Doing business outside U.S.

If your business is thinking of expanding its scope of operations abroad there are several issues involved in this decision that are legal, financial and tax oriented.

For example, the business proposition may require the cooperation of locals who will want to participate in ownership. If you plan to have local partners in several countries, having a separate entity in each may make accounting and governance issues much simpler.

Some countries even require local participation under their relevant commercial law (perhaps for certain types of activities or generally if you want to have access to foreign exchange privileges). Also, in many countries there are business or tax advantages for locally established entities (whether or not they have local ownership).

Beyond the types of entities we are all familiar with (i.e., corporations, partnerships and sole proprietorships), foreign countries provide a bewildering array of possibilities to consider. Do not assume that the foreign country treatment of a particular entity is the same as the U.S. treatment.

Some important issues to consider include:

How expensive is the local entity to establish and maintain?

How does the foreign country treat noncountry (e.g. U.S.) owners?

Does the entity type insulate owners fully or partially from debts or liabilities of the entity?

How is the entity taxed?

Would the local owners have any local country tax liability on earnings of the entity?

How would the foreign country tax distributions to owners?

-- Robert Brown,
Alpern Rosenthal,
rbrown@alpern.com

New bankruptcy lease rules

A recent federal court decision is changing the bankruptcy rules dealing with leases of bankrupt companies.

While a company is in Chapter 11 bankruptcy, it is permitted to reject all leases for real estate or equipment. But once it has been in bankruptcy 60 days, it must pay any leases it has not rejected.

Now in the case of Federal-Mogul v. Computer Sales International, a U.S. Court of Appeals gave debtors a third option when it comes to equipment leases: the ability to modify a lease after a court hearing. A debtor can't unilaterally decide to change lease terms, but it can change the terms of a lease if it gets a court order permitting the modification

If upheld, this court decision will give companies in bankruptcy greater flexibility in negotiating new terms with creditors who are vendors of needed services or equipment.

-- Joel M. Helmrich,
Meyer Unkovic & Scott,
jmh@muslaw.com