Five tips for establishing a new entity as you scale in Europe
Growth is always exciting, but it’s scary, too, especially when you’ve decided to open a new entity in a new market where you don’t have any expertise.
At Payhawk, we’ve been busy scaling up our operations in the last few months. We’ve opened up entities in Germany, the UK, Bulgaria, and Spain. Our CEO and CFO have narrowed down the five most important things to consider before starting this process:
1.Choose wisely: Type of entity and location
A branch office is effectively an extension of the parent company and isn’t a separate legal entity. Generally, a branch will present and make public the parent company’s financial statements.
A subsidiary is an independent entity with its own legal personality and tax status. This kind of entity allows the company to separate tax more efficiently among companies. If you’re looking to employ staff, establishing an entity or subsidiary would be more feasible.
In terms of location, be aware that there are some differences among countries and where the major hub for international business is. For example, most international trade is centralised in the capital cities in the UK, France, or Ireland. In contrast, you’ll need to research which city is best for your business needs in Germany or Spain.
2.In-person vs. remote setup
In some countries like the UK and Ireland, you can establish a company online without being physically present to submit papers or sign incorporation documents.
However, in other countries like Germany and Spain, authorities require a lot of paperwork and multiple signatures from business owners. If you’re planning to open your entity remotely, you’ll need a power of attorney to carry out relevant procedures. You might even need to travel to the country to complete some necessary actions.
3.Solo vs. partners
Once you decide to scale to a specific location, we highly recommend asking for support within your network. Whether through your investors, your accounting firm, your legal department, or other connections. In general, many of these professionals are members of alliances or groups who could put you in touch with relevant experts in the selected country.
In some countries like Germany, you can’t register the company as a business owner like in other countries. You’ll need the support of a German notary who will do it.
4.Timeline and expectations
Remember, establishing an entity takes time — more than you think. If you have a deadline, plan ahead. Also, check which of the different processes you can run simultaneously. For example, in the UK, you can incorporate your company simultaneously as you register for Corporation Tax.
Also, be aware that authorities require all company documents to be officially translated and legalised in countries like Germany, Spain, and France. It’s worth looking for an official translator and a notary or government institution to help as one of your first steps. Also, look into opening the business bank account early on, as this can take a while.
The cost of incorporating a company in Europe and the UK is minimal, just a few hundred euros. However, you need to factor in the potential costs of working with accountants, law firms, and tax specialists. You’re even more likely to need specialist support if your company has a complicated structure or you plan to give stock options, so be aware that some of these services can be pretty expensive.
We know it seems a lot of work to open an entity and scale your business, which is why we partnered with several experts in the matter to write a selection of guides for CEOs and CFOs embarking on this journey. You can access the free ebooks here: Scaling into the UK, Scaling into Ireland, and Scaling into Germany.