Corporate and Commercial Law

Our top tips when starting out are to make sure you understand your role as a Director. When you incorporate a company at Company's House you will be sent information from Companies House reminding you of your role and responsibilities. One thing you need to remember is that ignorance of the law is no defense, so make sure you look properly into what it is and what it means to be a director. Also, I would advise, make sure you have a good accountant and a good lawyer. It's certainly worth the expense and you benefit from it in the long run.

The difference between a share sale and a business and asset sale is really who is the seller. In a share sale, the sellers are the individual owners of the shares. They sell their interest in the company, and the company continues to run as it always has. In a business and asset sale, the seller is in fact the company, and it's selling its business and assets to a third party, and therefore the consideration payable for those business assets actually belong to the company. It then has to distribute those proceeds to the shareholders once it's paid out all its expenses.

Heads of terms are the agreed principles between a buyer and a seller. The idea of heads of terms is to set up the main principal agreed terms before you incur costs of undertaking due diligence or instructing lawyers. Heads of terms are useful as they set out the purchase price and any conditions attached to their purchase price, so if there are targets to be met for deferred consideration or for earn out clauses. You could also include provisions in there for whether the seller is going to stay on in the business or whether they're going to be a consultant. In general terms, heads of terms are not legally binding. They are intended to be a guiding principle so that you can look back at them throughout the terms of the transaction and find out what it was you had agreed at the outset.

Whether you're having a share sale or business and asset sale, there will be a sale and purchase agreement. The sale and purchase agreement is the binding contract between you and your buyer or seller. This will set out the purchase price, it will set out things like restricted covenants, and it will also set out in quite a lot of detail the warranties you're expected to give. Warranties are promises you make about the business, which your buyer relies on when entering into the contract.

Due diligence is a crucial stage in the transaction, and it's the buyer's chance to effectively audit your company and make sure they know what they're getting. From a legal perspective, it's a good chance for your advisors to find out if there's any risks or any issues with the company that they can protect you from in the final sale agreement. From a seller's perspective, it can be quite extensive. You'll receive a long legal due diligence questionnaire, which asks a long list of tailored questions to find out as much information about the company. It will assist later on in the transaction when it comes to the disclosure part of the deal, which is your main protection against warranty claims post-completion.

The difference between a shareholder and a director is a shareholder is one of the owners of the company. Sometimes there's one shareholder, sometimes there’s multiple. They're responsible for making the major decisions within a company, such as appointing a director, calling AGMs and amending the articles of association. The director is responsible to the shareholders. They're responsible for making the day-to-day decisions in the company, such as changing the registered office. They have statutory duties set out by the Companies Act, and they also have duties to the shareholders, and they're governed by the articles of association which are written and prepared by the shareholders.

What happens to your business when you die, will very much depend on whether or not you've got anything in place already. Things that you could have in place are things like the Articles of Association containing things like pre-emption rights, giving other shareholders rights to buy your shares on your death. Alternatively, you could have a shareholder agreement in place, which deals with this whole process, and you may have other succession planning, you may have appointed someone in your company to take over when you die, or when you leave. If you don't have any of the succession planning in place, and you have model articles, and no shareholder agreement, then your shares in the business will pass on your death in accordance with your Will, or if you've not got a Will, in accordance with the intestacy rules.

Deciding what is best between a partnership and a company will be dependent on a range of different circumstances. A company has to be registered on Companies House and will have to publish annual accounts, whereas a partnership only has to register itself with HMRC. A company has limited liability. This means that if they are sued or owe any debts, the only thing that can be recovered is the company assets and not the shareholders personal assets. With a partnership, your personal assets are on the line as you're personally liable. In addition, they're also tax benefits to both. For example, a company will only pay corporation tax, whereas partners don't always pay National Insurance on their earnings. It's best to take advice from an accountant on what's the most tax efficient way of running your business. Finally partners are entitled to take their pay out of the profits of the company, whereas shareholders take their earnings by way of dividends.

What you need to know about your buyer is, firstly, you need to know about how they're financing the deal. They could be financing it through cash that they hold on account, or they could be getting a lender support or they could be investor backed. Each different way of funding the deal is going to have an impact on how the transaction runs. Secondly, it's good to know whether they're advised by solicitors and accountants because this will make the whole process a lot more streamlined especially if they've got good accountants and solicitors doing due diligence. Thirdly, it's good to know why your buyer is buying. How does your company fit into their business plan and how does it fit into the company's future? And finally, it's good to know whether or not they want you to stay on, whether or not what involvement you're going to need to have after the company is sold. If there's no involvement, then that could be good. You might be able to just get a clean break but they may want you to stay on for a year to two years to help facilitate a move for the new director, the new manager of the company.