Where to register a company for a global SaaS or e-commerce platform, a startup, a mobile app development or outsourcing: the US, Cyprus, Estonia, Switzerland or the Netherlands? Should the countries of Asia be also taken into consideration?
Who should be appointed as the director?
How to set out the terms and conditions for a partnership of shareholders? Which jurisdiction has the least red tape and the most favorable legal and tax climates for business?
IT companies are developing rapidly and nowadays rarely operate within the boundaries of any one country. Even the most advanced states are failing to adapt fast enough to the changes taking place in the IT sector. Remember the “cryptocurrency fever”? State authorities, unlike the public at large, weren’t ready for the “new type of currency”. When exploring and entering new markets, business faces numerous legislative barriers, which must be coped with.
There is a clearly outlined hierarchy in the IT business. CTO is responsible for the technical part, TeamLead for the work of the team members, the head of sales for the sales of the entire department, and CEO has the broadest powers of all.
In the world of corporate law, companies also perform certain functions and specific tasks, such as holding companies, operating companies, copyright holding companies, etc.
you need to hold a strategic session with the partners, establish values and goals for each of them, identify the makers of key decisions, specify how dividends are to be distributed and shares to be sold, whether members of the founders’ families can participate in the company, who will have the pre-emptive right to buy shares, how to divide the company in case of a quarrel between the founders, draw up the articles of association and corporate agreements between the founders and/or investors.
The agreed upon terms between the founders are transformed from a corporate agreement in writing into a registered holding company that attracts investments, accumulates financial flows, pays dividends, and manages the business structure. When choosing a jurisdiction for a holding company, founders tend to focus more on the countries with common law legal systems that are also parties to numerous investment protection and tax treaties.
Operating company (OpCo)
OpCos provide services and products to the final consumer. They are distinguished based on the type of business they are involved in: local or world wide. In the case of the latter, among the most favorable jurisdictions are the US, Cyprus, the Netherlands, Switzerland, Luxembourg or Estonia. When it comes to certain licensed activities, for example, FinTech, companies (normally) are prompted to get registered in each local market.
IP holding company
The purpose of such companies is to own intellectual property and passively accumulate profits in the form of royalties. If an operating company runs into problems, such as legal disputes, the IP holding company will remain uninvolved in the litigation, and, therefore, the main assets of the IT company will be protected.
As recently as 10 years ago, the IT business actively used offshore companies and the tax regimes they offered. The BEPS Action Plan, initiated by the OECD, has changed the rules of the game. The persisting trend of 2018-2020 is deoffshorization, economic substance (a company is required to have an office, local employees and even actual contracting parties) in the country of registration of the company, as well as implementation of countermeasures against the countries that provide preferential taxation.
Banks, PSP or EMI
Modern IT business is very dependent on online payments. There are two approaches to payments out there: to use the services of traditional banks; or to open accounts with FinTech companies, such as PSPs (Payment Service Providers) or EMIs (Electronic Money Institutions). Most often than not, PSPs and EMIs are used for operations, and regular banks are used for the accumulation and storing of cash.
Plan of action
First finalize the partnership paperwork, structure your company, and only then move on to formalizing relationships with employees, contractors and customers, set up fthe processes for maintaining and submitting reports, and undergoing mandatory audits.