ABSTRACT
The foreign company contracts with a third party to provide services in the “contract with a third party for services” structure. To perform the services the third party, which is an independent contractor, uses its own infrastructure and employees. Rather than prematurely creating a subsidiary, one should start with this structure in outsourcing. The second legal structure is “establish a subsidiary and then contract for services with the subsidiary.” As the company matures and gains experience with outsourcing under the third-party service provider approach, this structure makes the most business sense. An offshore subsidiary that is wholly owned or controlled by the customer organization is most advisable for such projects involving sensitive data. In an outsourcing arrangement, one should carefully chose the local head, because he or she will be responsible for running the daily operations of the subsidiary and may bind the subsidiary with third parties.
