Foreign LLC · Sales

What do I need, legally, to cover my butt when working with a foreign company?

Leena MBA Content & Publication Manager at NetApp

July 19th, 2016

I am an American who wants to get into a partnership with an Indian company to sell its IT services here in the US. The company has two principals, I'd eventually like to be a third. For now, the contract opportunity promises a pretty lucrative commission from each sale, and I'd own the entire northern California sales footprint/territory.

1) Do I need an employment attorney or startup lawyer - or are they the same thing?
2) Can I legally do this? What sort of contract do I need?
3) What amount of equity would be fair for me? Vesting cliff?

Please advise, thanks family!

Leena
Every business needs an eye-catching website, and building one shouldn’t be expensive or time-intensive. Learn how to set up a Wordpress site, pick a stunning theme, add a blog and newsletter, sell products, and monitor analytics — in just one hour.

Joseph Wang Chief Science Officer at Bitquant Research Laboratories

July 19th, 2016

In foreign contracts, you aren't going to be able to enforce the contract, and so contractual obligations aren't going to be able to protect you from the other people involved. However, you should have a well written contract so that everyone knows what everyone owes everyone else.

The main lawyer you may need is a tax lawyer.

The type of vesting will be heavily influences by US and Indian tax law, and it is tax hell for both you and the company for a US tax resident to own more than 10% of a foreign company (google controlled foreign corporation and personal service corporation).   There are also double taxation issues and maybe transfer payments.

The good news is that it's likely that you will be able to figure out something that allows the deal to go through.  The issue is more of minimizing paperwork, and really, really, really bad things can happen if you don't fill out the right paperwork.

1) Off the top of my head, I think it would be best if you create a local California company and sign the contract through the CA company rather than sign it personally. The big reason for this is that very bad tax reporting requirements come up when a US national owns more than 10% of a foreign company, and you do not want to trip over that. If you own a US-incorporated company and that company owns a foreign company, the IRS can track what you are doing.

Since this is going to be CA-based, it's best if you open a California corporation. Once you go multistate, you can look at Nevada and Delaware.

The other issue is that it's extremely likely that the Indian company will not understand US payroll issues, so it is easier if they pay the US company, and you handle payroll. If the Indian company pays you, it is likely that they won't issue 1099's and/or W-2's, and this will annoy the IRS.

2) This is the US leg. You should hire someone that is familiar with Indian law to advise on issues of Indian law. It's possible that the contract or legal arrangement they are proposing runs into problem under Indian law, and I've found that startups may or may not be aware of local law.  Aside from whether something is legal under Indian law, you will run into tax issues.

I don' t have any good contacts for this (I do know lawyers in the US that do Chinese law), but since you are close to Silicon Valley, I suspect that you can find someone. 

Victor Szczerba Entrepreneur, CEO, Data Geek

July 19th, 2016

HI Leena, I have done something similar - it’s not a pretty picture, and if you don’t trust them, don’t do it. Legal can’t fix trust in this kind of a case if something breaks (which is the main point of a contracts attorney). If you want to talk this over, I can do this tomorrow evening. Just call me. Victor +1.415.994.9444 -- Simplicity Rules

Leena MBA Content & Publication Manager at NetApp

July 19th, 2016

Hi Victor! Thanks for the response. FD has removed your number it seems, to keep you safe. I'll try messaging you within this app.

Cheers,
Leena

Doreen SPHR Recruitment, Recruitment Process Outsourcing, Startup & Technology Recruitment, HR & Recruitment Expert

July 19th, 2016

Hi Leena,

Once upon a time, I had a legally binding contract with a company HQ'd in Europe.  They chose not to pay (they were in financial trouble), even though they were happy with the service.  The cost of retaining representation in that company to defend the contract was very costly.  I took the loss, and that was the best way to win in that situation.  I was referred to this company from a passed business relationship and friend.  You never know!  I have also worked with other companies in Europe over the years.  Never had a problem with this one exception.  I hope Victor has really good advise for you.  They only thing I could have done differently was deeper research into the company's financials.  Wish you good fortune.

Leena MBA Content & Publication Manager at NetApp

July 19th, 2016

Thanks. These guys weren't referred to me, but I think we found one another through AngelList. My sense is that they are trustworthy, they have gone the extra mile to try to work with me and have answered at least 50 questions I've posed to them (if not more) in lengthy and transparent email exchanges. They have also happily furnished financials. They've worked with some no-name companies that became defunct and a couple of smaller, but notable companies that have cache in the tech world. I am willing to take a bet on them for a trial period to see how it goes, and to put several safety loopholes in the contract for myself, such as the stipulation to keep all contacts that I make as my own (thus they cannot screw me over or I'll leave with all of the contacts I made), and having all sales transactions I make go through my bank account first.

These are just two ways that I've thought of off the top of my head to safeguard myself so far. They are amenable to many things I suggest, and are eager to work with me.

Let us see if they're willing to do the legal legwork to get me on board...

Victor Szczerba Entrepreneur, CEO, Data Geek

July 19th, 2016

So, my guidance is this: A legal contract is put in place for when things go wrong. And, there are two distinct lines of logic you have to consider when you think of a contract: the spirit of the deal and the enforcement of the deal. Let’s talk about both: 1) Spirit of the deal. This is where you things go well and you spell out: I do this for you, you do this for me, and it’s all clear and in the open. This is the case of 99% of the time when things go well. And usually, in 99% of the time when things go not so well, things just ‘fizzle out’, and nothing legal really happens, and both parties just say: we tried, it didn’t work out, we moved on. No harm, no foul. A contract is great here for setting expectations on both sides - and in cross-country deals, unfortunately, little else. That’s why I said that it is important that you trust who you are doing business with. If you don’t, move on. A contract should not give you the sense of trust, as there is little in the way of enforcement. 2) Enforcement of the deal. Here is the main problem. If they screw you over, and you are counting on your legal contract to protect you, you are being delusional. If you are their only representative here: you, in essence are them, in this country and they can move back and forth between two systems to their advantage. You will spend lots of money and time trying to get any enforcement, and they will always wiggle: not our company, not our country, not our laws/rules, etc…. They can always shut down, pull back, retrench, change names, slow pay, etc, etc, and there is little you can do about it. For example if they stop paying you commission, and they owe you the last $30K, you might find yourself in a position where you try to hire a team of lawyers that will want a $90K pre-payment on a lawsuit that might yield $30K - and they know this. Conclusion: if you trust them, trust them. Do the deal, and count on good will and set expectations to carry you through. If you don’t, run away and stop wasting your time. -- Simplicity Rules

Doreen SPHR Recruitment, Recruitment Process Outsourcing, Startup & Technology Recruitment, HR & Recruitment Expert

July 19th, 2016

I like Victor's thinking and approach.  Based on my experience, this is sound advice.  Good luck Leena! 

Leena MBA Content & Publication Manager at NetApp

July 20th, 2016

Excellent points made by all and thank you Joseph for answering parts 2 and 3 of the questions as well.

If anyone has any ties to a tax atty who is familiar with dealing with Indian companies, please let me know...! In the meantime I will keep looking and do keep the suggestions coming in if you have more advice.

Thanks!!!

kooveli kv independent consultant / tutor at Prime Consulting Group

July 20th, 2016

May be you will find something useful? Best https://www.academia.edu/23471254/Doing_Business_in_India_-_Knowing_the_Rules_and_Learning_the_Ropes [http://a.academia-assets.com/images/open-graph-icons/fb-paper.gif] Doing Business in India - Knowing the Rules and Learning the Ropes www.academia.edu Business environment of today has roots in historical evolution. Present ecosystem is a function of reluctantly embraced oriental collectivism and underlying desire for individualism of the accomplished driven by contextual convenience. While

AJ Johnston Owner at Law Office of Ann E. Johnston

July 20th, 2016

Yes, u need an attorney. U specifically want an attorney who has experience with other countries. I recommend Richard Green in Huntington CA. He is CA licensed, in a firm that is versed in immigration and has employment experience.