Morton Fraser provided extensive legal advice to the winners of the Converge Challenge during 2011, 2012 and 2013, and will be providing legal advice to the winners again during 2014.
In this blog, Corporate Solicitor Paul Flynn provides his top ten tips for turning your embryonic company and vision into an investor-ready business opportunity.
Investor-readiness can mean a variety of things depending on the stage of development of your business. Ultimately, it's about organising, protecting, planning, and generally getting your business into the kind of shape that an investor will feel comfortable putting their cash into.
1 Trade through a private company limited by shares and registered in the country where the company will principally do business
A UK-based investor will not want to invest in limited partnerships, LLPs, trusts, SCIOs or companies limited by guarantee.
2 Maintain the company's statutory books and filings in perfect order
Running a company requires a certain amount of planning and organisation. Registers should be kept up to date, minutes should be taken (and retained) when holding board meetings, and filings (such as the Annual Return) should be made with Companies House on time. It's not difficult if you keep on top of it, and investors will definitely expect it.
3 Write a clear Business Plan with financial forecasts -- and update it regularly
Think about your assets and innovations, the problem you're solving, the strengths (and weaknesses) of your team, the challenges of the market you'll operate in, why you're better than your competitors, what you'll do with the investment you obtain, and your exit strategy.
4 Understand the difference between shares, debts and options. Use each in the appropriate way and always keep a record of every time you allot shares, take on debts or grant options
5 Understand the difference between directors, shareholders, employees and consultants -- and use each in the appropriate way. Your people are your greatest resource
One person can occupy multiple roles and as the founder of the company it's likely that you'll be a director, a shareholder and an employee.
Note that there are legal definitions of when someone is a director (and that it doesn't really matter whether they're called a 'director' or not). Read our guide on this here: http://www.morton-fraser.com/publications/factsheets/1379_directors_guide.
6 Document the company's engagement with directors, employees and consultants
Directors should have service agreements, employees should have employment contracts, and consultants should have consultancy agreements. None of these documents need be very long, but investors will want to be absolutely clear about the terms on which the company engages with such individuals. A lack of clarity can lead to confusion and messy tax consequences.
7 If there's more than one shareholder in the company, consider a shareholders' agreement (or bespoke Articles of Association) to protect each of your interests
8 Protect your intellectual property ('IP')
This might mean licensing IP from a University, assigning IP held in your own name to your company, registering a trademark or a design right, applying for a patent, or simply recognising the copyright in a document you've prepared.
Read our guide on IP here: http://www.mortonfraser.com/publications/factsheets/632_introduction_to_intellectual_property_rights
9 Understand the tax breaks, grants, incentives and support available to investors and young companies
The UK is a great place for investors into start-ups, spin-outs and high growth companies to do business. Learn the difference between EIS, SEIS, EMI, Entrepreneurs' Relief and SMART and impress potential investors with this knowledge.
10 Understand the investment process
From presenting your Business Plan, signing heads of terms or non-disclosure agreements, doing due diligence, negotiating investment terms, revising investment documentation, or undertaking a disclosure exercise, right through to closing your first investment deal and popping the Champagne corks, it's crucial to understand the process and get the right advice.
The contents of this blog are for information only and are not intended to be construed as legal advice and should not be treated as a substitute for specific advice. Morton Fraser accepts no responsibility for the content of any third party website to which this blog refers. Morton Fraser LLP is authorised and regulated by the Financial Conduct Authority.
Paul is a Solicitor in the Corporate Division of Morton Fraser. Paul has particular expertise in advising young companies looking to grow through private equity investment, as well as advising private investors, family offices/trusts, and syndicates on making investments.
Contact Paul on: 0131 247 1045
paul.flynn@morton-fraser.com
uk.linkedin.com/in/paulcflynn
