound transactions, which are those involving the application of United States taxes to the foreign operations and activities of United States taxpayers, and inbound transactions, which are those involving foreign persons who may be investing or otherwise engaging in business activities in the United States. In addition, United States taxpayers doing business in a foreign country may be subject to taxation in that country and payments of foreign taxes must be taken into account in computing United States tax liability.

The content in this post has been adapted from material that will appear in Going Global: A Guide to Building an International Business (Fall 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

4
Aug

Creating Effective Information Systems

A comprehensive and effective information system is essential to the success of any business.  The term “information system” refers to processes and tools that companies use to collect data, interpret and process it into information, and disseminate the information to those who need it on a timely basis and in a form in which it can be used by the recipient. The elements of an information system include personnel, data collection, storage and processing equipment, communications and dissemination facilities, procedures, security planning, and controls.  It is important to distinguish between “data,” which is essentially the raw material (e.g., facts and figures describing known events or occurrences) for “information,” and the “information” that is created from interpreting the data.


The first functional element of any effective information system is inputting the appropriate data.  Managers should establish procedures for timely collection of all data necessary to generate the required information.  The data should be checked carefully before it is entered into the system.  The second functional element is referred to as data maintenance.  The goal of this function is to be sure that data in the system that is no longer current or relevant will be replaced.  However, the maintenance function should include the capacity to archive and preserve historical information for future reference.  The third functional element is the output function, which focuses on creating and disseminating useful information for consumers within the organization.  In order to be prepared for output, the data must be retrieved, selected, processed, and reported in a manner that conforms to the information requirements of the organization.  The output can be disseminated in a variety of media, including written reports, newsletters, speeches, and as part of an electronic “infobase” that can accessed as needed.


Once the essential functions of an effective information system are understood, management must proceed with designing and implementing a system that satisfies the unique requirements of the company.  This process begins with conceptualization of the goals and objectives of the information system, including the specific types of data generated by the company’s activities and the outputs that are most valuable to the managers and employees of the company and outside stakeholders (e.g., regulators, lenders, investors etc.).  The next steps include feasibility studies, an analysis of the current systems used by the firm, and creation of a project team to coordinate the effort.  The project team must then select one or more vendors to design and construct the system.  Before the system goes online, the responsible managers and technical staff should be provide with intensive training, and provision should also be made for further in-house training of other personnel as needed to effectively utilize the system.  Also, the system should be thoroughly tested alongside the company’s existing systems and procedures to be sure that it works efficiently.  An information system is not static and should be regularly evaluated to ensure that it continues to meet the needs of the company as it grows and evolves.


The content in this post has been adapted from material that will appear in Business Transactions Solutions (Fall 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

4
Aug

Employee Contracts for Overseas Service

As the domestic economy continues to be challenged many firms are sending some of their best employees overseas to assist in launching or expanding branch offices in foreign countries where the market appears to be better for the company’s products and services.  The terms and conditions of services in a foreign country should be documented in a formal employment agreement.  Re-location is obviously an important decision for the employee, particularly when his or her family members will be impacted, and the agreement should carefully describe the things that the employer is willing to do to make the transition proceed smoothly and ensure that the employee and, if appropriate, his or her family can live comfortably in the foreign country.  In turn, the employer wants to be sure that its overseas employees understand their duties and responsibilities and comply with the rules and procedures established by the employers for all of its employees and any specific rules and procedures applicable to its employees in the particular foreign country.


The agreement should cover all the issues that are customarily negotiated in any employment contract including place of employment; scope of job duties, include days and hours of employment; compensation and benefits, including salary, bonuses, vacations and holidays and health insurance; ownership and protection of intellectual property rights; and term and termination of the employment arrangement.  Special issues for overseas assignments that should also be covered in this type of agreement include reimbursement for transportation expenses related to the employee and his or her family members; provision of living accommodations in the foreign country; payment of local income taxes; reimbursement of expenses incurred by the employee and his or her family members for language school; insurance coverage on the employee’s activities, including travel to and from the foreign location; medical examinations, medical and hospital care and vaccinations; and procedures for return passage of the employee and his/her family members upon termination of the assignment for any reason.


The content in this post has been adapted from material that will appear in Going Global: A Guide to Building an International Business (Fall 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.