Companies Without a Legal Entity Abroad

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Many Israeli companies are interested in expanding their business around the world. They usually think that in order to operate a business overseas, it is required to establish a company first in the target country. 

However, this is not the case.

Many complex bureaucratic issues are involved in establishing a company, and they create significant costs for the company when it operates abroad.

Since it is possible to operate a company overseas without establishing a legal entity – by using creative business solutions – it is recommended to avoid establishing a legal entity in the target country as long as possible.

Adecco, a business solution management company, provides its clients with services that allow companies to operate in foreign countries without establishing a legal entity.

What are the advantages and disadvantages of establishing a legal entity abroad? What are the alternatives? You can learn about this subject by reading this article! Keep reading!

 

What are the advantages of establishing a legal entity abroad?

Although it is not recommended in most cases, there may be situations when it would be worthwhile to establish a legal entity in the target country. For instance, legal entities such as limited companies provide legal protection to its shareholders. The company is considered a separate entity from the shareholders, so the responsibility of business activities, lawsuits and so forth lies on the company alone.

As a result, (excluding irregular cases, when the company owes debts, goes bankrupt, etc.) the shareholders are protected and they cannot be held accountable, and debt cannot be collected from their personal assets. Moreover, there are some other tax considerations, according to which it would be worthwhile to establish a legal entity in order to reduce the tax burden.

With regard to these aspects, it is recommended to consult with an expert who is knowledgeable in corporate and tax law in the target country.

 

What are the disadvantages of establishing a legal entity abroad?

Establishing a legal entity overseas has many disadvantages, including:

 

High costs

Establishing a legal entity involves significant expenses, which include establishment expenses, operation expenses, and when necessary – high costs of liquidation or selling of the legal entity and involves many more costs over time.

Establishing a legal entity is time and money consuming, due to the required issuance of permits from the country’s authorities, as well as the essential close accompanying of lawyers and accountants.

 

Impairment of business flexibility

Israeli companies that operate overseas must maintain business flexibility and agility, especially when it comes to a business activity that is limited in time. 

This is illustrated now at the time of COVID-19, which caused a serious economic and health crisis in many countries around the world. The crisis forced many companies to shut their doors and return to Israel as soon as possible.

In situations that require a quick departure from a country – having a company with a legal entity may cause many delays due to dealing with liquidation of the company or by selling it.

 

Limitation of opportunities

Establishing a legal entity limits the company’s ability to operate in several countries simultaneously. Since establishing a legal entity requires time and resources, there is a limit to the number of legal entities that can be efficiently managed overseas. 

This aspect is even more important when a company is debating where to develop its business activity. By avoiding the establishment of a legal entity, it enables to examine several countries simultaneously – and thus allows the company to make decisions with all of the relevant and essential information.

 

Establishing a legal entity in a foreign country forces the Israeli companies to come to grips with the bureaucracies in the country where they want to operate.

By doing so, the companies may tie their hands and limit their business flexibility. It is advised to find out about the alternatives that are efficient and suitable for your company.

 

What are the alternatives to establishing a legal entity overseas?

Sales representatives

An effective way to break into the global market is by receiving services from local marketing people who specialize in the company’s field of activity. With their reputation and experience in the local market, sales representatives or agencies can assist with opening doors for a company that is not recognized in the target country.

Before making a massive investment, the local team will examine the potential of selling the product. If the Israeli company finds the right professionals, the sales and marketing representatives abroad are an effective solution for establishing a sales foundation in the local market.

A company can locate suitable professionals by finding the marketers of competing products, and by meeting in trade fairs. Alternatively, they can get counseling on the matter of professionals by using the services of business solution management companies.

 

Distribution and exclusivity agreements

This type of relationship is usually closer than relationships with sales representatives, because the local representative takes a high risk by purchasing the product from the company, as well as handling the distribution and sales in the target country. 

The notable advantage of these services is that the company does not have to establish a business entity in the target country, and in most cases can settle for a representation in the country. 

The main disadvantage of this method is the harm to the marginal profit, since the local representative buys the product directly from the company at a lower price than the consumer price.

 

Franchising

Israeli companies can work under the foundation of a successful local company, and thus distribute their product very quickly. The most notable advantage is that the company is not required to brand itself in the local market, as it operates under a familiar brand. 

In addition, the company is not required to establish a distribution infrastructure for itself. The main disadvantage is that the company loses its personal brand in favor of business convenience.

 

Management and placement services

A company without a legal entity can operate by using a variation of different services, such as payroll and outsourcing services. By using external management, it is possible to put business projects into practice, while sparing having to deal with bureaucracies.

For example, payroll services allow a company to recruit and manage employees independently, but the payment of salaries as well as ensuring compliance with local regulations is done through the payroll company.

An alternative is using outsourcing – an employment method where the management company takes care of executing a project from start to finish, takes care of payment to all the relevant professionals, ensures compliance with the local laws and regulations, etc.

These services allow recruiting and managing employees all over the world, while taking advantage of the relative advantages of employees who specialize in various fields. 

These solutions, and many other solutions offered by Adecco, allow Israeli companies to operate abroad with flexibility and efficacy, without having to establish a legal entity.

 

Adecco Israel – who are we?

Establishing a legal entity has advantages and disadvantages. It is recommended to examine all relevant alternatives before jumping into the deep waters in a foreign country. 

The different alternatives enable companies to break into local markets in a convenient and effective way, while taking a reduced risk.

Using one of the abovementioned alternatives is an effective solution for many companies, especially in the first stages of the company’s activity overseas.

In order to receive a comprehensive review and counsel regarding the options available for your company, contact Adecco Israel – a business solution management company that operates in 66 countries around the world.

Adecco’s services help its many clients to save the need to establish a legal entity abroad, save time and resources, and invest their power and business activity to promote the company and expand worldwide.

We would be happy to hear about your project and find the best match for your company!

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