Have you received legal advice for these 5 scale-up considerations? (Part 2)

August 30, 2017

1) Changing the Legal Structure

As a start-up, you may have been operating as a sole trader which has suited your needs up until now.  However, as your business grows, sole trader status might become less suitable.  Incorporating a limited company offers real credibility to clients, suppliers and employees and the liability of the shareholders is limited to the face value of their shares, which is a big advantage.  Further, companies can issue equity to investors in return for capital investment.  There is a little red tape and you’ll need to ensure you have the right documents in place.  A limited company requires a constitution and, if you have more than one shareholder, a shareholders’ agreement.

2) Your business’ online presence

You may or may not have a website, but as your business grows, you’ll want to really

establish it online.  In doing so, you need to be sure that your company is legally compliant and that your business is protected to the fullest extent possible.  A solicitor can assist you with drafting website terms of use, a privacy policy (paramount if you collect any form of personal information), a cookie policy as well as your online trading terms. These documents are key to managing your company’s legal obligations and relationships with the users of your website.  Getting these documents expertly drafted, bespoke to your business can help you avoid a plethora of problems later down the line.

3) Appointing Non-Execs

You want to ensure your growing business gets access to the best expertise.  Appointing consultants to refer clients and advise your business is one way of going about this and there is a growing trend amongst SMEs to appoint non-executive directors.  A non-executive director will have the same legal responsibilities as any other director under the Companies Act 2006, however, non-executive directors don’t involve themselves in the day-to-day running of the business.  Non-execs instead act as independent advisors or mentors, assisting the executive directors with their strategy and decision-making. Non-Execs usually only devote a portion of their time to a business, so they may well have more than one appointment.  There are distinct advantages to having an experienced guiding voice sitting on your board.  A solicitor can help you set out the terms of a non-exec appointment.

4) Attracting investment

You may have already sought investment or you may be looking to attract further investors.  Seed money is a form of securities offering in which an investor invests capital in exchange for an equity stake in the company.  A solicitor can assist you with a funding round by drafting a document you can distribute to potential investors clearly setting out the terms of the cash injection you need and why as well as the terms on which you will offer it.  Once investment is agreed, investors often commit to the investment via formal subscription agreement.  Getting this right is crucial, and you’ll need advice to manage the process properly and efficiently.  The Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) both offer great tax efficient benefits to investors in return for investment in early stage or higher risk businesses in the UK.  An Accountant can assist you with the process for both, but you’ll need to ensure your business is legally structured correctly to offer either.

5) Planning to sell your business (or part of it)

If your strategy is to sell all or part of your business, you need to ensure your legal structure and agreements lend themselves to the plan.  A solicitor can advise as to how the terms of your shareholders agreement as well as any agreements in place with investors might interact with a possible sale.  For example, you might be obliged to offer shares to existing shareholders before you can agree a deal with a buyer, or else shareholders might have the right to require that any third party deal is also offered in respect of their shares.  When it comes to a sale itself, solicitors can draft confidentiality agreements to make sure all the information you are sharing about your business (prices, profits, customer lists) is not shared with others.  A solicitor is also invaluable when it comes to drafting the sale documentation itself.

Elizabeth Comley, LawBite Corporate & Commercial Lawbrief.

If you have any questions for Lizzy about any of these 5 scale-up considerations or any other legal aspect of your business you can have a FREE consultation by submitting a request here or call us today on 020 7148 1066.

Leave a Reply

Your email address will not be published. Required fields are marked *