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Lawyers and accountants*
The investor’s guides|
*Phillips Nizer LLP English translation of original article "Avocats et experts-comptables: Les guides de l'investisseur"
published in the April 2009 issue of France-Amérique featuring Corporate partner, Stephen D. Kramer, Esq.

By Johanna Safar

French entrepreneurs who decide to invest in the United States often lack landmarks for navigation in a very different tax and legal environment.  Thus the interest in consulting a lawyer and an accountant in order to start off the American adventure on a sound footing.


Stephen Kramer loves his work.  Attorney-advisor and a partner in the firm of Phillips Nizer, he was hired three years ago to create and develop the French Desk.  Rather than any particular sector, he has chosen to target small and mid-size French commercial and industrial companies (PME PMI) whose headquarters are often away from Paris.  So many opportunities for this American Francophile of an almost British elegance to escape from his office on Fifth Avenue in New York in order to visit his clients in France.

According to him, French company chiefs who open an affiliate or form a start-up in the United States often commit the serious miscalculation of trying to save on attorneys’ and accountants’ fees.  “They have problems understanding that they should not consider these costs as expenses but rather as part of the investment,” he says with regret.

The same bell sounds for accountants specializing in the accompaniment of French entrepreneurs in the United States, whether it involves mergers, acquisitions, establishment of a subsidiary or of a start-up and follow-up on the same.  ‘Those who want to save money and make bad legal and tax choices end up by paying more taxes,” warns Adrian Agbo, partner in the Constantin firm present in New York, Chicago and San Francisco.  She notes for example that in the United States there are several levels of taxation, the federal level as a general matter, but also a second level that differs according to the State, with special cases for certain cities such as New York.

The cost of  services that can reach $250 per hour for an accountant and $500 for an attorney, particularly in New York, often have a shock effect on new arrivals.  Certain firms have been compelled to offer services for a flat fee.  Aware that they are often perceived as pleading their own case, these consultants normally leave to intermediaries or facilitators such as Ubi-france (see article on pages 30 and 31) the task of making referrals.

“The objective is to avoid encountering problems after one or two years of operations, when it becomes far more costly or difficult to alter structure or strategy,” analyzes Adriana Agbo.

In order to avoid bad surprises, the best solution, especially for small and middle market businesses, is to put into place at the head of the US subsidiary a bi-national management team consisting of a French person who is familiar with the corporate culture and an American who knows the terrain, who divide the duties between themselves and keep constantly in touch.  In any event, this is the advice of Emmanuel Jaegle, founder of Jade Associates, an accounting firm with a presence in Miami, New York and San Francisco.

“A strategy that allows one to avoid gross errors, like those committed by brands that are solid and well-known in France that are forced to close their stores in the United States after a year because their products are poorly adapted to the American market.  The best thing to do first is to spend a year exploring the territory.” 

Besides, the statistics speak for themselves:  certain firms see 90% of their clients leave after a year, with 50% of those remaining gone by the end of two years.

Skittish French managers
Stephen Kramer, who often acts as general counsel for the American subsidiaries of his French clients, is convinced that this rate of failure explains in part the skittishness of French entrepreneurs when it comes to investing in the United States.  “It is true that the sometimes spectacular stories of failure make a huge impression.  But French managers are skittish by nature,” he sighs.  “Even when everything is going well.  When the Euro was at its strongest, they were paralyzed by the idea that their products were too expensive even though it was the best time to purchase licensing rights, to round out their product offerings with complementary technologies or a new line, to establish production facilities…” he lists.  “That is, to invest in the United States.”

Stephen Kramer admits that under such conditions it is sometimes difficult to counsel his clients, but he consoles himself by citing the friendships that he has developed with the majority of them.  “The human aspect is essential for the French… The arts of the table are one way of testing a person,” he jokes in perfect French.

On the other hand, he deplores the lack of importance that the French place on the business plan, a tool that permits a clear evaluation of the risks as well as the potential of expansion to the United States.  This is a peculiarity that he is not the only one to have noticed… “The business plan is truly paramount as it resets the clock,” Adriana Agbo emphasizes.  “It is the view that everything is more flexible in the United States, but familiarity with the product being sold is not enough.  One has to be conscious of liabilities, operating costs…Such is rarely the case for small and middle-market businesses and start-ups.”

The business plan is also an item that must be submitted to the immigration authorities, for example in order to apply for a visa for inter-company transfers.  The version submitted to the immigration office is often more optimistic than the “real” version, generally more cautious.

For in this time of crisis, caution is appropriate.  Emmanuel Jaegle’s firm has quite a few new clients “but they showed up in September before the crisis hit…” he is quick to point out.  He noted that his older clients have asked him to be “more conscious of his numbers.”  At Constantin, business has not slowed down but the requests are different, with fewer consultations for start-ups.

For his part, Stephen Kramer affirms that the recession has not yet touched his firm, which has even just brought on two attorneys in order to expand the portfolio of clients investing in the area of the environment [sic].  All public offering files overseen by his firm are stopped dead, but two or three “small” acquisitions of $2 or $3 million have just landed on his desk.

“While some have held out, others have figured out how to react and to recognize that there were terrific opportunities to be grabbed, with rents and salaries sometimes 30% lower than they were six months before,”  analyzes Frederic Blanchard, partner in the accounting firm of KVB Partners based in New York.  “The climate is favorable for businesses that have cash and don’t need recourse to the banks.”  The banker being, theoretically, the third partner.


Copyright 2009 of original article, "Avocats et experts-comptables: Les guides de l'investisseur," France-Amérique, April 2009, Volume 2, No. 4