Shareholder Agreements

When scaling up a business, usually the reason for investment in the business is to provide more resources and one way to obtain further investment into the business is by taking investment from a shareholder and issuing equity shares to the shareholder or at least consider doing so in the future. In such cases, it is important that contractual arrangements between shareholders are properly documented.

It is highly advisable to implement a formal shareholders agreement which sets out the respective rights, responsibilities and obligations of all shareholders. The shareholders agreement would also address exit strategies, share transfer processes, dividend payments, drag/tag along provisions, dispute resolution procedures and the mechanics to agree the big decisions affecting the business.

Shareholders agreements are often overlooked when scaling up but having this agreement in place allows the significant operations of your business to be protected and can avoid complications with shareholders as you expand your business.

Terms and Conditions

The contract with your client or customer is one of the most important documents for any business especially when scaling up. This contract will vary on whether you provide services, goods or both. You will also need to consider whether you are selling to consumers or to businesses and your terms and conditions will need to be drafted accordingly as consumer regulation is very heavy.

The benefit to having these terms and conditions in place early is that the terms will impact the day-to-day operation of your business, and the business will establish what terms are required based on how it operates, and any changes can be made to the terms and conditions as well to reflect the business.  Having the contractual arrangements documented would also give certainty to parties over all rights and obligations and mitigate the likelihood of any material disputes in the future.

Employees

As you scale up, the likelihood is that your company will hire employees and, in any business, the most valuable asset tends to be the employees. Therefore, it is important you issue your employees with legally compliant written contracts of employment and consider a structured staff handbook setting out key employee policies. Establishing clear HR policies and procedures would ensure fair treatment of employees and avoid potential legal issues for your business.

There will be employees whose skills are of greater importance to the business and when scaling up you may wish to consider incentive arrangements to retain them. This can be done through profit share arrangements or bonus schemes. Tax efficient share incentives such as enterprise management incentive schemes (EMI) for employees can also be used. This is very common in industries like software businesses where the employees (who are the developers) are effectively the business. If you don’t incentivise them, you may end up competing against them!

General Trading Disclosures

All companies must state clearly on their websites:

• Its registered name;
• Part of UK in which it is registered;
• Its registered number; and
• Its registered office address.

The trading disclosures must be made in characters that can be read by the naked eye and failure to comply without reasonable excuse constitutes a criminal offence, punishable by a fine, committed by the company and every officer who is in default.

Professional advice and other considerations

As you scale up you should consider appointing the right people to help you with these issues and to mitigate risks. A characteristic many successful businesses have is valuing input from their advisors. It is important you appoint lawyers and accountants who have experience of the issues you may encounter as you scale up.

Every business is different and in addition to the commercial considerations above, you may also require specialist advice on intellectual property rights, data protection laws and insurance.

If the business operates in a regulated field such as insurance and financial products, then the business will also need to comply with the regulations in their respective field.