So You Want to Start an International School? Legal Structure and Local Partner

Demand for English-based and Western-style education is still running high in many countries around the world. An ever-increasing number of wealthy locals want to prepare their children to attend elite universities abroad and this has created clear demand for suitable schools.

However, starting a private school in a foreign country is actually very difficult even under the best circumstances. Time and time again, our clients and the local partner misunderstand the relevant laws and best business strategies involved in successfully running a new international school. This lack of foresight and preparation frequently leads to negative outcomes not anticipated by either side.

This post and my follow up post tomorrow (part 2) aim to highlight four key areas you should consider if you aspire to start a new international school.

1. Legal Structure

Every country has its own school registration and licensing process, which often depend on what type of school is being established. It is important to know how the host country’s education regulatory structure deals with each form of school it allows to be established, and if this meets your expectations:

• Will the school be allowed to be for-profit or must it be a non profit?
• How long does the license application and approval usually take?
• Will the school be public or private?
• Will the school be allowed to enroll local students, and if so, up to what percent of the student body?
• Is an international curriculum allowed, or must a national curriculum be delivered in whole or in part?
• What percentage of the teaching staff is allowed to be foreign?

2. Local Partner

Choosing the local right partner is a critical part of reducing your overall risk in the new school project. Early on in the relationship between parties, the local partner often makes grandiose statements about its assets, government connections, business track record, and the pent-up demand of new students just waiting to enroll in a great school that can be easily solved with their prime real estate. Couple these assurances with some fantastic dinners, impressive architect renderings and financial projections, and it all can be quite heady for those representing the school or education group coming in.

But how do you know if any of these local partner promises are real? How can you even be certain the people with whom you are communicating are even who they say they are and how can you determine the situation is what they say it is? The key here is to conduct due diligence on the local partner to determine the following:

• Is the entity with which they are proposing you contract legally registered? Does it have any real assets?
• Does the local partner have legal problems or a bad business history that might tarnish the reputation of the school, or even worse, be repeated in this new international school relationship?
• Does the local partner meet the definition a “foreign government official” under the US Foreign Corrupt Practices Act (FCPA) or the U.K. Bribery Act? In many countries it is common for local partners to be either a partially or wholly State Owned Enterprise (SOE), or government officials themselves.
• What intellectual property (IP) has your local partner already registered? Some of our clients have been surprised to learn their trusted partner registered the client’s IP before any contract or agreement was ever signed.
• Is the local partner authorized by the host government to own and operate a school? In many countries, knowing the authorized scope of the business of the contracting entity is of utmost importance.

A due diligence report on your potential local partner(s) will position you to make informed comparisons between what your local partner has been telling you and reality. Knowing this will help you decide whether and how to proceed with the deal.

Tomorrow in part 2, I will highlight a two more issues that should be considered when seeking to establish an international school.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.