Orr Litchfield
Solicitors and Business Lawyers
Solicitors and Business Lawyers
Are you looking to expand your business to the UK or seeking to change your existing method of trading with the UK?
Whether you wish to start trading with the UK or to change the way or ways in which you are currently doing so, there are several options available to you. Broadly, the options include direct trading, a range of different types of commercial arrangements, setting up a UK establishment (also known as a ‘branch’), starting a UK trading entity or the acquisition of a business or company. You may find that you need to use more than one strategy or that you change the way in which you trade with the UK over time.
Structurally, this is the simplest format. You simply sell your goods to customers in the UK in a similar way to selling goods to your customers in your existing market.
It may also be the least expensive method of trading with the UK in terms of direct costs, particularly where you have a small number of large customers with which you trade in the UK. However, it is likely to be less suitable where you are seeking to expand your customer base in the UK or where you have a large number of smaller UK customers or where there is a significant amount of after-sales activity. There may be a perceived lack of commitment to the UK market when trading directly and potential difficulties in dealing with any disputes.
You should ensure that you take legal advice and fully understand the legal risks of trading in the UK. It would be advisable to review your terms and conditions of trading (for example, dispute resolution, jurisdiction and governing law provisions) and consider establishing a special purpose trading vehicle in order to try to ring-fence some of the risks.
There are several types of commercial arrangements which you may wish to consider. These include agency agreements, distribution agreements, licensing agreements and franchising. Each of these can take many different formats.
An agent is an intermediary involved in the making of a contract between you and the customer. There are several types of agents. However, where goods are being sold, the two most common types of agents are a sales agent and a marketing agent. A sales agent has the authority to enter into agreements with the customer on your behalf. A marketing agent simply markets and promotes the supplier’s products to prospective customers but, unlike a sales agent, does not have authority to bind you as the supplier. When a customer wishes to make a purchase then it is you who completes the contract and not the agent.
You can read more about distribution agreements on our dedicated page on Agents, Agency and Agency Agreements.
In a typical distribution arrangement, you will sell your goods to a distributor at a discount. You, as the supplier, may be a manufacturer or you may yourself be a distributor reselling another supplier’s goods. The distributor will then sell the goods to customers at a profit.
There are four main categories of distribution arrangement – exclusive distribution, sole distribution, non-exclusive distribution and selective distribution. There are many similarities between each of them. In general terms, the greater the level of exclusivity for a distributor and the greater the size or importance of the relevant market for you, the greater the level of obligations imposed on the distributor by you as the supplier.
You can read more about distribution agreements on our dedicated page on Distributors and Distribution Agreements.
In a franchising arrangement, you as the Franchisor will grant to a Franchisee a licence to trade as their own business under your name or brand (or, if you are a master Franchisee, under the name and brand of the Franchisor).
You will usually have to provide each Franchisee with a business package, comprising of initial and on-going training, a business operations manual, marketing support and other elements necessary to enable a Franchisee (who will often be a previously untrained person in the business) to establish and run its franchise. It will require continual assistance on a predetermined basis for an agreed length of time with a right to renew. You, as the Franchisor (or as master Franchisee), will usually exercise significant control over how the Franchisee runs the franchised business.
You can read more about franchising arrangements on our dedicated page on Franchising and Franchise Agreements.
You may wish to enter into a joint venture with a local UK business as a hybrid between establishing your own wholly owned operation and entering into a commercial agreement such as an agency agreement or distribution agreement.
There is no legal definition of a ‘joint venture’ in the UK and there are no specific legal requirements as to the form which a joint venture must take in the UK. There are a number of choices of structure available to you. These are commonly divided into 2 main groups – entity joint ventures and contractual joint ventures.
Entity joint ventures in the UK include the use of a company, limited liability partnership, limited partnership or partnership structure. Each of these structures has a different degree of separation and independence from its owners. Contractual joint ventures in the UK include arrangements such as collaboration agreements, consortium agreements and strategic alliances. A private company is the most commonly used structure for the participants in a joint venture.
You can read more about joint ventures on our dedicated page on Joint Ventures and Joint Venture Agreements.
You may wish to set up a UK establishment, more commonly referred to as a ‘branch’.
A UK establishment is an official representative of the parent company in the UK. Whilst it is necessary to register your UK establishment at Companies House in the UK and with the UK tax authorities, it does not have limited status. Instead, it is considered to be a part of the parent company. Consequently, it exposes the parent company to business risks.
The registration process for a UK establishment is more cumbersome than that of a UK company, LLP or other trading entity. In addition, there are a number of tax, accounting, financial reporting and commercial drawbacks to using a UK establishment. A UK establishment cannot be converted into a limited company.
You may choose to set up your own trading entity in the UK.
There are a number of different types of trading entity available to you in the UK. These include partnerships, limited partnerships, limited liability partnerships, public limited companies, private limited companies and companies limited by guarantee.
The most common trading entity used when expanding a business to the UK is a private limited company. Typically, it will be established as a wholly owned subsidiary. It will have limited liability and, consequently, limit the business risk of the parent company.
It is relatively easy to set up a limited company in the UK. There is no current requirement for any resident director or shareholder. The establishment of a limited company (or other UK trading entity) is likely to indicate to existing and potential customers, service providers and employees that you have a significant commitment to the UK market. Whilst having a physical presence in the UK can be valuable, setting it up and maintaining it is likely to require the commitment of comparatively large resources.
You should ensure that you take legal advice and fully understand the legal ramifications of establishing your overseas operation before you set it up.
You can read more about private limited companies on our dedicated page on Private Companies Limited by Shares.
You can read more about companies limited by guarantee on our dedicated page on Private Companies Limited by Guarantee.
You can read more about partnerships, limited partnerships, limited liability partnerships on our dedicated page on Partnerships, Limited Partnerships & LLPs.
You may choose to expand in the UK by acquiring a UK competitor or an entity which can assist you with your sales, marketing or other supply chain issues.
Your acquisition may take the form of a share purchase, business and asset purchase or more simple asset purchase.
Acquisitions usually require a significant level of legal and other professional services work. You should ensure that you take legal advice, fully understand what you are agreeing and enter into a properly prepared acquisition agreement (and related documentation).
You can read more about share purchases on our dedicated page on Share Purchases & Sales.
You can read more about business and asset purchases on our dedicated page on Business & Asset Purchases & Sales.
Ultimately determining the best approach for you and your business when expanding in the UK is based on individual circumstances. You may decide that a mix of the alternative approaches is best for your business (for example, appointing a sole agent or distributor whilst also making direct sales yourself) or your strategy may be to start with one method before adopting another method once certain goals have been achieved (for example, starting with direct sales before appointing an agent or distributor and finally establishing your own overseas operation by acquisition or otherwise). There is no 'one size fits all' solution.
The earlier you create your strategy and more thoroughly you prepare and carry out your due diligence, the better your chances are of making your strategy work. In order to maximise your return, you need to be in control of the process from start to finish, which requires detailed thought, preparation and planning. Determining your objectives and setting your goals early on when seeking to enter a new market and creating a viable plan and reviewing and revising it regularly means that you will maximise your chances of being ready to take advantage of any good opportunity to develop your business when it arises.
Whatever stage of the process you have reached, we can help you to understand the different legal and related commercial issues when expanding your business to the UK, to choose the option that is right for you and to help you develop your business in the UK.
If you would like more information about expanding your business to the UK or would like to discuss a potential or existing business expansion, commercial agreement, joint venture or acquisition please email us at enquiries@orrlitchfield.com, complete an Enquiry Form or call us.
