Corporate & Commercial: FAQs

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I am setting up a business with colleagues. What do I need to do?

The first step is to decide how you will own the business.  Will you all have an equal share?  Or will someone have a greater share of the business because they are perhaps putting in more money or because they will be devoting more time to the business?

For further advice, contact our Corporate & Commercial team.

Partnership? Limited Company? LLP? What structure should I choose for my business?

The most suitable structure will depend on the circumstances of the business and it is worth seeking tax advice from a professional at this stage.

The most common choices are either a partnership or limited company. A partnership can be run with relative informality but, of course, you will not benefit from limited liability as you would if the business was run as a limited company. This means that you would be personally liable for the liabilities of the business.

Once you have decided on a structure that is best for your business, you will need to set out the rules that should be followed in the running of the business.  If you are running a Partnership, the rules would be set out in a partnership agreement.  If you are running a Limited Company the rules will be set out in the articles of association. These rules are crucial in not only setting out the day-to-day running of the business but also planning for the future. For example, it would be common for a company’s articles of association to, amongst other things, include pre-emption rights giving the remaining shareholders first right of refusal over the shares of a shareholder who wishes to sell up and leave the business. A mechanism for valuing the shares and agreeing a purchase price would also be included to minimise the risk of any disputes.

A company’s articles of association must be filed at Companies House and, as such, are public documents. You may also wish to enter into a shareholders’ agreement with your fellow shareholders setting out any further agreements between you that you wish to keep confidential, perhaps regarding business financing or long-term strategy.

The setting up of a new business is an exciting and extremely busy time. Adopting standard articles or proceeding without a written partnership agreement can seem attractive in saving time and cost in the short term. However, they are crucial documents that set out the company’s structure and rules which if agreed at the outset can avoid protracted and expensive arguments in the future and secure the stability of the business.

For further advice,contact our Corporate & Commercial team.

How often should we renew our standard terms and conditions?

There is no set rule of thumb for how often your business’s Ts&Cs should be updated.  However,  they should be reviewed regularly to ensure that they still conform with your business’s practice. Ultimately, your terms and conditions are relied upon whenever a customer has a problem and so they should be up to date and fully understood by all your sales staff.

The Consumer Rights Act 2015 (CRA) was the final stage of the government’s overhaul of consumer law and most of its provisions have now been in force since 1 October 2015. The CRA has sought to both consolidate and update this area of law, giving consumers clearer and better protection. Major changes have been introduced by the CRA in relation to consumer contracts for goods, services and digital content and unfair terms.

There are also  a number of trigger events within your business that would warrant your Ts&Cs being updated such as a change in your product or services offering, the commencement of online sales or a change in your customer base, for example, selling to both businesses and individual consumers.

For further advice contact our Corporate & Commercial team.

I am selling my business. What should I do?

Pricing a business can be something of a “dark art” and it is advisable to seek advice from an expert.

Once an agreement has been reached with a buyer, it is helpful for a “heads of terms” to be produced setting out the key terms of the sale as this will save time as the sale progresses and the more substantial documents are negotiated and agreed.

The buyer will usually then raise a number of legal and financial due diligence enquiries to confirm that the agreed purchase price for the company represents its value and also to obtain more detailed information about the company before proceeding any further with the transaction.

Once the due diligence process has been completed, the business sale agreement will be negotiated and agreed. This will be done by both your and the buyer’s solicitors. There will also be a number of ancillary documents required such as a disclosure letter, board minutes and resolutions and share transfers. Whilst the business sale agreement is the main document, these ancillary documents are necessary to ensure compliance with company law.

For further advice, contact our Corporate & Commercial team.

I am buying a business. What should I do?

The above comments on the steps involved in selling a business also apply to buying a business though, of course, you will be on the “other side” of the transaction. 

Perhaps the most crucial stage in the purchase of a business is the due diligence stage. Your solicitors will raise a broad range of enquiries relating to the business you are purchasing. Particularly useful enquires relate to the trading history of the business and its finances, the assets of the business and whether the business is exposed to any potential or ongoing litigation claims. Your solicitor will prepare a report for you to consider relating to the seller’s legal due diligence responses and your accountant will similarly prepare a report on the financial responses for your consideration.

The detail of the due diligence enquiries and reports will depend on your prior knowledge of the business. If you have worked in the business for a long number of years and are familiar with its runnings, it is likely that the due diligence process can be dispensed with.

The due diligence reports put you in a far better position to determine whether to proceed with the purchase as agreed or if further negotiation is required around the price or to ensure certain issues are resolved before completion of your purchase.

For further advice, contact our Corporate & Commercial team.

I want to involve my children in the business. Where should I start?

Getting your children involved is a big decision for any business – you might also see this as the first step towards your retirement! Due to the close relationships within a family, it is easy to overlook ensuring written agreements are in place that provide the same protections for your hard work and investment in the business that you would have if you were taking on an outside business partner.

The most common way to ensure these protections are in place is to amend the company’s articles of association – the rules governing the company, to include, amongst other things, pre-emption provisions to ensure ownership of the company remains in the family and set out the process for making crucial decisions, perhaps making certain decisions subject to your consent.  

Finally, specialist advice should be sought to ensure the transfer of the business and its assets to the next generation in the most tax-efficient way.

For further advice on this and any of the issues above, please contact our Corporate & Commercial team.

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