When establishing a business there are often more exciting and pressing matters than obtaining legal advice on your business structure, contracts and how you operate. However, some investment at the outset can save you money in the long term and increase the value of your business if you reach the point you want to sell.
- If someone is buying your business they will want to carry out due diligence (checking of information) on all aspects of your business. If you are able to provide clear and comprehensive information about the key legal aspects of your business it will give the buyer confidence about how your business has been run and support the valuation you attach to it.
- It is likely that any potential buyer of your business will be obtaining bank funding so as well as buyer due diligence you will have to undergo a detailed due diligence review by their bank. While a potential buyer may be willing to take a view on certain legal aspects of a business a bank is much less likely to do so and may decide not to provide funding for the purchase of your business.
- If the legal information about your company is not in order as you approach a sale, businesses often find they have to engage lawyers to carry out preparatory work for the sale. This can involve formalising existing contractual arrangements or legal structures so any buyer will be comfortable with what they are buying.
- If you protect the intellectual property in your business, whether trade marks, patents or other forms of IP this will help increase the value which accountants place on your business.
- An initial public offering (for example on the London Stock Exchange) may seem a pipe dream in the early days of your business but as it grows it could become a lucrative possibility. The listing requirements for a public offering are rigorous and will require strict legal and financial criteria to be satisfied so having legal structures and contractual documentation in place from the outset is important if this is your goal.
- Litigation can be costly for any business, even if you ultimately succeed in a claim. If legal documentation and record keeping is in order it will minimise the risk of any litigation and ensure there are no potential liabilities which need to be provided for or which may affect the sale price or how the sale price is paid. Buyers often want to retain part of the payment until any litigation is resolved or require contractual protection which can leave you in an uncertain position for a number of years after the sale of your business.
Hannah Ives – LawBite Company and Commercial LawBrief. You can find out more about Hannah in our Meet The Team section.