Expanding your business from Europe to America can feel like legal chaos. We talked to an attorney from Silicon Valley Law Group about the differences between American and European legal systems and how to approach them.
A surgeon, an architect and a lawyer are having a heated discussion about which of their professions is the oldest.
The surgeon says: "Surgery is the oldest profession. God took a rib from Adam to create Eve, and you can't go back further than that."
The architect says: "Hold on! In fact, God was the first architect when he created the world out of chaos in 7 days, and you can't go back any further than THAT!"
The lawyer smiles and says: "Gentlemen, Gentlemen…who do you think created the CHAOS??!!!"
So goes a classic and, admittedly, lame lawyer joke.
Expanding your business from Europe to America can feel like a legal chaos - full of uncertainties, paperwork and insecurity about whether you are doing things right. However, the chaos is probably not caused by lawyers (in fact, you probably need them to help you sort out the mess), but a mix of political decisions, chance and a bunch of historical circumstances that we are not equipped to go through at this point.
Nevertheless, making a cosmos out of this chaos is requisite for a successful expansion.
You need to look at trademarks. You need to look at immigration policies. You need to look at your insurances, your taxes, your commercial terms and, most likely, the majority of your contract templates need to be adjusted and Americanized to some degree or the other.
Despite many cultural similarities, the legal systems are incredibly different from each other.
To answer that, we teamed up with Stephen Wu, who is an attorney from Silicon Valley Law Group. He told us that there are three major differences between the American and European legal systems that you need to take into account before planting your European flag on American soil.
"First, lawsuits (litigation) are much more common in the US legal system than in Europe. Tech companies should consider litigation as a significant legal risk that must be managed. Moreover, litigation is expensive, especially with the broad and lengthy evidence-gathering process (called "discovery"). Consequently, considering legal risks during the development of new products and services and before marketing them may prevent potentially company-ending and, at a minimum, expensive and time-consuming litigation. Avoiding litigation through planning and risk mitigation is far wiser than assuming that no one is likely to sue the company." Stephen Wu begins.
Then he goes on to explain the second aspect: "The US legal system tends to be more reactive and less proactive than in Europe. For instance, the European places greater emphasis on pre-market approvals and certifications, while in the US, regulators generally allow companies to offer their products in the market and react only if public harm occurs. Therefore, its better to anticipate and manage legal challenges before going to market rather than taking chances that no legal actions will crop up later."
And last but not least, he mentions the fundamental difference in legal systems: While most European countries (at least the Continental ones) operate with a Civil Law system, the American legal system is rooted in Common Law. For a non-lawyer, the difference can seem a little academic, but it's crucial nevertheless:
"The US legal system, as a common law system, has much more judge-made law than in civil law jurisdictions. Legal precedents establish some legal doctrines, may interpret the laws of the federal or state legislatures, and fill in gaps in public law. As a result, European tech companies consulting American lawyers may find that consulting an attorney for guidance may require an analysis of court cases that is more complicated (and expensive) than simply finding an applicable code section and providing an answer to a legal question. In many cases, the law is unsettled, and attorneys may have to make judgments based on uncertain precedents," he told us.
Additionally, we may also mention that there is an extensive freedom of contract in common law since many provisions are implied into a contract by law in Civil law systems. Because the US does not have a civil code, your American contracts must be more extensive and cover more issues. That usually makes American contracts longer and more complicated, and you need to negotiate more terms with your business partners.
Consequently, Stephen Wu believes that it's critical to have a local counsel in the US to help with all the legal issues you are facing when expanding from Europe to the US.
"One analogy I use with clients is comparing the professional service of a lawyer to organize a business, identify legal challenges, and draft contracts to medical services. No rational person would think to remove his or her own appendix by self-surgery. Likewise, tech companies should not organize themselves or write contracts without legal advice. While most legal services are not in life and death circumstances like Surgery for appendicitis, it is still the case that legal professionals focus full time on the legal system and how to protect their clients' interests. For legal tasks, it is best to leave the work to legal professionals with the expertise and experience to handle them, rather than trying to handle them yourself using contracts or clauses found on the Internet," he explains.
He advises tech companies to have a US law firm analyze their products and services to identify US federal or state legal issues before going to market, rather than waiting for problems to arise later: "An upfront analysis does require expense at the beginning in the form of legal fees but may prevent significant and expense legal problems later. Many companies have gone to market only to find out that their products, services, or business models violate the law or create so much liability that the business will be unprofitable. It is better to find out the legal landscape in advance rather than going to market first and hoping no legal issues will emerge. An upfront legal analysis will prevent problems later and identify future legal challenges ahead."
That said, there are also plenty of brilliant resources to find online. Foothold America has an informative FAQ where you can find lots of legal information about how to get an American bank account, setting up a subsidiary and various types for corporations. You can also find information on American employment law and what US workers are entitled to.
Furthermore, Contractbook offers an extensive gallery of legal templates that you can get started with: employment contracts, sales agreements, NDA's and much more.
Another important aspect is leveraging tech solutions to scale your legal operations. Using a contract management system is always a good idea as it enables you to organize and track your legal work with well-defined hierarchies, access control and secure storage. If you aren't already using contract management software to create, sign, and organize your legal work, an American expansion is a good occasion time to start. There is a lot of legal work to sort out, and getting it organized from the beginning is crucial if you want to mitigate risks in a country with frequent litigations.
However, using contract automation is what separates successful companies from the rest. By automating your legal processes, you can get rid of tedious and time-consuming manual tasks in your workflow to increase productivity, save time and reduce costs. Furthermore, automation is more dependable and consistent, so you can leverage it to create a fool-proof contract flow without human errors and legal mistakes. But what nails it is the fact that automation is made for scaling. By automating your contracts, you can accelerate your deal flow to trigger growth and create a smooth hiring process that enables you to onboard at scale.
See here for more information if you want more inspiration on scaling your legal operations for a high-growth expansion phase. Or book a demo directly with us here.