2.4 Legal Risk
Legal risk is the risk arising from failure to comply with statutory or regulatory obligations. 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.
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.
Foreign Direct Ownership Limits
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. 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.
Core Principles of International Marketing – Chapter 4.4 by Babu John Mariadoss is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.
