1. THE MULTINATIONAL ENTERPRISE
CHAPTER 4
THE
MULTINATIONAL
ENTERPRISE

2. CHAPTER 4 THE MULTINATIONAL ENTERPRISE
Topics for this chapter:
Strategies for Doing Business Globally
The Business Form
The Multinational Organization
International Regulation of Multinational Enterprises
Home State Regulation of Multinational Enterprises
Host State Regulation of Multinational Enterprises

3. Strategies for Doing Business Globally: Exporting and Importing
Exporting does not require having a subsidiary in a foreign nation, nor does it require a joint venture or partnership with a foreign business entity.
Exporting creates issues of transportation, financing, contracting, and obtaining correct export licenses.
An exporter will need an export manager, foreign sales agent(国外销售代理）, or a foreign distributor（分销商）.
Cargo ship loaded for another oceanic crossing

4. Strategies for Doing Business Globally: Branches（分支机构） & Subsidiaries（子公司）
Branch offices can be set up by foreign companies in the US by registering with the appropriate state agency.
A company may hire a foreign agent to act as a company representative. The agent may:
Conduct market analysis
Engage in product promotion
Serve as an import representative
The laws of the host country determine what an agent may or may not do.
Company is not subject to foreign nation’s regulations when all they have is an agent.

5. Strategies for Doing Business Globally: Bank Branches
China Merchant Bank has received approval from the Federal Reserve to open a NY branch.
With the heightened threat from unstable banks, the Federal Reserve is tightening the application process to establish foreign branches in the U.S.
The foreign parent bank must be subject to comprehensive supervision by banking authorities in the home country.（母国）

6. Licensing Intellectual Property（知识产权） and Franchising（特许经营）
Licensing a company’s intellectual property rights is a common way to gain entry into a foreign market.
A license is a contractual grant of a legally recognized right.
In addition to allowing use of material that is protected by patent, trademark, or copyright, the licensee may also be allowed to use:
trade secrets（商业秘密）
trade dress（商业外观设计）
technological methods, or （技术方法）
business plans and processes. （商业计划和程序）

7. The Business Form: In Civil Law States
In civil law states, every form of business organization is a company（社团）.
A company is an association of persons or of capital organized for the purpose of carrying on a commercial, industrial, or similar enterprise. These companies may be a corporation or a partnership.

8. Business Forms in Civil Law States
In some civil law states like France, all companies are viewed as juridical entities(法人), meaning they have a legal existence independent of their owners.
In Germany and the US, corporations are juridical entities, but partnerships are not.
A partnership(合伙) is a company of two or more persons who co-own and manage a business and are each liable to the full extent of their personal assets.

9. Civil Law Partnerships
In a limited partnership（有限合伙）, at least one partner must be a general partner（普通合伙人） with unlimited personal liability for the debts of the business. There must also be at least one limited partner（有限合伙人） who is liable only up to the amount of their investment.
Some countries allow silent partnerships（隐名合伙） where one partner carries on the business in his or her own name without revealing the participation of a limited liability partner.

10. Civil Law Corporations
Two basic types of civil law corporations:
Stock corporation（股份公司）: Can raise money in the public marketplace through the sale of freely transferable shares. Financial statements（财务报表） must be disclosed to the public.
Articles of Incorporation（公司章程）: instrument creating and defining a particular corporation. Must be filed with state agency at time of formation.

11. Formation of Stock Corporation
By simultaneous incorporation, promoters（发起人） form a syndicate to purchase the shares. Only after formation are the shares sold to the public.
A minimum capitalization（最低注册资本）is required. Civil law states generally do not recognize authorized but unissued shares. Entire capital must be subscribed（认购） before formal organization.

12. Formation of Stock Corporation
Once subscriptions have been paid, board of directors（董事会） are elected at organizational meeting.
After registration of Articles of Incorporation and notice of registration is published, the stock corporation comes into existence.
Must be more than one subscriber, but shares can be transferred to anyone. France requires at least seven shareholders.

13. Formation of Stock Corporation
Once subscriptions have been paid, board of directors are elected at organizational meeting.
After registration of Articles of Incorporation and notice of registration is published, the stock corporation comes into existence.

14. Formation of Stock Corporation
Shareholders:
Elect board of directors
Review annual statements
Declare dividends（红利）
Quorum（法定人数）: Number of persons or number of total shares represented, that must be present at a meeting for official action to be taken.
Financial statements（财务报表） are public.

15. Civil Law Corporations
Limited Liability Company（有限责任公司）: A corporation that does not issue negotiable share certificates and is subject to minimal public disclosure laws.
Popular corporate business entity.
Widely used for setting up subsidiaries.
Formation is similar to corporate formation in France and Germany. The LLC files Articles of Incorporation, capital is subscribed, organizational meeting is held, board of directors is elected, articles are registered.

16. Limited Liability Companies
Minimum required capitalization varies from country to country.
Investors are called members, not shareholders.
Members do not own shares, they own a participation.
Members meet informally if agreed.
Transferring ownership is difficult and may be subject to “right of first refusal”（优先购买权） of other members to purchase.

17. Business Forms in Common Law States:
Common law states include England, the US, and British Commonwealth countries.
Common Law Partnerships:
Association of two or more persons who co-own and manage a business for profit.
Each partner is liable to the full extent of their personal assets for debts.
Not a tax-paying or juridical entity.
Income of partnership is allocated to partners as personal income.

18. Common Law Partnerships
Limited Partnership （有限合伙）– Consisting of one of more general partners who manage the business and are liable to the full extent of their assets and one or more limited partners whose liability extends only to the amount of their investment.
Limited partnership is not a juridical entity.
Secret partnership （隐名合伙）– participation of one or more partners is not disclosed to the public. All of the partners have unlimited personal liability.

19. Common Law Partnerships: The Limited Liability Company
Recognized only in the United States.
The LLC is an unincorporated association that is treated as a partnership for tax purposes and provides limited liability for its members.
Popular because not subject to corporate taxation.
Members in LLC may participate in management without subjecting themselves to personal liability.

20. Limited Liability Company
May delegate management to managers who do not need to be members of the LLC.
Formed by filing Articles of Organization with the state.
Must file yearly report but pays no yearly franchise tax or income tax.
Management set out in Operating Agreement that is not a public document. Agreement deals with voting rights, right to distributions, and restrictions on transfer of members’ interests.

21. Common Law Business Trust （商业信托）
Business arrangement that exists only in the US in which:
Owners of a property, known as beneficiaries（受益人）
Transfer legal title（普通法上的所有权） to that property to a trustee（受托人）
Trustee manages property for them
Beneficiaries hold transferable trust certificates entitling them to income generated by the property and a residual equitable share at the time the trust is terminated
Trustee has unlimited personal liability
Beneficiaries have limited liability

22. Common Law Corporations
The three kinds of common law incorporated business entities are:
Public corporations
Private corporations
Limited liability company
Some common law countries also recognize:
Unlimited liability corporations
No liability corporations

23. Public Corporations Recognized throughout the common law world.
Organized by filing two documents:
Memorandum of Association （组织大纲）– describes the basic details of the firm.
Articles of Association（组织章程）– describe the internal regulations of the corporation.
In England, only two subscribers are needed but there is a minimum capitalization requirement of £50,000.

24. Public Corporations
In the US, there only has to be one subscriber and there is no minimum capitalization requirement.
May issue a larger number of shares than are needed to start. Authorized but unissued shares are allowed in addition to the issued shares that constitute the corporation’s capital.
Par shares（额面股）are the only shares allowed in England.
No par shares are the norm in the US. Their price is set by the board of directors.

25. Public Corporations: Stock
Stock issued in US and England can be classified.
Preferred stock – Entitles owners to:
guaranteed dividend
priority at the time of liquidation
priority over common shares
The U.S. allows cumulative voting（累积投票）, a system of voting by which a voter, having a number of votes equal to the offices to be filled, may split their vote as they see fit.

26. Public Corporations: Shareholder Meetings
Formal shareholder meeting required in England while actions in the US can be by written consent rather than at a formal meeting.
Quorum（法定人数） for meetings:
England – two shareholders
US – simple majority（1/2以上）of voting shares, though Articles of Incorporation may set at lesser amount, such as a third or a fourth of voting shares.

27. Public Corporations: Shareholder Meetings
In US, board of directors may set dividends subject to requirements that:
The corporation be solvent.
Issuance does not violate the Articles of Incorporation.
The source of the dividends be of a certain type (i.e., earnings surplus).

28. Private Corporations(U.K.)
Corporation that may not ask the public to subscribe to its shares, bonds, or other securities. It is subject to less stringent public disclosure laws.
Incorporation documents usually restrict transfer of shares.
In US, these small corporations are known as close or closely held corporations.(U.S.)

29. Advantages of Private or Closely Held Corporations
Advantages of organizing as close corporation:
May dispense with many corporate formalities.
In England, may appoint a single director instead of a board.
Shareholder may grant proxy rights（代理权）.
In US, may entirely dispense with board of directors and corporation run by shareholders.
Unlimited liability company (U.K.)
Only in England and Commonwealth countries.
Members are liable in the event that it is wound up and assets are insufficient.

30. Importance of Separate Legal Identity
Important consequences of the separate legal identity of juridical entities:
Liability of owners is limited to their investment.
Rights and benefits accruing to the company belong to the company, not the owners. The company can own its own property, trade secrets, formulas, etc.
Owners are neither managers nor agents nor representatives of the company. They cannot act for the company or create liability for the company by their actions.

31. Case 4-1 Case Concerning Barcelona Traction, Light & Power Co
Case 4-1 Case Concerning Barcelona Traction, Light & Power Co. (Belgium v. Spain)
Barcelona Traction (BT) was Canadian corporation injured by the actions of Spain. Alleged 88% of shareholders were Belgian.
Canada chose not to bring suit in the ICJ. Belgium brought suit.
Spain objected because only BT was injured and was not a Belgian corporation.

32. Case 4-1 Case Concerning Barcelona Traction
Court found that the injured party was the company and not its owners. Therefore, Belgium could not bring suit against Spain on behalf of the Belgian owners.
A corporation is an entity independent of its shareholders. When a shareholder’s interests are harmed by an act done to the company by a nation-state, it is the company that must seek judicial remedies.
Seal of the International Court of Justice

33. The Multinational Organization
Large business firms use differing organizational structures to carry on operations internationally. Parent companies take on the following forms:
The Non-multinational Enterprise
A domestic firm that operates internationally through independent foreign agents. The agent （代理人）may act for the principal（委托人）as:
A sales representative to sell goods or services, or
A factor（代理商） to buy good or procure services for the principal.
Relationship governed by agency contract law.

34. The Multinational Organization
The National Multinational Enterprise
An enterprise organized around a parent firm established in one state that operates through branches and subsidiaries in other states.
Branch （分支机构）– a unit or a part of the parent (assembly plant, purchasing office, manufacturing plant).
Subsidiary（子公司） – a company organized as a separate entity that is owned by the parent.

35. The National Multinational Enterprise
The following chart demonstrates part of the DaimlerChrysler corporate organization.

36. The International Multinational Enterprise
An enterprise made up of two or more parents from different states that co-own subordinate operating businesses in two or more states. The Royal Dutch/Shell Group is an example:

37. The Subordinate Structure
A company may create the following subordinate entities to establish a foreign presence:
Representative office – A contact point where interested parties can obtain information. It does not conduct business.
Agent – An independent person or company with authority to act on behalf of another.
Branch – Unit or part of a company, such as an assembly plant. It is not separately incorporated.

38. The Subordinate Structure
Disadvantages of representative offices, agents, and branches are:
Parent has to assume all of the risk of investing abroad,
A foreign firm is often taxed at a higher rate,
Many developing states require local participation in order for foreign firm to invest or expand its local environment.

39. The Subordinate Structure
Subsidiary – Company owned by a parent or a parent’s holding company. Unlike a branch, it is separately incorporated.
Joint venture – An association of persons or companies collaborating in a business venture.
Can assume any type of business form, e.g., LLC, limited partnership, or association.
Can be a specific limited project or a continuing business relationship.
Holding company – Company owned by a parent or parents to supervise and coordinate the operations of subsidiary companies.
contractual joint venture & equity joint venture

41. The International Regulation on Multinational Enterprise
International guidelines for ethical behavior by multinational enterprises are mostly voluntary.
The exception is the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. The convention requires state parties to outlaw the active bribery of foreign officials.
States pass their own anti-bribery criminal statutes.
The US passed the Foreign Corrupt Practices Act in 1977.

42. Home State Regulation of Multinational Enterprises
Multinational enterprises are regulated within a state the same as a national enterprise. Important forms of national regulation are:
Regulation of competition（竞争法）
Regulation of injuries caused by defective products（不合格产品的侵权）
Prohibition of sharp sales practices（禁止欺诈销售）
Regulation of securities（证券法）
Regulation of labor and employment（劳动法）
Establishment of accounting standards（会计准则）
Taxation （税法）

43. Home State Regulation of Multinational Enterprises
Unfair Competition Laws
In the US, the principal law regulating anticompetitive practices is the Sherman Antitrust Act of 1890.
Section 1: Forbids combinations & conspiracies in restraint of interstate and international trade.
Apply this section by using the rule of reason. Factfinder weighs all of the circumstances of the case in deciding whether a restrictive practice should be prohibited.

44. Home State Regulation of Multinational Enterprises
Certain acts are automatically illegal or per se（本质上） violations of Section 1:
Horizontal price fixing（横向价格固定） – Competitors at same level agree to charge same price.
Vertical price fixing（纵向价格固定） – Seller at one level sells to buyer at different level who agrees to not resell below a set price.
Horizontal market division（横向市场划分）– Agree not to sell in each other’s territories.
Joint refusals to deal （联合抵制）– Group boycotts.

45. Home State Regulation of Multinational Enterprises
Section 2 of the Sherman Antitrust Act – Forbids monopolies and attempts to monopolize interstate and international trade.
Applies to the conduct of one firm if it is a dominant firm. To show violation usually look for circumstantial evidence such as:
Discriminatory pricing（歧视性定价）
Dumping（倾销） – selling goods for less than production cost
Using tying clauses （附带条款）– requiring purchaser of one product to buy another product
1.中国《反垄断法》
第十七条 禁止具有市场支配地位的经营者从事下列滥用市场支配地位的行为：  　　（一）以不公平的高价销售商品或者以不公平的低价购买商品；  　　（二）没有正当理由，以低于成本的价格销售商品；  　　（三）没有正当理由，拒绝与交易相对人进行交易；  　　（四）没有正当理由，限定交易相对人只能与其进行交易或者只能与其指定的经营者进行交易；  　　（五）没有正当理由搭售商品，或者在交易时附加其他不合理的交易条件；  　　（六）没有正当理由，对条件相同的交易相对人在交易价格等交易条件上实行差别待遇；  　　（七）国务院反垄断执法机构认定的其他滥用市场支配地位的行为。  　　本法所称市场支配地位，是指经营者在相关市场内具有能够控制商品价格、数量或者其他交易条件，或者能够阻碍、影响其他经营者进入相关市场能力的市场地位。 
第十八条 认定经营者具有市场支配地位，应当依据下列因素：  　　（一）该经营者在相关市场的市场份额，以及相关市场的竞争状况；  　　（二）该经营者控制销售市场或者原材料采购市场的能力；  　　（三）该经营者的财力和技术条件；  　　（四）其他经营者对该经营者在交易上的依赖程度；  　　（五）其他经营者进入相关市场的难易程度；  　　（六）与认定该经营者市场支配地位有关的其他因素。 
第十九条 有下列情形之一的，可以推定经营者具有市场支配地位：  　　（一）一个经营者在相关市场的市场份额达到二分之一的；  　　（二）两个经营者在相关市场的市场份额合计达到三分之二的；  　　（三）三个经营者在相关市场的市场份额合计达到四分之三的。  　有前款第二项、第三项规定的情形，其中有的经营者市场份额不足十分之一的，不应当推定该经营者具有市场支配地位。  　被推定具有市场支配地位的经营者，有证据证明不具有市场支配地位的，不应当认定其具有市场支配地位。

46. Home State Regulation of Multinational Enterprises
Clayton Act of 1914 expanded enforcement provision and defined certain illegal acts, including:
Exclusive dealing （排他性交易）and tying clauses（附带条款）
Mergers（兼并） that result in monopolies
Interlocking directories（连锁董事）
Robinson-Pitman Act of forbids price discrimination.
Law may be enforced by U.S. Justice Department (criminal suits), U.S. Federal Trade Commission (civil suits and injunctions禁令), and by private person who may seek treble damages to punish the violator.

47. Personal Jurisdiction Requirements of U.S. Antitrust Laws
American courts assume personal jurisdiction either by:
Section 12 of Clayton Act – for person who transacts business in the forum jurisdiction.
State long arm statute（长臂管辖权法案） – law defining the conduct of a foreign person within a state that will subject that person to the jurisdiction of the state.
Defendant must have minimum contacts with the forum.

48. Subject Matter Jurisdiction Requirements of U.S. Antitrust Laws
Two tests are used to determine whether a court has subject matter jurisdiction in an American antitrust case:
The effects test – subjects foreign businesses to U.S. antitrust laws if activities were intended to affect U.S. commerce and the effect was more than minimal.

49. Subject Matter Jurisdiction Requirements of U.S. Antitrust Laws
Jurisdictional rule of reason – allows U.S. courts to assume jurisdiction over a foreign business for violating antitrust laws if:
The alleged conduct was intended to affect the foreign commerce of the US.
It was of such a type and magnitude as to violate the Sherman Act, and
As a matter of international comity and fairness, court ought to assume extraterritorial jurisdiction over the matter.

50. Regulation of Anticompetitive Behavior in the EU
European Community Treaty contains two articles that regulate business competition:
Article 81 – Forbids competitors to enter into agreements to prevent, restrain, or distort trade.
Expressly forbids:
Fixing any trading conditions
Limiting or controlling production, markets, development, or investment
Allocating markets or supplies
Applying unequal terms to parties
Using unrelated tying clauses

51. Regulation of Anticompetitive Behavior in the EU
Article 82 – forbids dominant businesses from taking advantage of their position to the detriment of consumers.
Expressly forbids:
Directly or indirectly imposing unfair prices or trading conditions.
Limiting production, markets, or technical developments to the prejudice of consumers.
Applying unequal conditions to equivalent transactions with different trading partners.
Imposing unrelated tying clauses.

52. Case 4-3 Airbus Industrie G.I.E. v. Patel
UK citizens representatives sued in Texas court over plane crash in India. Airbus obtained judgment from India forbidding suit anywhere but in India and then an anti-suit injunction from English High Court forbidding proceeding in Texas.
English court dismissed anti-suit injunction stating that India was proper forum, but English courts had no right to forbid UK citizens from choosing a forum in US. Proper remedy would be forum non conveniens.

53. Case 4-4 Dow Jones & Co. v. Gutnick
Dow Jones published defamatory article in Barron’s Online.
Issue whether article was published in US in way that did not give jurisdiction to Australian courts.
Court haled that a U.S. company was subject to Australian jurisdiction for publishing on web server in U.S. state so long as the defamatory story would foreseeably cause damage to the reputation of a person in Australia.

54. Tort and Product Liability Laws
Product liability laws attempt to discourage manufacturers from putting defective products into the marketplace.
Three theories
Breach of contract
Negligence
Strict liability
Japan uses only theories 1 and 2. US uses all three. EU relies mainly on 3.

55. Tort and Product Liability Laws
Relying only on breach of contract and negligence theories, recovery is restricted in Japan. Remedy is limited by two rules:
Privity（合同相对性） – only the immediate purchaser can recover, though Japanese courts are now extending recovery to foreseeable users.
Burden of proof – the responsibility of proving the charge or allegation. Difficult to do when the defendant manufacturer remains in control of the evidence.

56. Negligence in Japan
Negligence is a more likely basis for imposing liability. Plaintiff must establish:
The existence of a defect
That the defect was the result of defendant’s conduct
That plaintiff suffered an injury
That the injury was caused by the defect
That the defendant breached the duty of care to the plaintiff

57. Common Law Product Liability Rules

58. Common Law Product Liability Rules
Two doctrines make it somewhat easier for a common law claimant to prevail:
Res ipsa loquitur – means “the thing speaks for itself.” Excuses an injured claimant who can show that a product was defective when it left the hands of the defendant from having to prove that the defendant caused the defect.
Negligence per se – excuses a claimant from showing that a defendant breached a duty of care where the defendant violated a statutory manufacturing or disclosure requirement.

59. Strict Liability
Strict liability imposes liability on an actor regardless of fault.
Defendant can be held liable for acts that are unreasonably dangerous whether or not they exercised due care.
Major advantage of this theory is that it does not require a showing of negligence.
Unreasonably dangerous means :
That the product was dangerous beyond the expectations of the ordinary consumer or
A less dangerous alternative was feasible but not used.

60. EU Product Liability Rules
The EU standard is similar to common law states. No requirement that defect is unreasonably dangerous.

61. Extraterritorial Application of Products Liability Laws
Two issues when U.S. court decides whether it can exercise jurisdiction:
Personal jurisdiction – Must be found in the individual state’s long arm statute.
Must satisfy the federal constitutional requirement of due process by showing the defendant had minimum contacts with the forum.
Case 4-5 deals with minimum contacts.

62. Case 4-6 Asahi v. Superior Court
Plaintiff crashed on defective motorcycle.
Asahi made tube valve system.
Issue whether mere awareness that products would reach forum in stream of commerce constitutes minimum contacts.
U.S. Supreme Court rules that foreseeability that a product would enter stream of commerce is insufficient basis for jurisdiction. It would be manifestly unjust to require foreign defendant to appear.

63. Sharp Practices
Sharp practices are dishonest business dealings meant to obtain a benefit for a person or firm regardless of the means used.
One response by US was passage of Foreign Corrupt Practices Act after Lockheed Aircraft’s bribing of Japanese Prime Minister. This act imposes accounting obligations on companies and attaches criminal penalties for bribing a foreign official.

64. Case 4-7 United States v Blondek, et. al.
Can foreign officials be prosecuted for conspiring to violate the FCPA even though they cannot be prosecuted for receiving a bribe?
No. Congress decided to not criminalize the taking of bribes by foreign officials. It is up to the officials home country to take action against them.

65. Host State Regulation of Multinational Enterprises
Host states will apply their own laws to foreign multinationals operating within their territory.
The host state will make three types of investigations:
Whether a foreign company has consented to the jurisdiction of the host state;
Whether a local firm is part of a common enterprise with a foreign firm, making both liable for activities of the local firm; and
Whether the independent corporate status of a subsidiary can be ignored so that liability can be imposed on the parent.

66. Host State Regulation of Multinational Enterprises
Consent to jurisdiction
Express consent when company incorporates or has its main office in a state.
Foreign company that applies to do business within state consent to jurisdiction.
No consent if just organizing subsidiary within state.
Implied consent comes from application of long arm statute and establishing whether company is doing business within state.

67. Host State Regulation of Multinational Enterprises
Common Enterprise Liability – each member of a common enterprise will have liability for the conduct of the entire enterprise.
To determine if there is a common enterprise, the court looks to the intent of the parties. If no formal agreement forming a joint venture or partnership, court will consider several factors:
Sharing of profits or losses,
Sharing in management, and
Joint ownership of the business.

68. Case 4-8 Touche Ross & Co. v. Bank Intercontinental, Limited
Issue whether Touche Ross was a multinational firm engaged in a common enterprise with an office in the Cayman Islands or was the Cayman islands office a separate entity for which the NY and Florida offices were not responsible.
Held that Bank was not deprived of an advantage and since action arose in Cayman Islands, injunction preventing the Florida suit should have been reinstated. Not all states have jurisdiction over all the firms, even in a common enterprise.