For many businesses expanding internationally, using a global PEO service is the best option. However, in other cases, it may be more sensible to establish a local legal entity (such as a limited liability company), in the new country.
In this article, we look at when it may be a good idea to switch from a global PEO to a local legal entity.
Note, this is general information. For expert advice tailored to your circumstances, we recommend you seek professional advice.
Which business model should you choose for your international expansion?
When you have made the decision to expand globally, you need to consider what the best legal structure for your enterprise might look like in the new country. You should consider whether to:
In this article, we are looking at these last two options. We examine when it might be a good idea to switch your business model from a global PEO arrangement to a brand new entity.
What does a global PEO do?
So, what is a global PEO (sometimes referred to as an ‘international PEO’)? It is a specialist human resources (HR), payroll and employment company, which operates in the new country you intend to expand into. It acts as the ‘employer of record’ for your workforce in the new country, and takes on many legal and compliance obligations in that country. To clarify the liabilities and obligations of both parties, the enterprise (‘the client company’), enters into an agreement for services with the global PEO. Global PEOs carry out a range of functions, including:
When does a global PEO make sense?
As part of your expansion strategy, you have likely identified the new country as an excellent business opportunity for your enterprise. But there are still no guarantees. Mitigating risk by using a global PEO makes a lot of sense in many cases. Advantages include:
When does setting up a new legal entity makes sense?
In some cases, it will make sense to set up a legal entity in the country in question. This might, for example, be a subsidiary company of the enterprise, or some other legal form, such as a trust. While every case differs, when might this be sensible?
Even in those cases where it is sensible to set up a legal entity in the new country, the process can take time. In those cases, it may make sense to utilize a global PEO in order to get started immediately, while you wait for the entity establishment process to be completed.
Often it makes sense for an enterprise to use a global PEO initially, but over time, as the business grows, in the new location, switch to a new legal entity.
When your enterprise grows into a new country, you need to think carefully about the business model that is most appropriate. A global PEO is an excellent option for smaller expansions, or where there is uncertainty about the prospects in a new country. Establishing a legal entity (such as incorporating a company) may be more appropriate when you intend to establish a larger operation with a more substantial footprint.
In order to know which model is most suitable for you, you should seek the advice of a global PEO and foreign company incorporation specialist: New Horizons Global Partners can advise you on whether and when a PEO or setting up a new legal entity is the right move for your business.