Businesses seeking external investment for the first time should consider the key issues business investors will have in the forefront of their minds. Being one step ahead, businesses will show a great business proposition, backed up by good internal procedures, demonstrating a reliable investment. As in-house counsel, you may be involved with the preparation and negotiation of the investment documentation, therefore, by ensuring good housekeeping in advance will help to deliver a smooth process, without distraction from onerous due diligence enquiries.
Business Plan: An investor will want to see a clear and achievable business plan. This will be the foundation of their investment. Although this will be prepared by management, ensuring this is up to date if an investment is on the horizon will save time preparing it.
Term sheet negotiation: Management and investors should agree key terms at an early stage to avoid disputes with these issues as the transaction progresses. As a reminder, provisions counsel should consider include legally binding commitments such as exclusivity or confidentiality, or a proposed time frame to focus the parties’ minds.
Non-disclosure agreement: This may be important where the investor is receiving confidential information about the business and particularly in the event the investor decides not to proceed. This often forms part of the term sheet.
Data rooms: Cloud based storage platforms offer the ability to share large numbers of documents efficiently. Being organised in advance will avoid the painstaking task of locating a copy of that important contract. It will also make any disclosure process more manageable.
Commercial/IP: Material contracts should be recorded in writing and intellectual property rights should be adequately protected, by registration or licence. With the GDPR timeframe fast approaching, the business should have proper procedures on holding and sharing personal data.
Employment: It is a legal requirement for all employees to have written terms and conditions. Key employees should have adequate restrictive covenants to protect the business’ and the investors’ interests. Pro forma agreements and anonymised schedules of employees’ details will be helpful.
Corporate: Existing shareholders’ agreements should be suitable and the company’s statutory books and filings at Companies House must be up to date. Larger investments will often include adoption of new articles of association, therefore counsel should be mindful of diarising dates for circulating written resolutions to members or calling a general meeting, which should form part of any timetable.
Tax: Investors are likely to want to take advantage of EIS/SEIS or other reliefs. Initial corporate restructuring may be required as a preliminary step to investment and specific clearances may have to be sought from HMRC, which can take several weeks. Tax advice will be crucial.
Preparation in advance is essential in order to demonstrate your business is ready for investment. This will give the investor confidence, save time and ensure the business maximises value from the investment.
Published: 24 July 2017
IM Connect Newsletter - Update for In-house Counsel
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