How to Build and Scale Virtually from anywhere in the world Pt 1

Welcome to a new edition of Building Digital Products (BDP).

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Building Digital Product (BDP) by Osita is a monthly newsletter that supports founders, investors and startup enthusiasts with insights and principles to build better products and startups.

This is my 22nd edition and fifth edition for the year.

BDP's theme for 2024 is "Resilience."

Here is a little snapshot of me.

Osita James is a technology entrepreneur and a partner at BlackCrest Legal. The start-up advisory law firm (BlackCrest) has successfully advised start-ups across Africa in investment deals worth over $5 million. He holds an MSc in Innovation Management and Entrepreneurship from the Nottingham Business School, Nottingham Trent University, a bachelor of law from the University of Nigeria, Nsukka and a Diploma in Technology and Innovation from the Nigerian University of Technology and Management. He writes poetry and fiction in his free time.

He supports African founders with professional legal and start-up operations advice and can be reached at [email protected] or here.

Today's edition will focus on how founders can build their startups and scale virtually from anywhere in the world. In an increasingly modern and connected world, the ability to create value virtually is endless. This edition explores how founders and business owners can tap into this for growth.

Of every hundred they send, 10 shouldn't even be there, 80 of them are nothing but targets, nine of them are real fighters. We are lucky to have them. They make the battle. But one of them is a warrior, a true fighter who will lead the others home. - Hericletus (Roman General).

Remote teams have become mainstream. Since the pandemic, many teams have seen the operational logic in working virtually and have since remained virtual. We have big companies like Instacart, Thinkific, Shopify and Vinted all providing the option for their teams to work remotely.

Research shows that virtual teams can be more effective.

According to the Harvard Business Review;

Virtual teams can lead to increased efficiency and better business results, but only if they are managed to maximize the potential benefits while minimizing the disadvantages.

I will discuss the way to maximize the benefits in the later parts of the edition.

Why should you build remotely or virtually?

Building remotely is important for the following reasons;

• It saves costs on leases, travel, assets and office repairs.
• It improves launch time and iteration for companies.
• It allows you to access experts outside your location.
• It allows your team to work from anywhere.
• It allows you to sell to customers outside your location.

According to the US Chamber of Commerce;

An Intermedia survey of small business owners shows 57% of respondents say they’re likely to maintain remote working options for workers long term. Plus, they found transitioning to remote work increased employee availability by 19%.

Building virtually is not about having a tech-enabled service. You can have that and still bear the operational cost of running an office and the challenges of managing a team that doesn't want to come physically to work. Building remotely is about creating a virtual architecture of your business process that allows you to continue to grow the business without acquiring significant operational physical assets or restricting the target market to your location of operation.

That said, virtual work is easier for some businesses than others. Examples of businesses that can easily work virtually include;

• Marketing agencies
• Software development agencies
• Law firms
• Accounting firms
• FinTechs
• E-commerce platforms
• Travel agencies like Kiwi
• Consulting firms
• Executive Training companies

Building virtually for scale requires planning and structure. You want to make sure you have the right business structure in the right country. While virtual can mean being free from the burden of physical constraints, there are still legal constraints that affect access to the market across borders. Markets like the EU have stronger appeal because of their reciprocal tax arrangements and trade treaties that make up the EU single market.

Factors like tax liability and market access can affect your ability to scale. This is why it is important to research the countries where you have your target market and consider the operating environment before deciding on which country to register your virtual company in.

There are several ways to do business virtually from a business structure point of view. They are;

1, Incorporation/ registering a virtual company.

2, Leveraging an existing company to issue invoices and receive global payments.

3, Registration of a sole proprietorship.

4, Registration of a Business Partnership.

Leveraging Virtual Companies

A virtual company is a legal entity, without the intention of establishing a physical presence, registered in the records of the country of operational intent and empowered to operate the business activities in its articles, pay taxes in its profit, collaborate with people or other entities, sue and be sued in its name and assets. A virtual company is usually created by a non-resident of the country where the business owner seeks to do business.

Business owners usually create virtual companies to be able to do the following:

• Create a foreign bank account to receive global payments in USD, GBP or EUR.
• Access to partner benefits like Amazon, Google and Azure cloud credits.
• Access to market network like the EU single market.
• Access flexible tax regimes and
• Access the reputation of a global-oriented business.

Businesses that desire to build digital scalable business structures have to register their business in countries strategic to their growth plans.

Types of Virtual Companies

There are many types of virtual companies that you can incorporate as a founder or business owner. They include the following;

• The Limited Liability Company
• Business Partnerships and
• Sole proprietorship

Limited Liability Companies

Limited liability means that the owners of the registered company are not personally responsible for the debts and other liabilities of the business in the event of winding up. There are different types of limited liability companies which are classified according to their tax status in the US. They are

1, Limited Liability Companies (LLCs)

This can be a Delaware LLC. This type of LLC that is not physically operating in the United States is only required to pay the State of Delaware a simple, flat-rate franchise tax of $300 per year, due annually on June 1. They are classified as partnerships for the purpose of taxation and their income and loss are not subject to US federal taxation.

It can also be a Single-member LLC. This type of LLC is Partnership is classified as a “disregarded entity” by the U.S. IRS. This means that the LLC items of gain and loss are treated as those of the sole member directly and the sole member will have to file to report all profits and losses alongside their personal income tax return. This is not a popular structure that global businesses use.

2, Corporations (Inc)

A corporation is also a registered company which is required by law for the name of the business to end with “Inc.”

A C corporation is a separate legal entity from its owners and provides the highest level of personal liability protection. It can raise capital by issuing stock and is required to have a board of directors and hold regular meetings.

An LLC can be categorized as C-corps for taxation purposes. In this type of taxation category, the corporation's income will not be treated like a partnership (LLC) but be subject to companies income tax.

An LLC is also a corporation. An corporation ending with Inc, is stated that way by requirement if state laws.

An LLC electing the C-Corp taxation classification is usually subject to double taxation. But they are allowed to make the following tax deductions;

all business expenses,

interest payments,

reasonable salaries paid to owners,

employee fringe benefits (such as health and disability insurance) and others.

If you need advice on this you can reach out to me at [email protected], I am happy to chat about this.

Business Partnerships ?

Business partnerships are a type of business structure where two or more people share ownership. It can either be a general partnership or a limited partnership. Limited partners only share in losses and liabilities to the extent of their investment in the company. General partners have unlimited liability for debts and lawsuits. As a result of the liability of (non-resident) partners directly for debt, it is not an ideal structure for founders looking to establish a global business by registering a virtual company.

Sole Proprietorship

This is a simple business structure where the owner is also treated the same as the business for tax purposes. The business owner has to report his business income at once when he or she files his tax returns.

This business structure is not ideal for non-residents of the target country because of Visa restrictions.

In the US for example, the business owner is required to work in the business and this can create visa and work permit regulations issues.

Top countries to incorporate virtual companies

Several countries support global business infrastructure more than others. They include;

• Estonia
• The US
• Greece
• Malta
• Bulgari and
• Georgia

These countries have excelled in the speed of registration, competitive tax regimes, market access infrastructure and attractive residency programmes.

Virtual companies pros and cons

There are many merits to creating a virtual company and they include;

• Access to new markets.
• Freedom to work from anywhere.
• Access to expert talent from anywhere in the world.
• Global payment collection and
• Access to competitive tax regimes

Some of the disadvantages also include;

Difficulty in building trust in country or region of operation.

Facing challenges of language and cultural barriers.

High staff turnover and

Significant customer care support resources.

Conclusion?

In this first part, I have covered the fundamentals of the forms of business structure for virtual companies and building a scalable virtual company, in the next part, I will focus on the strategies to leverage each of the business structures to scale, I will also discuss the how to manage global payment collection, how to manage a large virtual team, virtual operations strategy and finally, a BDP compiled reading list for all founders looking to build and scale virtual companies all over the world.

In all you do, keep building.

Remember that you only fail when you stop trying.

I am rooting for you.

If you loved this edition, please share it with another founder.

Keep building,

Osita.

PS: I am going to be offering a free 30-minute business strategy and clarity session to 10 USA founders through June.

How to qualify - Repost this newsletter and comment below I am interested and I will send you my calendar link to schedule a time.