Cross-border business transactions have become quite common in many industries, but that does not mean that the legal issues surrounding those transactions are always clear-cut and simple. Doing business internationally raises a number of possible conflicts and procedural bumps that do not come into play when one U.S. company does business with another.
Common Issues in Cross-Border Business Dealings
- Conflict of laws
- Differing legal systems and terminology
- International tax issues
- Restrictions on mergers, acquisitions and investments
- Disparate regulatory schemes
- Difficulty of cross-border enforcement
This, of course, provides only a high-level view of some issues that arise most frequently and may have a significant impact on inbound and outbound business dealings. When you are considering entering into a business arrangement with a foreign company, your best first step is to consult with an experienced international business lawyer.
Waiting until you have connected with a foreign partner and agreed to general terms of the deal to seek legal advice can create waste and frustration and potentially damage relationships, as factors you are unaware of may substantially change the landscape. Best practices would involve seeking knowledgeable guidance from the beginning to insure that important issues are not overlooked and that unconscious assumptions based on domestic law do not cloud your understanding of the arrangement.
Choice of Laws in Inbound and Outbound Business Transactions
As a general default, international business contracts are governed by the appropriate international law. For example, contracts for the sale of goods are generally governed by the United Nations Convention on Contracts for the International Sale of Goods (CISG). CISC provides a uniform framework for international contracts for the sale of goods. Of course, not every nation is a party to the Convention, and some have entered with specific reservations.
In addition, just as interstate parties to a contract may agree on the application of a particular state’s law, parties to an international contract may agree on the application of the laws of one country rather than any applicable international law.
It is critical that the parties explicitly agree as to applicable law, as interpretation and enforceability of certain provisions will vary depending upon the law applied. Thus, it is only possible to ensure that the parties have a meeting of the minds on any given provision and that the provision will be enforced as such when the parties have agreed as to the framework for interpretation and enforcement.
Drafting of Cross-Border Contracts
Inbound and outbound business relationships require clear contractual agreements, just like domestic transactions. However, drafting international contracts can be more complicated and require a much more extensive knowledge base, for several reasons. Some key reasons include:
- The need to ensure that the contract provisions are in accordance with the laws and regulations of both countries, as well as the state and local governments involved
- The necessity of clearly defining terminology to ensure that cultural or linguistic differences do not cloud the meaning of contract provisions
- The importance of considering available enforcement mechanisms and the practicability of employing such mechanisms
An attorney experienced in drafting international agreements can take the lead in ensuring that all relevant questions are answered and terms are clearly defined, so that the parties can reach a true meeting of the minds and enter into an agreement that reflects their plans and is enforceable in the event of a breach or conflict.
Regulatory Disparity in International Business Relationships
An additional complication in some international business transactions lies in the differing regulatory schemes of different countries. For example, in a contract for the sale of goods, the purchasing company must ensure that local safety regulations regarding the type of goods in question are met, although those same requirements may not be in place in the manufacturing company.
Inbound and Outbound Business Law Transactions are Complex
There are many areas in which entering into contracts, joint ventures or other business arrangements is a complicated process requiring careful attention. In the case of a cross-border agreement, those issues are multiplied.
To protect your rights, ensure that you fully understand your obligations and give yourself the best possible chance for a successful international business relationship, get knowledgeable guidance from an experienced international business attorney as early in the process as possible. The attorneys in our office have the backgrounds and resources to help you build strong, healthy international relationships that will allow you to grow your business while minimizing risk.