What you often don’t need to buy, and what actually matters
You have found a customer in another country. There might be more. You decide to establish a local business.
Before long, you are discussing an address, a local director, an accountant and a corporate secretary. This is called substance. It is available on a monthly subscription.
The director needs briefing. You explain the business, prepare the decisions and send the supporting documents.
You are still running the business. You are now also briefing its management. And chasing it.
Your director sits on twenty other boards. You get to speak to a junior, who reassures you that she is your account manager.
She has questions from another department called Compliance. You answer them. She passes them on. You wait.
You follow up. Your account manager is waiting too.
Meanwhile, the person you actually want to hire needs somewhere to work. Somewhere near the customer would be useful. Unfortunately, that is not near the address you have just acquired.
The business and its local presence are off to rather different starts.
Meanwhile, over coffee
You meet another entrepreneur who has expanded into the same country.
“Who did you appoint as your local director?”
“No one. I ran it myself.”
“Wasn’t that a problem for substance?”
“There wasn’t much local substance at first. There wasn’t much local revenue either. We were getting started.”
As the business grew, he found an office. A small local team followed. Now he is thinking about appointing one of them as the local director.
“She already knows the business. It would make sense.”
You consider asking whether she also has an account manager.
His company’s local presence developed with the business. The office gave people somewhere to work. The team looked after customers. The proposed director already had something to direct.
This is the distinction worth keeping in mind. Substance is not the shopping list. It is the underlying reality the shopping list is supposed to help establish.
So what should you actually buy?
1. A local director, when the appointment has a job to do
For most companies building local operations: start lean. Keep management with the people actually managing. Add local capability as the business develops.
That does not mean you should appoint the first employee as managing director, either. Someone can be excellent at finding customers without being ready to take responsibility for the whole company. Let the team develop. Learn whom you can rely on. Give people authority for work they can actually oversee.
There are situations where external oversight makes sense. Looking after a valuable property in a country with little other local activity is a different assignment from supplying signatures to an operating business.
The question is what the appointment contributes.
Someone who understands the business, considers decisions and takes responsibility is providing management. Someone receiving decisions already made elsewhere is providing something else.
The distinction is not lost on tax authorities. Britain’s HMRC explicitly distinguishes a subsidiary board exercising control from one merely rubber-stamping its parent’s decisions. In the latter case, it can locate central management and control with the parent, rather than where the subsidiary’s board sits. (GOV.UK)
The tax position needs checking on both sides of the border. Buying a local appointment does not remove that work.
Nor is its fee the only consideration. Before appointing someone, consider what happens to approvals, banking and your ability to change arrangements. Ask what becomes easier. Ask what becomes harder.
“More structure” is not, by itself, an answer.
A suitable team member already understands the business. Guidance and training can help them learn the legal obligations of being a director. That is often easier and more effective than explaining your business to an outside director, again and again.
2. An accountant, not necessarily their accountant
Perhaps you already have an accountant who understands the business. Perhaps that accountant needs local support.
That sounds like a reason for an introduction. It need not become a change of accountant.
Start with the work. Who will keep the books? Who will handle local filings? Who will answer questions from headquarters? Agree on the responsibilities, documents, and deadlines. The people involved should work from the same information. They do not necessarily need the same logo on their email signatures.
Buying several services from one firm can be convenient. But ask what happens when you like the accountant and dislike the director. Or the other way round.
You wanted fewer relationships to manage. You did not necessarily want one relationship that manages everything.
3. An office chosen for the business
Return to the person you wanted to hire.
Where should they work? Near the customer? With colleagues? Somewhere they can demonstrate the product? Or perhaps a warehouse location or a factory?
These are useful reasons for choosing premises. “It came with the director” is less informative.
The original question should be what the business will actually do there. Choose an arrangement that fits that use and keep the description consistent with reality. A smart reception area is pleasant. It does not explain who works upstairs.
There is nothing embarrassing about a small beginning. A modest office with people doing useful work does not become less real because the coffee machine belongs to the landlord.
Equally, an address used for correspondence should be described as such. The post does not need fictional headquarters.
Let the business grow into its arrangements
What must be in place now? What can wait until the business needs it?
For operating companies, we favour a lean start. Every appointment, service, and commitment should earn its place.
Some recommendations protect your business. Others mainly protect your (tax) adviser. You get the bill either way.
You need room to keep what works and change what no longer does. Replacing an accountant should not mean rebuilding the company.
You went abroad to grow a business.
The overheads can usually manage without encouragement.
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