When launching a new business entity or startup to bring disruptive ideas to life, entrepreneurs often focus on minimizing costs rather than risks. Yet, the ultimate goal is to scale the business and achieve unicorn status, isn't it?
When advising clients, I always ask: how can we simultaneously address cost-efficiency and risk mitigation while laying a solid foundation for future growth?
For the IT world and Global Mobility Programs, one effective solution is the Employer of Record (EOR) service. This third-party service allows companies to hire employees in multiple countries, including Lithuania, without establishing a local legal entity. The EOR handles all legal responsibilities, including payroll, taxes, and compliance with local regulations. Let's explore how EOR services benefit various stakeholders:
Employers: Cost-Effective and Compliant Expansion
EOR services ensure compliance with diverse global legislation and mitigate risks such as employee misclassification. Additionally, EOR agreements clearly establish ownership of intellectual property (IP) created during employment, strengthening legal protection. Compared to contractor agreements, EOR services enhance the employer brand, attracting top talent globally.
When compared to expansion via local legal entities, EOR services offer cost-efficiency, flexibility, and agility. Businesses can enter new markets rapidly—whether in Lithuania or elsewhere—without the administrative burden and long-term commitment associated with traditional expansion methods.
Employees: Stability and Security
EOR services provide employees with stability and guarantees, including social security, relocation support, and simplified migration processes. Administrative burdens, such as payroll processing, tax withholdings, and benefits administration, are managed by the service provider, allowing employees to focus on their work without distractions.
Investors: Enhanced Compliance and Risk Mitigation
For investors, EOR services add an extra layer of security during the investment process. Startups leveraging EOR services demonstrate compliance with regulatory requirements across jurisdictions, ensuring smoother mergers and acquisitions (M&A) and risk diversification. This stability enhances portfolio companies' appeal and bolsters investor confidence.
Venture Capital Funds: Competitive Advantage
For venture capital (VC) funds, startups using EOR services offer stronger exit opportunities, positioning them as attractive acquisition targets. EOR solutions streamline administrative tasks, allowing VC funds to focus on fostering portfolio growth rather than operational difficulties. Furthermore, EOR services provide startups with a competitive edge by enabling flexible workforce management and access to top talent worldwide.
Startups: Flexibility and Scalability
Startups benefit from EOR services by gaining a competitive advantage in the eyes of investors. Flexible workforce management, quick hiring processes, and global talent acquisition are just some of the advantages. Additionally, clear IP structures and compliance with international standards enhance startups' ability to negotiate favorable term sheets with investors.
Mitigating Risks in High-Risk Jurisdictions
EOR services also facilitate employee relocation from high-risk jurisdictions, such as Belarus or CIS countries, to more stable regions like Lithuania. This reduces exposure to localized regulatory and political risks, strengthens company reputation, and avoids potential transfer pricing issues.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
