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Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronictextbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible viapaper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the manywho cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us atdrexel@uga.edu and dcwill@cnx.org.
Authors: Vlad Malamud, Yevgeniy Rotenberg
Editor: Douglas Allen
Reviewers: Dean Murray Young (Thompson Rivers University, Canada) Timothy B Folta (Purdue University)
Contributing authors: Wesley Scott Cables, Ricardo Cubillos, Mike Davis, Vesselin Dotkov, Loiuse Doyle, Barbara Gabhauer, Glenna Gagliardi, Melissa Harrison Hiatt, Katie Holtmeier, Alisa Jeffrey, Alexia Jennings, TimPitner, Ashley Randall, Dag Johan Sundby, Nathalie Tryon, Jeffrey Wiant, Sarah Wilson
Legal risk is the risk arising from failure to comply with statutory or regulatory obligations (http://www.ffiec.gov).
Generally, all laws in the host country will apply to an entrepreneur’s local business operations. Examples include filing procedures, employment law, environmental law, tax law, and ownership requirements. The World Bank has a rather extensive country business law library which can be accessed from their website. This can be helpful in the initial phases of considering the legal ramifications of direct investment in a given country.
Many countries limit foreign ownership of assets and legally force foreign companies into a joint venture with a local partner in order to do business there. Poland, for example, limits foreign ownership of farmland and will continue to do so for another decade under agreements with the EU (Dadak, 2004).
It is important to remember that while doing business outside of the home country certain home country laws will still apply. Applicable laws differ from country to country, but one common extension is employment law.
The extent of jurisdiction beyond national boundaries varies widely. In anti-trust for instance, the United States law covers only situations where the violation affects the US, (meaning that it does not matter where the act causing the violation took place), while the EU considers only where the antitrust offense was implemented (Shaffer et al., 2005, pgs 657-664).
In order to minimize exposure to legal risks arising from confusion and excess cost, a company should seek legal advice if possible. In making such arrangements, written contracts should be used. This can minimize confusion in case of litigation.
While Ms. Shahira may be accustomed to a certain set of rules and regulations in her home country of Pakistan, she must anticipate new and other laws when exploring the possibility of expanding internationally. While Ms. Shahira and her small business of running a sewing company faces different political and legal risk than those of a larger company, she is still liable and must understand the laws and regulations that she may face in any country.
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