Start-ups Don’t Miss This! The Gist of International Law Business Owners Need to Know

For Thai start-ups that are growing and getting a chance to work with foreign investors, understanding “international law for business” is crucial to ensure that businesses do well and avoid potential problems that may arise from communication and different foreign laws. Today, we would like to share knowledge about international business law for start-ups to prepare themselves for expanding into global markets.

Business Structure: The First Step You Have to Take a Look

Before diving into taxes and international business law, the first thing that should be considered is the form and structure of the business, as it is a solid foundation that will pave the way for business management and operations in the future.

Why should you pay attention to business structure?

– Legal Requirements: Different countries may have different laws applicable to certain business matters; for example, some countries require that only companies duly incorporated can conduct a particular business.

– Tax Advantages: Different business structures can lead to different tax advantages, e.g. businesses in the form of joint ventures might have more favorable tax incentives than companies in some countries.

– Efficient Management: Business owners have arguably their own way of dealing with corporate management. Some, for instance, may prefer a sole proprietorship, while others want to collaborate, hence establishing a company or a partnership.

Concerning business structure, domestic laws and the ecosystem should be taken into account. Furthermore, regarding the number of business partners, concluding a clear and fair Shareholder Agreement, which should be flexible and can be negotiated under the circumstances to help prevent future conflicts, is essential.

4 Considerations of International Law

1) Drawing up a Contract

In case it is needed to transport goods to customers in other countries, designing a contract is important because of several factors involved, such as laws, documents required for international trade, risk allocation, and costs incurred. For this reason, international trade lawyers have developed “standard contract clauses” which include conditions of delivering goods between buyers and sellers, namely INCOTERMS, for undertakings to take advantage of them, resulting in clear and well-defined responsibilities between both parties. These are some examples of INCOTERMS:

– CIF (Cost, Insurance and Freight): Under this agreement, the seller takes responsibility for the shipping and insurance costs until the goods reach the destination port. This mitigates risks considerably for buyers, but the product price may rise.

– EXW (Ex Works): Under this agreement, the buyer is responsible for all costs from the seller’s premises onward, ranging from shipping costs, insurance, to customs clearance. Although the price may be lower compared to CIF, the buyer needs to be ready in terms of logistics procedures and knowledge.

2) Payment Methods

When a purchase agreement has been made, an essential thing that business owners should not ignore is the understanding of payment methods. Here are some extensively used payment methods:

– Advance Payment: The buyers make the payments to the sellers before the goods are shipped. This method is preferable from the sellers’ perspective as they will receive such payment in full prior to shipping the goods. However, the buyers may take risks if the sellers fail to ship goods according to the contract.

– Letter of Credit (L/C): The buyers’ bank will issue an L/C to safeguard the sellers against non-payment, whereas the sellers will receive such payment when shipping goods in compliance with the terms of the L/C. This method is fair to both parties since the bank acts as an intermediary, reducing both parties’ risks.

Another factor that business owners should keep in mind is currency fluctuation due to its impact on income from international trade. To mitigate this risk, business representatives can enter into a Forward Contract with a bank, thereby making the bank face the risks of the exchange rate and ensuring that revenues from international trade meet the business’ expectations.

3) Legal Risks

International business is not straightforward as it involves various legal systems domestically and internationally, ranging from setting up a company to distributing goods. It seems that these legal frameworks are complicated. Nevertheless, as for international businesses, if business owners understand the fundamental principles of law, they will become more comfortable.

The laws that must be borne in mind are as follows:

1. Domestic Laws such as business licensing law, labor law, and consumer protection law; it is essential to study the provisions of these laws thoroughly and consider how to use them (e.g. negotiating with government sectors to claim certain benefits or applying for tax deduction).
2. Long-Arm Legislation such as the EU rules to combat Illegal, Unreported and Unregulated (IUU) fishing globally or the U.S.’ barriers to trade.

These laws directly affect businesses; therefore, going through such laws can strategically help draw up business plans under international law.

4) Dispute Resolution

Disputes are disagreements between parties. If a dispute arises over doing international business, a highly desirable means for resolving disputes is entering into an Arbitration Clause/Agreement, whether writing it in a contract beforehand or later.

Nonetheless, merely agreeing to the arbitration is insufficient; a choice-of-law clause applicable to business matters is also significant. Most businesses include a choice of law clause in a contract for them to be aware of the particular laws governing business matters. Although business can choose the applicable laws, there are some limitations; that is to say, the law on business matters like relationships based on contract and delict can be selected and applied, but this does not cover public order and public law of the state.

This is an overview of international law we believe it will help provide a broad understanding before starting businesses with foreigners. For those who intend to succeed in the business world, the International Business and Entrepreneurship Program at Thai-Nichi International College (TNIC) will rouse anyone to be an outstanding entrepreneur doing business globally.

Find out more about the program at: https://tnic.tni.ac.th/th/ibn-program-th/

Source:

ประมวลรัษฎากร (Revenue Code) https://www.rd.go.th/674.html

ประมวลกฎหมายแพ่งและพาณิชย์ (Civil and Commercial Code) https://searchlaw.ocs.go.th/council-of-state/#/public/doc/Qko1NGNVa1FhMG9hTTNGcU9sTGxydz09

พระราชบัญญัติบริษัทมหาชนจำกัด พ.ศ. 2535 (Public Limited Company Act B.E. 2535 (1992)) https://searchlaw.ocs.go.th/council-of-state/#/public/doc/elBKSDJWYkx4WXMrN3Vxa25OSUZwZz09

INCOTERMS https://incodocs.com/blog/incoterms-2020-explained-the-complete-guide/