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- INTRODUCT IION -ESSENTIALS FOR FOREIGN INVESTORSAny enterprise or investor making an investment or setting up business abroad is a target formany suitors. Foreign governmental agencies, chambers of commerce, non-governmentalorganisations, banks, accountancy and law firms try to persuade the foreign investor tochoose their jurisdiction, provide long lists of persuasive incentives, advantages of corporatelocations, market opportunities and sometimes even perks such as tax holidays, sunsetclauses, government grants and so forth.The first rule to remember is that success depends on a careful and informed choice. Thereis no such thing as a free lunch, but there can be a difference in the quality of the lunch. Bymaking a careful and informed choice the lunch might be quite agreeable or even better andin some instances, excellent. As stated, it all depends on a careful and informed choice. Tomake such a choice the foreign investor has to take into account the following essentialinformation:1. Foreign EnvironmentIn the host country there are some basic do’s and don’ts to be taken on board by theforeign investor and these are not easy to identify, as the foreign investor is used to theenvironment, rules and practices of their own country and marketplace.Therefore they might be misled by assuming that the business environment, rules andpractices of another jurisdiction are similar to their own. This not only leads to seriousmistakes but is a recipe for disaster and often ends in disputes and litigation. At thispoint the foreign investor and the local partner discover too late that their supposed firmagreement was an agreement on shaky grounds. Although it was based on good mutualpersonal understanding, there was a basic misunderstanding about the material terms.The first step for a foreign investor is therefore to find out the specific do’s and don’ts ofthe other jurisdiction. In respect to Austria, these are set out in the first chapter of thisEssential Business Guide and are more or less applicable throughout the countries of theEuropean Union and the European Economic Area.2. Unusual Corporate StructureThe second essential point for the foreign investor is to understand the basic corporatestructures in the target or host jurisdiction. At a first glance any company appears to bejust a company as it is a legal entity different from its shareholders and directors.However, a closer look at the details reveals huge differences. Such details relate to thecapitalisation, the accounting and reporting, directors’ and shareholders’ liabilities, rightsof representation, etc. A lack of understanding of these issues causes not only distress tothe foreign investor who may be locked into a situation too difficult to exit from, but alsofinancial losses.For instance, in a dispute before the Austrian courts about the right to vote in ashareholders’ meeting, a publicly listed US-based multinational as a 50% shareholder inan Austrian limited liability company was faced with the difficulty of proving to theAustrian court that its Vice President, International, had the legal right to represent theUS corporation in that shareholders’ meeting. The Austrian judge expected the VicePresident’s authority to be documented in an official certification from the AustrianCompany Registry, a public record in Austria, and was completely puzzled that there is nosuch Company Registry in the United States. Various legal experts on US corporate lawhad to give evidence to establish the rights of representation of the Vice President,International, as a company officer.A proper understanding of the basic corporate rules of the host jurisdiction is thereforeessential for a foreign investor prior to finally committing to equity investments in a- 9 -