STEPS TO SAVE YOUR BUSINESS FROM LEGAL ISSUES
There are a few common mistakes that businesses must resolve before approaching an investor. They include:
- Failing to hire the right advisors early on
- Neglecting to obtain prepared legal documents
- Not protecting the company’s intellectual property
- Overlooking the company’s structure
Obtaining a good lawyer and accountant can save you money in the long run and assist in protecting your business. If you are going to scale up to the next level, these common hurdles need to be considered, reviewed and addressed in advance.
What do you need to have in place to show the investor that you are a secure bet?
1. Business Plan/Shareholders Agreement
This document should outline roles and responsibilities, non-compete clauses, information on how to handle a sale, merger or investment, drag and tag along clauses, how disputes are resolved, and the future of the business. You should take legal advice before signing any new terms.
2. Company Structure
When outlining your company structure, it is important to ensure that your legal documents are correct and reflect the true running of the company to prevent any delay of plans by the HRMC. You should also keep the structure simple and transparent as well as analyse the benefits of SEIS/EIS for reliefs and grants to appeal to investors.
3. Consumer/Client Conditions
Various problems can arise if a business decides to expand or move into territories outside of the country. Investors will want to see copies of your terms as well as how to resolve any complaints that you have come across. A good contract includes:
- How services/products are created, stored and delivered;
- How disputes are resolved;
- Representations and warranties;
- Price, rights to cancellation, refunds and returns;
- Ownership of IP rights;
- Payment and debt recovery terms;
- Limitation of liabilities.
4. Intellectual Property (IP) Protection
Registered IP shows a potential investor the value of your company, offers them comfort in what they are investing and acts as a collateral for their investment. If you have truly invented something unique, you should consider registering a patent as soon as possible. You should always have a comprehensive non-disclosure agreement in place, even with potential investors.
- Third party assistance of owning the IP: If you have hired an employee or company to create your IP and/or products, it is vital that you have a detailed and protective agreement in place. This should assign full ownership rights to you as these do not automatically transfer to you. If your employees create the IP during the course of their employment, this will almost always automatically be your property. However, you should ensure these provisions are outlined in their employment contracts for added protection.
- License Agreements: You can permit someone else to use your IP and receive royalties for this right. This is common for franchise arrangements or a software license.
- Monitoring: If an IP is a valuable part of your business, we suggest you engage a monitoring service. They frequently check to make sure no one seeks to use, infringe or register your IP. They notify you immediately of any concerns and give you notice to action.
5. Employment and Contractual Documentation
Lack of documentation can cause a business significant harm, and an investor will want to see and know you have taken all the steps to secure the business from competition and confidentiality breaches. Your company could be harmed if an employee leaves with confidential information, such as details of clients or your IP. The employee contracts should include restrictive covenants, warranties, confidentiality provisions, non-disclosure agreements, non-compete restrictions, and disciplinary and grievance policies.
If you are securing investment do not get pressured into making the wrong decision.
By meeting with different advisors and exploring all the options, you can ensure that you are taking the right steps towards securing an investment. The money you can save by securing your groundwork and having the best possible tax and legal advice leads to developing and expanding quickly and painlessly without the usual risks affecting other businesses, which gives potential investors security.
Be sure to look at low-interest bank loans, debt finance, EIS/SEIS tax incentives, joint venture agreements, grants, tax reliefs and other investments if you are concerned about issuing shares.
About the Author: Karen Holden is the Founder of A City Law Firm, which was awarded the “Most Innovative Law Firm,” London 2016, and listed in Legal 500.
A City Law Firm is a leading entrepreneur firm of regulated solicitors based in the City of London. They package clients for investment, scaling up and sale. They specifically specialize in the technology sector. Awarded Most Innovative Law Firm, London 2016, Best Start up Business Law Firm 2017 and listed in the Legal 500, ACLF prides itself on its innovation and forward thinking approach to law.
Hear more from Karen Holden by joining us at our “Scaling-Up to Growth” Funding Conference” on Tuesday, May 23, 2017. Meet over top 20 leading industry experts and investors to understand how to successfully scale up and expand your business.
Tickets are available here: http://bit.ly/2pyGyMe