Company formation, joint ventures and sales in the CEE region

That depends on the level of control required and the volume of business. A commercial agent provides access to the market without the need for a company of one’s own, but triggers a compensation claim at the end of the contract that is difficult to waive. Having your own sales company gives you full control over pricing, branding and staff, but entails fixed costs, a tax presence and personal liability for the managing director. Often, a phased approach is the best way forward: start with a commercial agent or authorised dealer, then set up your own company once the volume justifies the structure.

In several countries in the region, it is low or virtually symbolic; in others, it is set at a fixed amount. The exact amount varies and must be checked to ensure it is up to date before any company is incorporated. More important than the capital requirement is the liability of the managing director: anyone who fails to comply with the obligation to file for insolvency or fails to pay taxes is personally liable in many of these legal systems, in some cases to a greater extent than in Germany.

It governs the internal relationship between the partners: who appoints the managing director, which transactions require the consent of both parties, how profits are to be allocated, whether a non-compete covenant applies, and how a partner may withdraw. Key provisions include a mechanism to resolve deadlocks, as well as pre-emption, co-sale and option rights. Any provisions intended to be binding on the company externally should also be included in the articles of association, as a shareholders’ agreement alone does not always carry the same legal weight under local law.

In principle, the law chosen by the parties. The Rome I Regulation permits the free choice of law. German law may be agreed upon, but mandatory local public policy provisions apply regardless, and the commercial agent’s severance payment under the EU Directive remains mandatory within its scope of application. The Brussels Ia Regulation governs the place of jurisdiction. Alternatively, an arbitration clause under the New York Convention ensures enforceability.

If there is a permanent establishment or if a dependent agent regularly concludes contracts on behalf of the company, then part of the profit is taxable in the country of destination. The exact allocation is determined by the double taxation agreement between Germany and the country in question. The very structure of the sales organisation is a key factor in determining whether the threshold is exceeded.

Ideally, this should be done through a leading law firm that sets uniform standards, appoints local advisers and reviews their work against a common template. This results in a single point of contact, a clear reporting structure and a consistent contractual framework, rather than numerous unconnected individual mandates. This prevents a situation where the distribution arrangements are properly set up in one country but a key clause is missing in another.