If your end game is to interest an investor in your business or to sell your business, think about putting in place systems now to ensure you achieve the best possible outcome. In this 2 part blog we look briefly at some of the issues you need to be thinking about now if you want to sell your business or take on an investor in the future.
Our first blog focussed on your most important assets – IP and confidential information. This second blog is essentially about record keeping.
Don’t neglect your company records
The law requires all companies to keep certain records. These include registers of the shareholders and directors and minutes of meetings of directors and shareholders. You are also required to notify ASIC when certain details about the company and its officers change. A failure to keep these records and filings up to date is not only a contravention of the law but can also result in fines and personal liability. But importantly, the perceived value of the company may be reduced as a result.
Having to recreate documentation when a deal is on foot can cause delay, a hefty spike in external (and internal) costs, management distraction and it may simply not be possible e.g. if key people have moved on and are not available to sign paperwork.
The end result may be that:
- you cannot get an unqualified legal opinion (particularly if you are looking for overseas investment this may be a requirement)
- you may be required to give unqualified representations/warranties with unlimited liability under indemnities
- the entire transaction is delayed or cancelled
- the price/investment is reduced.
The importance of shareholder agreements
This should not be underestimated. More and more we see companies of all sizes recognising the need to incentivise employees by giving them a slice of the pie. If this involves the issue of shares, you need an agreement with the employee and other shareholders – this is critical! The lack of an agreement can lead to problems if you want to issue or transfer shares or hold meetings to approve the proposed transaction.
When the time comes that you want to sell the company or take on a new investor, you don’t want to be held to ransom by a disgruntled employee or minor shareholder who will not agree to your plans or may even have left the organisation and be hard to track. A well considered agreement can allow you to get on with business while still keeping the troups happy and motivated.
Are you due diligence ready?
Any serious investor/buyer will want to complete due diligence before doing a deal. Any letter of intent or heads of agreement is likely to be conditional on this being done to the investor’s satisfaction.
- involves a thorough review of all of the documents mentioned in this and our earlier blog [employment agreements, third party licences, moral rights consents, shareholders agreement and so on] plus your financials and all operational aspects of the business.
- confirms the investor’s assessment of your business and its value.
How to be ready
Ensure you maintain your records, keep copies of contracts, document all arrangements (particularly any of material importance to the business including any loans from shareholders or directors) on an “as you go” basis. This will save you time and money and maximise your price.
But don’t forget due diligence is a two way street. Make sure you take the time to make due and proper enquiries about any potential investor/buyer. If you are staying in the business, you want to be sure that you can work with the incoming party and your goals are aligned.
Pym’s Technology Lawyers has assisted many companies with the above issues including preparing for sale/investment, doing due diligence, shareholders’ agreements, capital raisings and IP protection.
Author: Peta Maloney, Director, Pym’s Technology Lawyers. A member of the Panel of Expert Bloggers on commun-iT and an expert on www.aiia.biz.
Disclaimer: This is general information only. It is not legal advice, and is not a substitute for legal advice. Specific advice should be sought to take into account your particular circumstances. Pym’s Technology Lawyers Pty Ltd is a specialist IT and commercial law firm. It has liability limited by a scheme approved under Professional Standards Legislation.