[IT Law firm Veat] Expansion of Global SaaS Services, What is the Optimal Business Operating Entity Solution?

We received a request from Company A, a SaaS (Software as a Service) development company (hereinafter "Client"), to guide them on matters to consider when deciding on a preferred business operating entity.

SaaS services have become a core element of the rapidly growing IT industry globally. Particularly, if a company develops SaaS centered around a domestic corporation and intends to expand its global business utilizing a Delaware corporation, it is necessary to comprehensively review various factors and select the business operating entity effectively.

Law firm Veat has organized and provided guidance on matters to be considered in the process of determining the optimal business operating entity for clients who intend to operate a global SaaS service business utilizing both a domestic corporation and a Delaware corporation.

Matters to Consider for a Global SaaS Service Operating Entity

Companies operating global SaaS services often consider utilizing both a domestic corporation and an overseas corporation. A typical approach is to have a development workforce primarily composed of domestic personnel, while conducting overseas payments and operations through an overseas corporation. Utilizing a US corporation is often necessary to integrate with global payment systems like Stripe.

1. Securing Global Brand and Trustworthiness

Global SaaS services are provided to users in various countries beyond borders. Therefore, a corporate structure that builds trust with overseas users and maximizes brand value is necessary.

2. Investment and IPO Strategy

The corporate structure should be carefully designed according to future investment attraction and IPO (Initial Public Offering) plans. If you plan to attract overseas investment and subsequently consider an IPO in the US, you should consider the possibility of a flip (transferring the shares of a domestic corporation to an overseas corporation).

3. Business Operations and Cost Optimization

Operating a global SaaS business involves infrastructure, server placement, workforce recruitment, payment and financial systems as important factors. When building SaaS with a workforce primarily composed of domestic personnel, it is natural for the domestic corporation to be the development entity, allowing for R&D cost savings and utilization of government support programs.

4. Review of Tax and Accounting Structure

When deciding on a business operating entity, you should analyze which structure is more advantageous from a tax perspective by comparing corporate tax rates between a Delaware corporation and a Korean corporation. Furthermore, if a domestic corporation directly provides SaaS services overseas, you should consider the possibility of Value-Added Tax (VAT) imposition and manage the associated tax risks. Transfer pricing policies should be appropriately set to prevent unnecessary tax issues in transactions between domestic and overseas corporations, and strategies to prevent double taxation and minimize tax burden by utilizing international tax treaties should also be considered.

5. Compliance with Legal and Regulatory Requirements

Legal regulations for operating a global SaaS service may differ from country to country. Therefore, it is important to understand the legal requirements of the relevant country in advance when selecting an operating entity. Compliance with regulations regarding corporate registration, licensing requirements, and the possibility of compliance with various country-specific laws is essential. Domestic corporations must comply with regulations such as the Information and Communications Network Act and the Personal Information Protection Act, while US corporations must comply with US laws. Review of compliance with GDPR (General Data Protection Regulation) and CCPA (California Consumer Privacy Act) is also necessary.

6. Dispute Resolution and Legal Risk Response Strategy

The possibility of disputes arising during the operation of a global SaaS business should also be considered. In particular, the possibility of legal disputes with overseas users is higher when providing global services, so countermeasures are necessary. Preparing service terms and privacy policies in both Korean and English to secure legal validity is recommended as a preventative measure.

For SaaS business global expansion, it is important not only to develop technology but also to make strategic decisions about the business operating entity. The approach of operating primarily through a domestic corporation while also utilizing a Delaware corporation is a powerful option for effectively operating a global SaaS service business. Therefore, it is necessary to establish an optimal corporate structure by comprehensively considering the company's brand value, investment attraction, operating costs, taxes, legal regulations, and dispute resolution strategy.

Law firm Veat has a deep understanding of legal issues in the IT field, such as software development, and assists startups and IT companies in solving various legal issues they may face when entering global markets. Law firm Veat provides optimal legal advice to SaaS companies to achieve successful growth in the global market. We will help companies expand globally by providing comprehensive legal support, from business operating entity decisions to drafting terms of service and privacy policies.

This case study can also be found on the Law firm Veat blog.

-  [IT Law Firm] Expansion of Global SaaS Services, What is the Optimal Business Operating Entity?

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Law firm Veat