Business Law FAQ's

In the event that you are going into business on your own account there are many different forms of business model. This can include a Limited Company, a Partnership, Limited Liability Partnership or Sole Trader. There are benefits and disadvantages of each of those models, which is important for you to consider before starting out in business.

The incorporation of a Limited Company is a straightforward process and one which could be done very quickly on line. An excellent service is provided by Jordans and Oswald’s and a link to their incorporation site is attached – www.oswalds.co.uk/company-formations

Trading as a Limited Company can provide the Directors and Share Holders with certain levels of protection from any debts that the Company may accrue. It is important to bear in mind that most creditors (such as Banks, Credit Suppliers, Land Lords etc) will require the Directors of any Limited Company to sign some form of Personal Guarantee.

Where you trade as a Limited Company or LLP, a creditor may require the Directors or members of a business to sign Personal Guarantees to guarantee the debt of the Limited Company or LLP. This will mean that in the event of insolvency, whilst Limited Liability protection is provided by the Company, the Directors will be personally liable for those debts for which they have signed a Personal Guarantee.

Many businesses through their evolution will review, on a fairly regular basis, the suitability of the business model that they utilise to trade their business. In the event that Partnership no longer becomes appropriate, then it is possible to convert that Partnership and transfer all of the assets into a Limited Company. This is a process in which we can give full advice and prepare all the necessary documentation to ensure a seamless transfer and continuity of your business arrangements.

Starting your own business is an exciting and interesting time, but it is essential that you embark upon that journey having made all the necessary preparations and developed a strategy for the business. Our top 10 tips for those embarking on a new venture are:-

• Prepare a Business Plan.
• Formalise realistic financial projections.
• Get professional advice from Solicitors and Accountants before you start.
• Get the support of your Bank and funders.
• Obtain whatever grant funding is available to get your business launched. Many Local Authorities, Business Enterprises and Trusts provide support/grants for the launch of many different entities.
• Preparation. To fail to prepare is to prepare to fail. The old adage is never truer. In the event that your preparations are comprehensive and you have considered all of the hurdles that might arise, at least in the first year of business, this will stand you in good stead to cope and your business to survive when these hurdles appear on the horizon.
• Start small and grow at a pace you can manage. While rapid expansion can see a huge increase in revenue for the business, in the event that this arises at the expense of quality either of product or service, then failure and collapse will be just around the corner.
• Surround yourself with the best people qualified to help you deliver the business objectives. You can’t do it all yourself!
• Identify your KPI’s and continually monitor their performance.
• Enjoy it.

The Shareholders are the owners of the Company. You can be a Director without being a Shareholder and vice versa. The Directors are the officers of the Company who are charged with the management and day to day running of the Company. It is their duty always to act in the best interests of the Company and its Shareholders.

There is no requirement for any Partnership to write a Partnership Agreement,. In the event that no Partnership Agreement is signed off between the Partners, then the Partnership Act 1890 will dictate and regulate the relationships among the Partners. Whilst this historic Act can provide the basic framework for a Partnership, it is very often unsuitable in modern practice for the business relationships which Partners wish to enjoy. It is always advisable to have in place a Partnership Agreement to set out the obligations, rights and benefits that Partners will enjoy from the Partnership.

In any Private Limited Company it is open to the Shareholders to regulate the relationship among them by producing a Shareholders Agreement. This is very common and advisable in Private Limited Companies. This can regulate very important issues among the Shareholders such as:-

• The obligations of the respective Directors and Shareholders.
• The Dividend Policy of the Company.
• The amount of capital which will require to be contributed on subscription by each Shareholder.
• The method of transfer of shares in the event that one Shareholder wishes to exit.
• Transfers of shares on death and incapacity.
• The method of valuation of shares in the event that transfer is to be effected for any reason.
• Restrictive Covenants for Shareholders to regulate their activities after exit and to prevent, for instance, competition with the Company after share sale.

We can advise on all aspects of preparing a Shareholders Agreement and put this in place for you.

There are a variety of different sources from which any capital injection can be obtained. This might include traditional methods such as Banks, Building Society or other Finance House. In the current climate there are also other methods of raising funds such as Crowd Funding, investment from new Shareholders etc. From whoever and however you obtain funding, it is likely that there will be restrictions placed upon you. This can include requiring to give security for any borrowing, either over heritable assets owned by the Business (which is known as a Standard Security), or security over stock or debts (known as a Floating Charge). Before you embark on any such road it is important that you have professional advice on the financial terms that you are signing up to, and the impact this may have on your business in the event of default.

It is fundamental, in any business, that you keep a very close eye on the financial performance of the business and identified from key performance indicators when there may be problems on the horizon. Very often early action such as staff restructure, downsizing of premises, cost reduction, refinance of borrowings or other steps can streamline a business and ensure its continued survival and ability to thrive. In the event that any potential issues are ignored or financial performance is not carefully monitored, then this can be the path to insolvency.

This depends on your business model and the extent of any Personal Guarantees that have been put in place. Whatever your business model there are steps that can be taken to mitigate the impact both from a personal, professional and reputational perspective to ensure that when you come out the other end you still have a future and a way to make a living. It is essential that you get advice early, as to fail to do so can mean that the situation is not recoverable.

There can be many different methods to expansion of a business, one of which includes merger and takeover. Depending on the structures of the respective businesses this may include a share acquisition or asset purchase. Whatever model is involved it is important that both parties have a clearly structured written agreement so that all parties understand their rights and obligations as part of any deal.

As with many things in life, you can do it yourself. However just as you may not try to change your own boiler because your house might blow up, in the same fashion you may decide not to advise yourself on the sale of your business as you may be left financially destitute, and the business taken from you. Any business sale is likely to involve transfer of monies, the grant of Warranties, restriction on post-sale activities etc. All of these can have a substantial financial impact, but when properly managed and where you have been fully advised, these can be dealt with without any issue and you can enjoy the fruits of your sale or the benefits of acquisition in the event that you are a purchaser.