15 Legal Considerations for Social Enterprises Expanding Internationally

Recently, we held the latest in our series of webinars covering the topic of expanding your social enterprise internationally. If you missed the last webinar on how to adopt the right mindset and culture when pursuing international expansion, do take some time to check it out as it pairs quite nicely with this.

2 laptops sitting on a desk with some paperwork between them and 2 sets of hands leaning on the desk

To watch the full webinar, click here. Otherwise, read on to see what the key messages were from this fascinating discussion on the legal considerations you need to keep in mind when expanding your social enterprise abroad.

Conducting Due Diligence

Before venturing into international trade, conducting due diligence is essential. This involves thorough research and planning to identify key markets that align with the social enterprise’s goods or services and offer the best potential for success. Understanding the culture, trade customs, and norms of target markets is crucial for tailoring offerings to suit the preferences and expectations of the local audience.

Revisiting and Adapting Your Website

A social enterprise’s website serves as a crucial window to the world. It is essential to align the website with international trading goals and effectively communicate the desired message to the target market. Reviewing and potentially revising the website to accommodate the cultural nuances and preferences of different markets can significantly enhance its impact.

Understanding Local Laws and Regulations

While existing business practices may work well in the local market, it is important to familiarise oneself with the local laws and regulations that apply to international business operations. Compliance with different legal requirements in foreign markets might necessitate adjustments to the social enterprise’s operations. Understanding and adhering to these regulations can help mitigate risks and ensure a smooth entry into new markets.

Utilising Available Resources

Various free resources are available to support social enterprises interested in international trade, the details of which you can find in the slide deck from the presentation show on the day of the webinar. You can view that deck here. These resources offer guidance on navigating the complexities of trading across borders. Additionally, seeking advice from individuals or organisations with first hand experience in international ventures can provide valuable insights and help entrepreneurs avoid common pitfalls.

Choosing the Right Legal Structure

When expanding internationally, social enterprises often maintain their existing legal structures.

However, the choice of structure depends on the nature of their activities overseas. For instance, if the focus is on business operations, a charity structure may not be ideal due to trading laws and restrictions. In some cases, setting up a separate entity in the target country may be necessary to accommodate the involvement of local partners and funders.

Make Sure Your Contracts Are Right

When looking at legal structures, organisations should also take the opportunity to ensure that their terms and conditions in their current contracts address the specificities of exporting to other countries. Terms and conditions which are designed for the domestic market may not be suitable to international transactions, meaning an overhaul of existing contracts may be necessary. This also means that in some cases, the other parties involved may want to adjust the contracts and even re-negotiate them.

Similarly, if you are creating new contracts with organisations or providers in your target country, be mindful of the language used in these contracts. If they are drafted in a language other than English, don’t be afraid to ask for clarity on details of your contract. This helps eliminate any potential risks of misunderstanding from the outset.

It is also important to incorporate internationally recognised contract terms, which you can find detail on here. These were developed by the International Chamber of Commerce (ICC) for international trade. They establish standard provisions regarding the delivery of goods, the transfer of risk and title, and the allocation of costs related to carriage and freight. Organisations should leverage these terms during the contractual process, as they are widely recognised and understood internationally.

Protecting Intellectual Property

Protecting intellectual property is crucial when entering new markets. Social enterprises should assess their intellectual assets and determine the most appropriate means of protection. It is important to register trademarks, designs, or patents in the target countries to safeguard them effectively. Thorough research should be conducted to ensure that the chosen brand or trademark does not infringe on existing rights or have unintended negative connotations in the local language or culture.

Alongside this, it is important to understand the relevance of social branding when you establish an entity in another country. Understanding the legal structure and social purpose of your organisations – such as whether a charity or an asset locked entity – can be significant for engaging with target sectors and stakeholders in the international market.

Choosing the Right Trading Model

Social enterprises have various options when it comes to trading internationally. These include contractual agreements, franchise models, setting up new entities in target countries, joint ventures, and appointing agents or distributors. Each trading model has its advantages and considerations. Flexibility and research are key in selecting the most suitable approach based on the target market and objectives.

Flexibility here can be useful too, and organisations should be open to exploring different trading models so they can accept the most suitable approach based on their target markets and goals. There is no one size fits all approach, but getting the trading model right at the outset is crucial.

It is also worth noting that the perception and understanding of what social enterprise is can vary from country to country, and some countries have specific rules when it comes to foreign direct investment in social enterprises. This is why understanding the legal and regulatory landscape in your target country is important.

Financial Considerations

Trading internationally involves specific financial considerations. Organisations must assess costs such as duties, taxes, fees, and currency conversions. Managing the risk of delayed payments and exploring options like letters of credit or trade credit insurance can help mitigate financial challenges. Seeking professional advice and developing a clear business plan are crucial for navigating the financial aspects of international trade.

When it comes to investing overseas, social enterprises and particularly charities, should avoid investing funds at risk in overseas trading ventures that may fail. Therefore, it is essential to develop a comprehensive business plan outlining intended profitability or social objectives that does not include investing overseas assets.

Professional advice from experts in Scotland and the target country plays a vital role in the decision-making process. Seeking guidance from relevant authorities, such as HMRC, can provide valuable insights into legal and tax considerations. Additionally, understanding the costs associated with establishing entities in the target country is essential and should be incorporated into the business plan.

Managing Risks in International Trading

Mitigating risks is a significant aspect of international trade for social enterprises. Delayed payments pose a challenge when conducting business abroad. To address this risk, exploring options such as letters of credit and insurance can protect against non-payment. However, careful consideration of associated costs and trade-offs is necessary.

Handling revenue in different currencies is another consideration. You should be mindful of bank transfer costs and potential currency fluctuations. Understanding the financial implications of currency conversion when receiving payments in various currencies is crucial for successful international trade.

Local Taxation and Repatriation of Funds

Navigating local taxation rules is crucial for social enterprises engaged in international trade. Seeking professional advice and conducting thorough research on the tax regulations of the specific country is vital. Taxation rules can vary significantly from one country to another, necessitating specialised assistance in navigating these complexities effectively. Furthermore, understanding the process of repatriating funds from a foreign country requires tailored advice to ensure compliance.

Legislative Considerations and Compliance

Compliance with legislation and regulations in different countries presents a complex challenge. Packaging and labelling regulations, for instance, can significantly differ between countries. Thorough research and seeking guidance are necessary to navigate these regulations. Establishing a social enterprise in a foreign country requires consideration of factors such as board composition and residency rules, which may vary from the home country.

Consumer protection laws also vary across jurisdictions. Seeking guidance from relevant networks and leveraging available resources are invaluable in navigating these regulations. Relying solely on expensive local lawyers may not be feasible, making the support of networks essential. 

Anti-Bribery and Corruption Considerations

Understanding local customs and practices is crucial to avoid inadvertently engaging in bribery or corruption when trading internationally. Social entrepreneurs must comply with both UK and local anti-bribery and corruption laws. Implementing internal controls, providing employee training, and fostering a top-down approach to anti-bribery and corruption policies are essential for ensuring compliance.

Obtaining declarations from contractors confirming their non-engagement in bribery can help demonstrate compliance. Upholding compliance standards, even when local customs suggest otherwise, is vital for maintaining ethical business practices.

Wrapping It All Up

Expanding into international markets presents a multitude of legal considerations for social enterprises, but with careful planning and guidance, these challenges can be effectively addressed. The webinar on key legal considerations for social enterprises expanding internationally provided valuable insights and guidance, and now it’s time to take action.

ISEO (International Social Enterprise Observatory) is here to support Scottish organisations looking to expand globally and international organisations seeking to establish a presence in Scotland. With our expertise in international trade and legal matters, we can provide tailored assistance to navigate the complexities of trading across borders.

Whether you’re looking to conduct due diligence, adapt your website for international markets, understand local laws and regulations, protect intellectual property, choose the right trading model, manage financial considerations, handle taxation and repatriation of funds, ensure legislative compliance, or address anti-bribery and corruption considerations, ISEO is ready to help.

If you’re interested in exploring global opportunities and expanding your social enterprise’s impact, don’t hesitate to get in touch with us. Together, we can create a roadmap for your international ventures, ensuring compliance, mitigating risks, and maximising your success in the global marketplace. Contact us today to embark on your international expansion journey.

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