Despite what the media say, we are not at a stage yet where the Courts will class football as a religion; employers everywhere are hoping that we never see that day. But there are still some issues to be aware of…

Some employers have opted to allow staff to watch matches, so long as it does not adversely affect business, whilst others are adopting a zero tolerance approach.

However the issue is approached, we suggest that consistency is the key to avoiding complaints of discrimination. For example, many employers who are focused on England games, without paying enough attention to the other nation’s games do so at their peril. We suggest that employers take a step back, and consider whether they are applying their usual approach to flexible working during the World Cup season (as they would at any other time of year).

In law, the position is that any additional time off work over the statutory annual leave entitlement is at the employer’s discretion.

Flexible working

During this World Cup season, you could offer employees an option to work on a flexible basis, starting later or finishing earlier, or taking longer lunch breaks. Employees are then free to work alternative hours to make up for the time spent watching the matches or swap shifts.

What if the flexible working is not appropriate?

There are some other ways that you could deal with absences during the World Cup season, such as:

1. allowing employees to “buy” back time, by offering to reduce pay (subject to the national minimum wage requirements), but this approach risks being seen as petty, which may adversely affect staff morale and motivation;
2. approving requests to take time off as part of annual leave. The risk in this approach is that a whole department or workforce may request time off to watch the same match, making it impractical to approve their requests.  A workaround could be to agree to requests on a first come first served basis;
3. allowing the radio or TV to be on during the games.  However, you run the risk  of a very unhappy workforce if this is not feasible  because of an urgent business need.

If you decide to take this as an opportunity to boost morale and screen matches to your employees, here are the licences that you will need:

4. TV licence from TV Licensing (www.tvlicensing.co.uk/) (required to watch live TV or internet broadcasts).
5. A Performing Rights Society (PRS) Licence from the PRS hotline (0800 068 4828).
6. A Phonographic Performance Licence (PPL) from the PPL hotline (0207 534 1070).

Unauthorised absences

Even if you implement a flexible working arrangement during this World Cup season, you may still be faced with some employees taking unauthorised absences. This presents an issue that employers need to deal with quickly.

In law, the position is that unauthorised absences should be dealt with in the usual way, and therefore, the disciplinary policy should be applied against any abuse of the right to self-certify sickness.

If there is a concern that such unauthorised absenteeism may become widespread, you could require that, during the World Cup season, employees provide a doctor’s note if they take time off sick, rather than continuing to accept self-certification of sickness absence.

Potential pitfalls

• Women and men must be offered the same rights, to avoid complaints of discrimination.
• Rights should be made available consistently to all nationalities matches, for the same reason as above.
• The Health and Safety at Work etc Act 1974 and Occupiers’ Liability legislation should be borne in mind, in particular, employers are responsible for ensuring that their employees and guests do not put themselves or others at risk either at or after the event. For example by consuming too much alcohol or entering any dangerous parts of the premises.
• Check insurance policies are adequate.
• Remember that the matches are in South Africa, so in the UK, matches will start one hour earlier.

If you would like further information and guidance on the employment law, HR or any other matter we would be happy to meet with you.  Our free Legal MOT offers you the opportunity to meet with a Commercial Solicitor for no charge.

Please contact us on 08458 678978 or visit our website: www.acumenbusinesslaw.co.uk

The Weight Watchers Case

That was the multi-million pound question asked of Weight Watchers by tribunal judges in their recent unsuccessful appeal against an HMRC finding.

Weight Watchers (“WW”) group leaders were given a self-employed status by WW therefore neither employment rights nor PAYE/National Insurance obligations were considered to be relevant to those people within the organisation. HM Revenue & Customs held in the alternative on the basis of the nature of their contractual obligations and the day to day arrangements between the parties.

WW and a number of their group leaders appealed but were subsequently held to be employees, rather than self-employed service providers. As a result, the company will now be expected to settle a rather large National Insurance employer’s contributions bill, subject to any further appeal.

What Should Business Leaders Consider?

Tribunals and the Courts may take a wide view on the actual characteristics of an individual case and their findings may be in the face of any agreement or contract between the parties if such an agreement does not accurately reflect the actual day to day arrangements.

Control of operations is a major contributory factor in considering the status of service providers however in the WW case, while the contracts between WW and the group leaders purported to give the latter sufficient control to conclude that they were self-employed contractors, the reality of engagement was quite different.

The Court placed reliance upon the ever quotable Lord Denning MR in Massey v Crown Life Insurance Ltd [1978] 1 WLR 676 at 679, namely that:

“if the true relationship of the parties is that of master and servant under a contract of service, the parties cannot alter the truth of that relationship by putting a different label on it.”

Control should not be considered in isolation, other factors clearly have a bearing on the relationship between the parties; however it has previous been considered impossible to draw up a complete list of criteria to be considered when deciding whether a contract is one for employment or services. Other questions the Tribunal considered, from Harvey on Industrial Relations and Employment Law at division A. At paragraphs [81] and [82], were:

• What was the amount of the remuneration and how was it paid? — A regular wage or salary tends towards a contract of service; profit sharing or the submission of invoices for set amounts of work done, towards independence;
• How far, if at all, did the worker invest in his own future: who provided the capital and who risked the loss?
• Who provided the tools and equipment?
• Was the worker tied to one employer, or was he free to work for others (especially rival enterprises)? Conversely, how strong or otherwise is the obligation on the worker to work for that particular employer, if and when called on to do so?
• Was there a ‘traditional structure’ of employment in the trade?
• How did the parties themselves see the relationship?
• What were the arrangements for the payment of income tax and national insurance?
• How was the arrangement terminable? — A power of dismissal smacks of employment.

Businesses should be sure of their position in relation to any self-employed consultants, freelancers or regular suppliers of services fulfilling roles akin to their employees. National Insurance is only one of many potential pitfalls they face; other issues may include freelancers, who are often paid a premium for their services due to the shift in risk burden onto them, gaining unexpected employment rights.

For further information on the issues raised in this legal tip and for all Commercial law requirements we would be happy to meet with you.  Our free Legal MOT offers you the opportunity to meet with one of our specialists for no charge.

Please contact us on 08458 678978 or contact us.

Whilst the damages awarded may be substantial the impact on the definition of intellectual property could be even bigger. This case is different from  a music sampling issue,  because it broadens the definition of what constitutes a ‘song’ under copyright law and what constitutes a ‘significant part’ of a song under copyright law. The two elements that are considered when deciding whether a  copyright  has been infringed.

The infringement was not actually part of the tune or the lyric to the song. It is a line which is in the arrangement of the recording.  This expands on what in the past has been considered the copyrightable part of the song under law. This is hugely significant to the world of music and, according to Colin Hay the lead singer of Men at Work, could restrict musical creativity.

Ron Strykert who co-wrote Down Under denied he had stolen the idea, but acknowledged that he was influenced by it. However the Federal Court ruled that a flute riff on Down Under bore an unmistakable resemblance to ‘Kookaburra Sits in the Old Gum Tree’ a folk tune written in 1935 by Marion Sinclair for a Girl Guide Jamboree.  Although the writer has now died, the rights to the song were bought by music publishing company Larrikin in 1990, who went on to bring the claim against Men at Work.

A Landmark decision in Copyright Law

This case was described as a big victory for the underdog since Larrikin, a division of Music Sales Group, would be pushing for up to 60% of earnings of the song from industry giants EMI songs and Sony BMG Music Entertainment. Not only did the song reach number one in the UK and America, it became the unofficial Australian anthem and featured in the 2000 Sydney Olympics closing ceremony. The song tells the tale of an Australian back packer and most famously pays tribute to ‘a land down under where the beer flows and men chunder’ (vomit) and name checks a popular Australian food spread ‘he just smiled and gave me a Vegemite sandwich’

What’s the future?

Will this landmark case now open the floodgates to further copyright cases?  Interestingly, will it give rise to deeper questions on the ownership and origins of music?  Musicologists have reported that the tune to ‘Kookaburra’ itself is a version of a much older Welsh folk song ‘Blackbird’.

Properly drafted Terms & Conditions can affect the most important areas of your business, such as:

Your cash flow- Price & Payment

Your Ts & Cs must be clear as to what is included in the price (e.g. VAT, packaging, delivery, insurance, etc.). They must also give you the option to withdraw a quoted price after a certain deadline. The payment provisions must also be set out clearly. They should deal with issues such as time for payment, late payments, deductions, discounts, method of payments, etc.

Securitiy of your bookings / instructions

Your Ts & Cs should also deal with cancellation of orders or instructions. Often cancellations take place very near delivery time leaving you to pick up the cost of the unwanted products. If you are a service provider you do not get paid for the time you have already spent on preparing for the work and you may end up paying for other service providers you had lined up for the job.

Your Liability

A limitation of liability clause must be drafted widely enough to apply to the damage/breach in question, for example, to exclude “any loss” will not exclude liability for negligence. Also, your Ts & Cs must have an express reference to negligence where it is intended to be covered.

Delivery & Risk

Whether you deliver services or products, your Ts & Cs must include information about the time of delivery, place of delivery, failure to accept delivery and, for products, damage in transit or non delivery. Some Ts & Cs state that the risk (as to the responsibility for the goods) will pass on delivery so that if the goods are destroyed after delivery the customer will remain liable for the price. However, if the customer is unable to pay, perhaps because it is not insured and cannot bear such loss, the clause is valueless.

Protecting your brand.

Why work hard to build your business and your reputation to have someone come along and piggy back on all your efforts? There is a very simple and cost effective way to protect your business name and reputation. Registering a Trademark provides protection against someone using your business name as their own and is the only way to obtain legal exclusivity. Companies House registration alone is not protection! Importantly, if you don’t register your name, someone else might!

A registered trademark is a valuable asset for your business. If you decide to sell your business it is important to a potential buyer that the company owns all the intellectual property in that business. A registered trademark is saleable asset and in some cases could be worth millions!

If you’re setting up in business do you know if the name you have chosen is available? Before you invest money in designing your brand, logo, website, stationery etc, find out if your chosen name already belongs to someone else.
ACUMEN BUSINESS LAW have specialists in trademark registration to help you protect your businesses future.

New Disciplinary & Hearing Procedure.

The Key Changes are:

• There will no longer be a mandatory dispute resolution procedure which must be followed. This means that a dismissal will no longer be automatically unfair for failure to follow such a procedure.
• Minimum standards contained in the new ACAS Code should be followed.
• Unlike the statutory procedures, the Code and guidance are not legally binding, however, if an Employment Tribunal considers that an employer or an employee has unreasonably failed to follow the Code, it may adjust any compensation awarded by up to 25%.
• Employees will no longer have to bring a grievance before submitting an Employment Tribunal claim.
• The parties are urged to resolve disputes informally and to consider mediation.
• Conducting Disciplinary and Grievance Procedures under the New Regime
• The Code essentially retains the three step process found in the current statutory procedures.
• The Code will not apply to redundancies, the expiry of fixed-term contracts, or collective grievances.
• Disciplinary warnings are included in the three step procedure in the new ACAS Code, so employers should allow an appeal against such warnings.
• Both parties should deal with issues promptly.
• Employers should consider if it is appropriate for an employee to be provided with copies of written evidence, including witness statements, prior to a disciplinary meeting.
• Employers must advise employees of their right to be accompanied at disciplinary and grievance hearings. There is guidance as to what a companion can (and cannot) do at a hearing.
• Employees must be given a reasonable opportunity to call witnesses at a disciplinary hearing.
• Employers can proceed with a disciplinary hearing in an employee’s absence where an employee has been persistently unable or unwilling to attend without good cause.
• Overlapping or grievance and disciplinary issues, which were difficult to deal with under the statutory procedures, will be replaced with a less complex system.
• In misconduct cases, different people should carry out the investigation and disciplinary hearing.
• Employees should be involved in the development of rules and procedures.
• What should Employers do to Prepare for the New Regime?
• Consider whether their disciplinary and grievance procedures comply with the ACAS Code;
• Where possible, consider the timing of disciplinary and grievance hearings, taking into account the changing regime;
• Ensure staff who are involved in conducting disciplinary and grievance procedures are fully aware of and trained to follow the new regime.

Pre-nuptial Agreement for Businesses

In most small and medium businesses, some or all of the directors are also the shareholders of the company. A point that is often missed is that shareholding and directorship are two distinct legal capacities with different rights and obligations attached to each in law.

Think of this scenario

Two of you set up a company together and you work around the clock. You both own 50% of company and you are both directors of the company receiving an equal salary. Your co-shareholder (Gerard) is married to an American who just had a fantastic offer to be a Hedge Fund advisor in LA. After much deliberation they decided to take the opportunity and make the move. Gerard has therefore resigned from his director’s role in the company, informing you he will be leaving in 60 days.

Clearly Gerard will not be entitled to receive his salary after resignation. Five years later you successfully manage to sell the company for £3m, a great reward for all your hard work.

During these five years, unless stipulated otherwise in the Articles or in the Shareholders Agreement, Gerard remains a 50% shareholder in the company: he is entitled to vote, receive dividends and 50% of the £3m sale proceeds!

Directors/shareholders of most small and medium businesses would not be happy to have their business partner resign from their job in the company but still be entitled to be a company shareholder.

How to avoid such a scenario

It is quite astonishing how so many shareholders agreements I see totally ignore this crucial point!

To avoid such position, it is important that your Shareholders Agreement clearly stipulates that termination of directorship triggers provisions dealing with the termination/ sale of the resigning director’s shareholding. The provisions need to stipulate that if the relevant shareholder no longer operates as a director for any reason whatsoever, then the termination of the Shareholders Agreement will apply.

Good / Bad Leavers Provisions

You can also include “Bad Leaver”/”Good Leaver” provisions. In a nutshell, these provisions stipulate that, on departure, the shares of the departing shareholder will be bought by you/the company/ an agreed 3rd party at market value, unless the relevant person is a bad leaver. An extreme example would be, say, your co-shareholder got caught with “her hand in the till”. In such a case she would be a bad leaver only entitled to the nominal value of her shares (e.g. £1 each).

It is VERY difficult to get all these provisions in place once the relevant shareholder decides to resign. Like always, there is no time like the present!

Court should be the last resort!

1. Credit check potential and existing customers - There are a number of credit referencing agencies who will offer you this service. Companies House can offer information on incorporated businesses and private agencies can be used for unincorporated ones. It will require some effort, but it is essential that you check the ability of a new customer to pay you. Consider bi-annual checks on existing customers.
2. Agree payment terms and conditions - this may well be included in the terms and conditions governing the business relationship but make sure that from the outset that both parties are crystal clear as to their payment obligations. Confirm this in writing prior to your first supply of goods or services and make sure that they are clearly stated on all subsequent invoices. Up to date and relevant standard terms and conditions are essential to the proper function of most businesses.
3. Timely invoices – raise and issue invoices immediately upon completion of your supply. Ensure that all relevant address details are included, that they comply with all of your customer’s requirements and that they restate when payment is expected by.
4. Keep clear and organised records – keep clear and accurate records of all communications with your customers, including emails. Make notes of telephone calls and keep clear records of payments so that you can monitor the status of the account easily.
5. Establish good lines of communication – identify who is who in your customers’ accounts department and establish a good rapport with them. This will ease the way when trying to solve payment problems. Follow up invoices with phone calls to ensure receipt and call or visit your customer to remind them of any outstanding and late amounts.
6. Encourages fast payment – consider offering discounts to customers who pay promptly.
7. Understand your legal rights – for example, under The Late Payments of Commercial Debts (Interest) Act 1998, small businesses can charge interest to customers who have overdue accounts (Bank of England base rate plus 8%). Even if you don’t state a payment period in the initial agreement with your customer, the Act deems a payment to be late after 30 days.
8. Be clear as to your own procedures – take time to set up or review your own credit control procedures. Have a clear and well documented set of rules for chasing late payments including standard letters to be sent out at set intervals. It may well be worth your while to have these drafted professionally to ensure that they have the right gravitas and that they invoke the relevant law whilst maintaining an appropriate tone. Train your staff in their use and centralise the authority to issue them. Once you have agreed your system, use it!
9. Situational awareness – keep an eye on your customers. This is not an invitation to spy on them, but do monitor their behaviour. Are they acting differently? Are they suddenly difficult to get hold of? Are they sending post-dated cheques? Remember, prevention is better than cure.
10. Talk softly, and carry a big stick! – No one wants to get to the point that the only option is formal legal action to recover a debt, but don’t be afraid to go the whole nine yards if it comes to that. If all reasonable attempts to sort the problem out have failed, there are various options open to you if you have to go that far, all of which are ‘user-friendly’ and specifically intended for speed and ease of use.

No such thing as a standard lease!

Rent reviews are common in leases that run for more than 5 or so years. The reviews are usually on an ‘upward only” basis. Upward only means that the rent go up in an upward market, but will not go down if market conditions are poor. If the bottom falls out of the market, the rent will not to go down accordingly. Therefore, when negotiating a lease, with an upward only review, it is important to ensure that there are break clauses to make sure that if your property is likely to become more than you can afford you are able to terminate the lease.

When negotiating a new lease there may be opportunity to request a rent free period. Factors that may influence the landlord’s willingness to grant a rent free period could be market conditions as an incentive for the tenant to take on the property, to enable the tenant to refurbish, fit-out or improve the property, or sometimes for tax or other reasons.

Service charges are applied to leases if there are sums of money payable by a tenant to the landlord for the costs of services, repairs, maintenance, insurance and management under the terms of the lease. Before entering into a lease you should get as much information on what your likely exposure will be. Bear in mind that if your property is in a bad state, and needs significant works – you could end up paying much more than previous years’ charges. Some landlords will agree to “cap” their service charges avoiding these sorts of problems. Also, it is important to check for any extra charges which may be incorporated into the lease.

You should also think about whether you will want to stay at your property after the end of the lease term. The default position at law is that a tenant can insist on staying in a property if the landlord doesn’t have a genuine need to have it back (e.g. redeveloping or getting rid of a bad tenant). A landlord may exclude this right though. It is worth considering whether, as a tenant, you will want the option to renew the lease, especially taking into consideration any renovations you have made to the property, or any goodwill or other benefits you will be bringing to a particular site.

Legal MOT

We offer a free LEGAL MOT which covers all of the above as well as many other legal issues businesses face.  Why not start 2010 with a legal health check?

If you would like further information and guidance on the Regulations or any other matter we would be happy to meet with you.  Our free Legal MOT offers you the opportunity to meet with a Commercial Solicitor for no charge.

The company directors of Lapland New Forest Ltd are now facing nine criminal charges of
engaging in a commercial practice which is a misleading action. They pleaded not guilty to the charges and the case has been adjourned until 22nd December.

The legal principles, however, are relevant to all businesses.

Don’t mislead your customers!

Dorset County Council trading standards brought the case under the Consumer Protection from Unfair Trading Regulations 2008.

Trading Standards claim the average customer would have been misled by newspaper adverts, flyers and website information about what to expect at the attraction which related to the quality of activities at the site.  Such activities included the tunnel of light, which customers described as a ‘string of fairy lights between the trees’ and allegations that the extra charge for the use of the ice rink was not advertised.

It is likely that the Lapland Lords are falling fowl of one the main categories under the Consumer Protection from Unfair Trading Regulations (“Regulations”);

“Misleading practices, like false or deceptive messages, or leaving out important information.”

The Regulations introduce a general duty not to trade unfairly and seek to ensure that traders act honestly and fairly towards their customers. They apply primarily to business to consumer practices (but elements of business to business practices are also covered where they affect, or are likely to affect, consumers).

There is also a general ban on conduct below a level which may be expected towards consumers (honest market practice/good faith). This is intended to act as a “safety net” protection for all consumers.

Have you been naughty or nice?

It’s not just Santa you have to account to…..non compliance with the Regulations can have serious implications for any business who fall short of the guidelines on fair practices so make sure you’re nice to your customers!

Have a fantastic holiday!

Workers can even elect carry their leave forward into the next year where they are unable to take it due to long-term sickness, having the potential to increase the sick leave costs on return to work or termination of employment.

However, more recently, the Court followed this up with another ruling to the question of what happens if an employee becomes sick while they are on holiday.

The court ruled that employees have the right ask for their holiday leave to be “reallocated.”  Again, employees can elect to carry leave forward into the next year where it has been ruined by sickness.

This ruling re-interprets the European Working Time Directive meaning that workers can phone in sick while on holiday - taking the day off sick, rather than counting it against their annual leave entitlement.

The rulings also have implications for employers who usually prescribe when their staff take annual leave, even for business reasons. If it coincides with a period of sickness, workers will now have a right to reschedule their leave.

How to minimise the chances of this

How workers need to prove sickness depends on what is in staff handbooks, or individual policies.
Depending on the business needs documentation can improve working relationships.

The law does not restrict whether employers accept self-certification forms, and doctor’s notes for sickness of over 7 days absence, or whether they choose to go further and only grant sick leave where workers produce evidence that sickness rendered them unfit to work.

In this way, policies and staff handbooks can be very effective in setting out fully what is expected when staff become sick.

For a free consultation on the above or any commercial matter please contact us on (Switchboard) 08458 678 978 or via email to office@acumenbusinesslaw.co.uk

Company Secretary…

Do you know that private companies are no longer required to have a Company Secretary?  You can still choose to appoint a secretary but are not obliged to do so.  If you would like to remove your current Company Secretary you need to file a form at Companies House.

Annual General Meetings…

It is not longer a legal requirement to hold an ‘annual general meeting’ unless of course you opt to do so.  Please note, that your shareholders can demand an AGM if at least 10% of them decide to do so.

Disclosing personal details…

Previously, Directors were obliged to file a service address (ie., their company address) as well as a residential address on the public record.  Under the new legislation, residential addresses are now held as protected information and will only be available to public authorities and credit reference agencies.

On 1st October a director’s current residential address will automatically become the service address.  You can change your details so that it is your business address that is available to the public on the Companies House website from 1st October.

The Law introduces 21st Century technology…

If your shareholders agree, arrangements can be made so that communications can be sent and received in certain ways, one of these is via email.  However, you still need provide all your company details (ie., company name, number, registered office and other particulars) on these communications as you currently do on a letter.

There are many other changes that have come about as a result of the new Companies Act, one of which is greater protection from company fraud, an increasing problem for both small and large organisations. Companies House have set up a scheme to prevent impostors making false claims about your company details.  The scheme is that you agree with Companies House to only file certain documents online, if they then receive a paper form they will raise this with you as a potential hijack.

For more details on any of the above or any commercial matter our Business Law Specialists are on hand to provide expert advice and support for all your business needs.

This type of clause is known as “exclusion clause” whose aim is to reduce exposure of the party to the contract who are concerned about the liability which they may incur in performing their contracts.

Can you do that?

YES you can. Clauses may be inserted into a contract which aim to exclude or limit liability under that contract, but there are certain rules that have to be followed to allow those type of clauses to be relied upon, for example:

• the exclusion has to be legal. There are some important obligations, particularly when dealing with consumers, that are placed on a trader and these are implied by law into contracts and cannot be excluded;
• the exclusion clause should form part of the contract and have been brought to the attention of the other party.  The best way to do this is to get them to sign the contract to say that they have read and understood it;
• ensure the wording is plain and use clear and ordinary words.  Avoid expressions in contracts which may cause ambiguity. For example, one person’s definition of ‘consequential loss’ may be very different to that of another’s;
• if your contracts include particularly unusual or dangerous clauses you should draw extra attention to it and if you’re going to exclude liability for negligence you must say so!

Exclusion Clauses in Your Contracts

Exclusion clauses will be of little use unless it has been drafted to suit your business.  It is no use copying another business’s lengthy and ‘impressive looking’ exclusion clause into your contracts if they turn out to be unworkable in practice because it does not fit the way in which you do business.

If you are presented with a contract containing exclusion clauses, make sure you read all the information carefully and be clear on your rights and remedies should things go wrong. If you’re not sure – don’t sign it!

In most small and medium businesses, some or all of the directors are also the shareholders of the company. A point that is often missed is that shareholding and directorship are two distinct legal capacities with different rights and obligations attached to each in law.

Think of this scenario

Two of you set up a company together and you work around the clock. You both own 50% of company and you are both directors of the company receiving an equal salary. Your co-shareholder (Gerard) is married to an American who just had a fantastic offer to be a Hedge Fund advisor in LA. After much deliberation they decided to take the opportunity and make the move. Gerard has therefore resigns from his director’s role in the company, informing you he will be leaving in 60 days.

Clearly Gerard will not be entitled to receive his salary after resignation. Five years later you successfully manage to sell the company for £3m, a great reward for all your hard work.

During these five years, unless stipulated otherwise in the Articles or in the Shareholders Agreement, Gerard remains a 50% shareholder in the company: he is entitled to vote, receive dividends and 50% of the £3m sale proceeds!

Directors/shareholders of most small and medium businesses would not be happy to have their business partner resign from their job in the company but still be entitled to be a company shareholder.

How to avoid such a scenario

It is quite astonishing how so many shareholders agreements I see totally ignore this crucial point!

To avoid such position, it is important that your Shareholders Agreement clearly stipulates that termination of directorship triggers provisions dealing with the termination/ sale of the resigning director’s shareholding. The provisions need to stipulate that if the relevant shareholder no longer operates as a director for any reason whatsoever, then the termination of the Shareholders Agreement will apply.

Good / Bad Leavers Provisions

You can also include “Bad Leaver”/”Good Leaver” provisions. In a nutshell, these provisions stipulate that, on departure, the shares of the departing shareholder will be bought by you/the company/ an agreed 3rd party at market value, unless the relevant person is a bad leaver. An extreme example would be, say, your co-shareholder got caught with “her hand in the till”. In such a case she would be a bad leaver only entitled to the nominal value of her shares (e.g. £1 each).

It is VERY difficult to get all these provisions in place once the relevant shareholder decides to resign. Like always, there is no time like the present!

1. Purpose - Unless the investor is extremely charitable they are not going to be impressed if their investment is used to pay for your next holiday.  A clear project/business plan is useful in fleshing out the required detail and possibly ‘ring – fencing’ funds.
2. Security – Investors will need some form of protection and will often ask for shares in the company and/or loan notes. They will also want to ensure terms preventing their shares becoming worthless (e.g. voluntarily winding up the company) are in place
3. Exit Strategy – each party needs to be clear about their objectives.  If the plan is to develop the company for sale there will need to be clear milestones and provisions to trigger sale when the right offer is received.  If you plan to run the business until you retire, you may want a different set of payment or repayment provisions contained in the agreement.
4. Control – some investors will merely want a copy of the annual accounts and access to meetings whereas other’s will want a seat on the board of directors and true management input.

The above is far from an exhaustive list. Investing in a company is risky but the rewards will reflect this. As with any commercial agreement ensuring that negotiations are properly reflected in the documentation is key to the success of the venture. Whether an investment results in a lucrative business sale or discovering an idea isn’t commercially viable, so long as the agreement is even handed each party should be able to walk away satisfied either back to the drawing board or off on holiday.