Perspectives On Legal Differences When Doing Business Internationally

Carlos Velez has had a series of posts (e.g., here, here, here) that has provoked some thought on doing business internationally and virtually in an early-stage company or as solo practitioner. One of the questions I think he asked me at one time was whether I noticed any differences or had any problems when doing business internationally. I mentioned that I don’t think I have (with respect to recent business) on a day-to-day basis given new collaborative technologies.

That said, when I reflect upon one area that seems to have a common thread across all of the business I’ve done internationally, I forgot this one:

Legal business contracts in the United States seem more complicated than in other countries I’ve worked with. The disparity seems to go up as one moves from the spectrum of simple agreement (e.g., sales documents) up towards corporate infrastructure (e.g., equity and organizational documents).

There is a lot more trust involved with international contracts from my perspective.

And tools like babblefish (for online language translation) will only get you so far. It’s a one thing to translate blog posts written in other languages related to oneself (e.g., here, here), but when it comes to legal you have to get resourceful and/or find specialized help. Heck, we can barely define some of the legal terms and mechanics crisply in English let alone trying to pose the question to babblefish.

I’ve worked contracts in Japan, Latin America, Germany, the Netherlands, Australia, Canada, the UK, and India. Perhaps legal complexity has to do with the fact that the number of venture capital firms and software manufacturers is much larger in the United States. This leads to higher legal intensity and more complex terms and conditions. When tied with the litigious culture of the US, this just feeds the fire. In any case, when I look for tight protections in international contracts, and they are not there as a matter of general culture, I feel more naked.

Some specific differences I’ve seen (at a lower-level than the general American call option versus European call option academic training one gets in b-school):

• Par value of equity in the US is set $0.01. Par value in other countries may be 100+ times higher. This can be, in some circumstances, a less friendly stock-option environment.
• Stock option vesting and acceleration clauses may not be there, whereas they are more typical in the US and protect the employee.
• Equity survivorship (i.e., if one dies) clauses may not be present to the same extent as in the US.
• Stock option expiration may be much shorter as compared to the United States.
• Whereas stock options can be printed for free in the US in many cases of start-up, some of the countries require nominal cash transaction for the stock options issued at the money (i.e., strike price at market).

Simpler international legal documents can be a breath of fresh air for smaller companies looking to do business internationally. There’s just less paperwork and formalities to cut through. But the question is, are you protected?