Legal entity establishment is the process of formally registering a company or subsidiary in a country so it can legally operate, hire employees, and pay taxes there. It is the traditional route to building a real presence in a new market: the business incorporates a local entity, registers with the authorities, opens bank accounts, and sets up payroll and compliance. It gives full control but takes significant time, cost, and ongoing administration.
What does setting up a legal entity involve?
Establishing an entity is a multi-step project that varies by country but generally follows a similar arc. Each step adds time before the company can legally employ anyone.
- Incorporation: registering the company in the chosen legal form with the local authorities.
- Tax and payroll registration: obtaining the tax identifiers and registrations needed to run payroll and file returns.
- Banking: opening a local bank account to pay employees and authorities.
- Compliance setup: putting in place statutory registrations, contracts, and policies required to employ staff.
- Ongoing administration: annual filings, audits, and corporate maintenance for as long as the entity exists.
What are the pros and cons of an own entity?
An own entity is the right answer for some companies and overkill for others. The decision rests on scale, time horizon, and appetite for administration.
- Pro, full control: the company directly owns the employment relationship and local operations.
- Pro, scale economics: for a large local workforce, an entity can be more cost-effective over time.
- Con, time and cost: setup can take months and carries significant upfront and ongoing cost.
- Con, administrative burden: the company carries full responsibility for local compliance, filings, and audits.
Entity vs EOR: which route fits?
For most companies entering a new market, the choice is between setting up an entity and using an employer of record. The right answer usually depends on scale and time horizon.
| Factor | Own entity | EOR |
|---|---|---|
| Time to hire | Months | Days |
| Upfront cost | High | Low |
| Admin burden | On you | On the EOR |
| Best for | Large, long-term presence | Lean teams and market entry |
This information is for general guidance. Consult legal and tax experts for your specific situation.
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