Before you expand: The legal essentials every founder should know

The following is an excerpt from the whitepaper Building Locally, Scaling Globally: A SaaS founder’s 7-step guide for global expansion

Expanding into a new market is an exciting milestone, but navigating legal and regulatory requirements can be complex—and failing to comply can lead to costly penalties and operational setbacks. From choosing the right corporate structure to understanding employment laws, tax obligations, and data privacy regulations, founders must build a strong legal foundation to ensure a smooth transition. Here’s what you need to know to expand with confidence while staying compliant.

Establish your company structure and employment practices

Deciding how to set up your business legally is one of your first tasks when entering a new market. You typically have two options:

1. Forming a local subsidiary: Creating a local subsidiary provides greater flexibility and control but comes with significant administrative responsibilities.
2. Using an Employer of Record (EOR): An EOR is a third-party provider that legally employs workers on your behalf, handling payroll, taxes, and compliance. This approach is faster, less resource-intensive, and ideal for companies testing the waters in a new market before fully committing.

“Forming a local subsidiary often comes with a lot of extra obligations,” says Andrew Prodromos,  managing director and chief compliance officer at Insight Partners. “For example, you may be required to make local tax and employment filings and perform annual audits, even on entities with limited operations. There are also often requirements to have resident directors.”

“Forming a local subsidiary often comes with a lot of extra obligations. For example, you may be required to make local tax and employment filings and perform annual audits, even on entities with limited operations. There are also often requirements to have resident directors.”

Beyond company structure, you’ll also need to navigate employment law, which varies widely
 across jurisdictions.

“Differences in employment law are often where we see the greatest differences between jurisdictions,” says Prodromos. “There will be varying requirements when it comes to payroll, employment taxes, pension contributions, and insurance.”

Your first step is determining whether employment agreements are mandatory or if employees can be hired at-will. If contracts are required, they must address critical clauses that candidates expect, such as:

• Equity term
• Severance agreement
• Accelerated vesting schedules

“Candidates anywhere in the world will likely want to see clauses on equity, severance, and accelerated vesting schedules,” says Dominic Olszowski, vice president at Insight Partners.

Having a standard contract prepared early enables you to move quickly on hiring decisions.

“Good candidates are in high demand. You don’t want to lose them because you took too long putting the paperwork together,” says Olszowski. “Finding a local lawyer is also useful for getting ahead of matters.”

Comply with data privacy regulations

Data privacy laws are another critical area that can vary greatly by region and create compliance challenges for businesses entering new markets. These laws span operational details such as:

• Privacy policies and regulatory reporting
• Cookie settings for website
• Call recording and biometric data collection

Engaging local legal counsel early is essential to understanding jurisdiction-specific rules and how they compare to your existing practices.

“Specialized counsel can help you determine which jurisdictions and legal regimes may apply to your business,” says Prodromos. “You should also assess the requirements of your new jurisdiction against your existing data practices and will need to continue to review them periodically as the nature of your business and the laws governing it change.”

The amount and type of data your company processes will dictate how demanding your obligations are. For companies with significant data processing activities, hiring a dedicated resource may be prudent.

“More and more, companies are finding they need a qualified data privacy professional — either on a contract basis or full-time — or even a senior-level resource like a chief data privacy officer,” says Prodromos.

“More and more, companies are finding they need a qualified data privacy professional — either on a contract basis or full-time — or even a senior-level resource like a chief data privacy officer.” 

If you’re in the early stages of expansion with smaller operations, a contractor or an Employer of Record can help manage compliance efficiently.

“Whether to hire someone to oversee this expansion or rely upon a contractor depends on the size and speed of the expected expansion,” says Prodromos.

Address U.S.-specific regulatory and employment challenges

If your expansion includes entering the U.S. market, understanding the complex interplay between federal and state laws is critical.

“Companies will need to navigate both federal and various states’ laws on a variety of topics related to their operations, such as employment law, tax law, and various regulatory or registration requirements,” says Prodromos. “That’s particularly true if you operate in a highly regulated sector such as finance, insurance, or healthcare.”

From an employment perspective, employing people in the U.S. is very different from much of the rest of the world. For example, most U.S. employees are at-will employees rather than under employment contracts. Every state also has separate employment laws, so where the company operates and where its employees are located is important, particularly from an administrative and payroll tax perspective.

“Sales tax is often an issue with tech companies, particularly operating in the U.S., since they may have exposure in every state,” says Prodromos. “This can create reporting complexity and potential liability for the company if not managed properly.”

“Sales tax is often an issue with tech companies, particularly operating in the U.S., since they may have exposure in every state. This can create reporting complexity and potential liability for the company if not managed properly.”

Careful planning and local expertise will ensure compliance with both federal and state-specific regulations. For highly regulated industries or tech companies dealing with multistate operations, seeking specialized legal and tax advice early is critical. By proactively addressing these complexities, companies can minimize risks, streamline operations, and set the foundation for sustainable growth in the U.S. market.