Designing and forming the optimal group structure for International Business
International businessmen or investors very often have to make a very important decision as to which location they should select for the purpose of forming a company for their business or investment activities.
The factors which usually need to be taken into consideration by different types of business activities or investments in reaching the decision usually include some of the following:
- Physical location of the object of the business
- Prestigious business profile and image
- Legal procedures and time required for formation
- Existence of a friendly business environment
- Cost of formation of the company and cost of annual maintenance
- Availability of quality professional services for the setting up of the business entity and for the continued support services
- Possible requirement to set up a fully fledged office (instead of only a brass plate company)
- Availability of office facilities and personnel
- Confidentiality requirements
- Accounting, auditing and reporting requirements
- Acceptability of the location and avoiding “black lists”
- Financing requirements
- Possible intention to float the company’s shares on a stock exchange
Each business will have its own circumstances, requirements and priorities. Some of the factors listed above may be more relevant and important to a particular business than they are to others. Furthermore, two or more factors which are considered as very relevant and important to a particular business may be in conflict with each other. For example, the aim to have zero or low taxation is often conflicting with the aim of selecting a location which is acceptable and prestigious and avoiding “black lists”.
Also, the aim of not having to prepare annual audited financial statements is almost always strongly in conflict with the aim of being able to raise finance in the form of credit facilities from banks and with the aim of having a prestigious business profile and image.
To resolve this conflict between different aims of an international business, it is often preferable to form more than one entity in various different locations and in this way satisfy most or all of these aims. In addition, a particular business may have different activities, and each activity may be best served by different types of companies, often in different locations. This leads to forming a group of companies and possibly other entities (branches, trusts). Such a group could be more or less complex depending on the circumstances.
Determining the optimal structure for a business requires careful consideration of the particular circumstances of the specific business and of the priorities placed on the various relevant factors. It also requires considerably detailed knowledge of the legal and taxation provisions and regulations of the various locations involved. Some careful thinking and planning at this stage may lead to very welcome benefits at the later stages. It may also lead to the prevention of serious errors which may prove very expensive for the business.