Legal Tips on Market Expansion

It is the last month of the year 2022, and we are beyond excited. It is starting to smell a lot like Christmas over here and we have a whole lot to be thankful for. 2022 has been loaded and we cannot wait to see what crystallization 2023 will bring. To our visionary founders, and team members that hold the startup down and keep the dream alive and thriving, we urge you to make the most of this holiday season, take time to recharge and get ready to fire up come 2023.

In this last newsletter for the year, our spotlight is on the Kuda expansion. Against this background, we highlight key issues you must consider should you be looking to expand your startup's operations beyond your current country.

Kuda recently announced an expansion to the UK as part of its major global expansion drive, which includes the UK, Ghana and Uganda as announced by the company. Kuda will be joining a league of other Nigerian banks that have expanded their operations beyond the country. The expansion is to provide digital banking services, including direct debits and local transfers, to diaspora Nigerians in the UK. Kuda has partnered with a UK third-party to provide the services, which focuses on cross-border remittance.

For many startups, the ultimate goal is to scale up and grow bigger, and expansion is inevitable to achieve this. There are several strategies to consider when considering market expansion for startups. It can either involve including new products & services or expanding to a new market (country, state, region). In this newsletter, we discussed some legal tips to consider should you consider expanding your startup to other countries or cities like the renowned microfinance bank.

Starting a business in another jurisdiction, and country has its challenges considering that you may not be familiar with the local legislation, language or business culture, and as such, it is important to prepare ahead with operations, and legal efforts. The legal environment of each market differs, and it can be challenging to navigate, especially with complex legal environments. Most startups consider market expansion when the funding stage is at Series C because chances are they are already or almost dominating the present market. One of the most important considerations of market expansion is having a knowledge of the regulatory framework and the rate at which economic realities and policies will be favourable to your startup in the new regulatory climate.

The first thing to consider is the laws and regulations in the location you’re expanding to. It is important to carry out research on the new regulatory environment to understand the laws and rules that your startup must comply with, as well as the licenses to be acquired. You want to ensure you build relationships with existing players in the new ecosystem.

Essentially, endeavour to:

Choose Your Market Entry Route Carefully

There are several options available for entering new market environments. Deciding how to formally expand is crucial because the method of market entry influences how the business is regulated and the legal obligations to be assumed. It is very important to ensure that the structure, and route of entry is appropriate for your business plan. The methods of market entry can vary depending on the country, but common methods include: franchise, establishing a subsidiary company, partnering with a 3rd party for support, amongst others.

Business Structure and Incorporation

As mentioned, the option of establishing a subsidiary in different states or countries, or collaborating with existing businesses in the new markets to leverage the extant business’s goodwill in the new market can be explored. It is advisable to identify and establish the best business structure that suits the growing startup, and its mode of operations.

Incorporation is very important, and it is the first step in establishing the company, it shouldn’t be done down the line. It is crucial to understand the requirements for establishing, and incorporating a company in the country. Common types of legal entities for foreign businesses are limited liability companies, corporations, and partnerships. Each legal entity and business structure have different obligations and governance requirements.

Generally, most entities can be incorporated as follows:

Intellectual Property

The innovative ideas of the startup must be registered in the new markets, either trademarks, patents, copyrights etc. Registering intellectual property is a key element of legal security for business development in countries across the world. It is intended to grant legal protection over the commercialization of your services and products, and gives exclusive rights to the registered signs, logos, ideas, etc. It is also crucial to ensure that you’re not infringing any person or company’s intellectual property rights.

While expanding business operations, it is important to understand the corporate compliance requirements to avoid penalties or other sanctions that can hinder operations. Corporate compliance varies from country to country, and it includes annual filings, regulatory compliance, and corporate governance practices.

It is also a good idea to conduct entity checks. This check will help understand the company’s overall compliance status in relation to government authorities and mitigate risks that could be detrimental to business operations and reputation. For companies expanding across a region at once, all subsidiaries must be checked to ensure compliance.

Finally, It is advisable that you seek local financial, tax and legal advice before you venture into expanding the business. You want to conduct a necessary investigation, and research into the country of choice. Startup expansion must be a result of an informed decision, and prepared plans, and structures.

To operate successfully in a new market, a clear market entry strategy and an understanding of basic pillars of legal frameworks will help business development and protect your company’s growth.

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