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Jamie Tavares

Solicitor - Sevenoaks

13th July 2021

Protections for shareholders & directors in the “New Normal”

Protections for shareholders & directors in the “New Normal”

In a previous article, I spoke about some of the changes that we have introduced our business clients to, including the digitalisation of business operations and how we can support that transition as lawyers: The “New Normal” for Entrepreneurs and Business owners This week, we are looking at what business owners and those running businesses can do to protect themselves either as shareholders, or directors – quite often both.

For many people, the pandemic provided an opportunity to focus on aspects of their business that they were previously too busy to deal with, giving them a chance to work on their business and not just in the business. Let’s take a look at two ways business owners and directors can protect themselves or plan ahead in the “New Normal”:

Shareholder arrangements:

The organic growth and development of many businesses means that quite often the duties, expectations or future intentions of shareholders are not documented: they may be discussed and talked about but they may not be recorded and it is only when things begin to take an unexpected turn that shareholders realise the importance of having a shareholders’ agreement in place. A shareholders’ agreement is a set of rules governing how the owners of a company are to deal with certain issues that they may encounter in the life of the company. In the new business landscape, the demand for clarity and certainty is increasing and it is with the use of instruments like shareholders’ agreements that greater certainty can be achieved. Anyone thinking about investing in a business, or starting a new business with others, should watch our webinar on: shareholder agreements and succession planning

Top tip: check your existing shareholders’ agreement or articles of association: are they robust enough; do they clearly state the expectations and obligations of stakeholders to enable you to steer you through difficult situations that may crop up?

Preparing for a sale:

Much to the surprise of lots of people, business acquisitions still took place during 2020 despite the global pandemic, albeit the transactions looked a little different. Selling a company (or business) is no easy task and there is a lot that happens in the run up to completion. Much of that work beforehand is conducted in order to provide the prospective buyer with as much information as is necessary to help inform their decision as to whether to proceed or not. As a seller, you want to position your company in the best light possible and so it is really important that while running your company, you ensure you are not only thinking about the here and now, but that you are thinking about what can be done in order to prepare for a future sale. It’s a question of being ready, rather than getting ready for a sale.

What is the difference you ask! Getting ready for a sale is like tidying up the house when your guests have already arrived. Whereas being ready for a sale is what happens when your guests arrive, your house is already in order and the sweet smell of bread fills the house – impressive!

Here are a few things you can do now, to get your house (your business) in order and ensure you are ready should a guest turn up when you are not expecting them:

1. Ensure your statutory books are up to date. A company’s statutory registers are routinely investigated when that company is being sold and a potential buyer of a company will want to inspect your company’s registers straight away. Statutory books provide a historical timeline of what has happened during the life of a company and it is a requirement that these are maintained on an ongoing basis. If the company books are not accurate, or there are delays in providing them for review, this could raise concerns for an interested buyer. For more on what statutory books are and your obligations as a company officer, take a read of A Guide to Statutory Books

2. Ensure you have adhered to regulatory requirements and have all appropriate policies in place. As we see the UK government put more policies in place to achieve net zero by 2050, it is becoming increasingly important for companies to consider what actions they can take to be a part of this change. Having policies in place that show a company’s approach to environmental sustainability may well impress a prospective buyer and is the type of thing business owners need to be aware of when positioning their company for sale.

Other important policies to think about when getting your business ready for a sale may relate to your company’s approach to handling personal data and the UK GDPR, EMI Schemes that may be in operation, health and safety and employee policies and so on.

3. Carry out a seller’s due diligence exercise. A potential buyer will want to carry out due diligence on your company and ask questions to ensure they have a really good understanding of the company and its potential for growth and profitability. This can be a very big task to undertake, although the stress and burden of that exercise can be alleviated in part if you undertake your own due diligence exercise beforehand. Carrying out a seller’s due diligence exercise of your own will allow you to correct any discrepancies that you find before a potential buyer finds them, and assist you to make your business as marketable as possible.

If you would like to discuss any of the points mentioned above in more detail or would like advice in connection with business affairs, please contact Jamie Tavares, a solicitor in our Corporate and Commercial department via email or tel 01732 440855.

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