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Economic activity and business operations around the world are more interconnected than ever before. The notion of a ‘global economy’ has become the norm. Businesses are now seeking to engage with clients beyond their own borders. The aim is to leverage the overseas businesses’ customer base and reputation through partnerships or joint venturesAustralian businesses are regularly approached by overseas businesses to partner and introduce new products or service offerings here in Australia. Similarly, Australian businesses often seek to identify an overseas target market. This article will explore key considerations when partnering with a foreign business. It is essential that you:

  • understand the key terms of the partnership or joint venture arrangement; 
  • undertake due diligence on the potential business partner; and
  • understand the governing law in the foreign jurisdiction.

Nature of the Partnership

Businesses can partner on a one-off basis to undertake a project with an end date. Alternatively, businesses can enter into an arrangement to partner on an ongoing basis. Businesses can also partner through an investment arrangement whereby one party invests capital and performs an advisory function. You must be clear on the terms of engagement you are proposing, as this will generally inform each party’s obligations. You must also be clear about how each party will share responsibility, profits and liabilities. At the end of the day, you want to minimise the risk of misunderstandings and business relationship breakdowns. 

For example, suppose Aussie Aussie Aussie Pty Ltd (an Australian business) is approached by an overseas business to sell merchandise relating to the Brisbane Olympics in 2032. In that case, this engagement is likely to be temporary and lead up to the Olympics event only. Therefore, the legal documentation that parties enter should reflect the temporary nature of the business relationship.

It is best practice to engage a lawyer to ensure the agreement appropriately considers the key risks of each party.  

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Due Diligence 

There have been several instances of foreign entities committing fraud against Australian businesses while claiming to be fully functional businesses. Therefore, it is particularly essential that you undertake the necessary due diligence on the foreign entity you plan to partner with. You should ensure it is a legitimate business.

TIP: Undertake a thorough legal, financial and commercial due diligence. You should also note that part of this process might require engaging a local professional in the country that the foreign entity is based on assisting with the due diligence process.

Legal due diligence involves making enquiries about the company structure and directorship. Importantly, ensure you are entering an agreement with a person that has authority to do so on behalf of that foreign entity. Financial due diligence can include reviewing documentation regarding sales records and profit and loss matters to confirm whether the foreign entity is performing as well as they claim. Commercial due diligence would also be helpful to understand the growth plans of the foreign entity, and how much talent they have to be experts in the industry they operate in. 

Applicable Jurisdiction 

Engaging local professionals when undertaking due diligence may help contextualise the findings of the due diligence process. Different countries place different legal requirements on their businesses. It is important to be aware of these differences. 

For example, suppose the foreign entity that approaches Aussie Aussie Aussie Pty Ltd will be undertaking the manufacturing of the Olympics merchandise in their own country. In that case, the laws relating to the quality and safety standards of any such goods may be different to Australian laws.

Therefore, it will be essential to seek legal advice here in Australia regarding the packaging and safety or care instructions to ensure that you comply with all relevant Australian laws. It will also be crucial to clarify the governing law in the contract to ensure that the foreign entity understands the requirements of Australian law for such an engagement.

Key Takeaways 

It can be an exciting prospect when a foreign business approaches you for a partnership opportunity. However, before signing any legal documentation, it is crucial to seek legal advice. Importantly, you want to ensure that you fully understand any risks and key obligations relating to the proposed relationship. 

If you need help with partnering with a foreign business and understanding key terms of the partnership or joint venture arrangement, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions

What is due diligence?

Due diligence involves assessing all relevant factors affecting a business and its future success and assessing all risks involved in the proposed agreement. If a foreign business approaches you for a partnership opportunity, it is essential that you undertake the necessary due diligence on the foreign entity. You should ensure it is a legitimate business.

Do I need to consider the foreign jurisdiction when partnering with a foreign business?

Yes. Different countries place different legal requirements on their businesses. Hence, it is vital to be aware of these differences. It will also be crucial to clarify the governing law in the contract to ensure that the foreign entity understands the requirements of Australian law for such an engagement.

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