No deals are the same, but there are common issues that often appear during transactions which I have noticed during my six month seat in the corporate department. The good news is that businesses can do something about these issues at an early stage to avoid loss of a sale or investment or a reduction in value. During the course of a transaction, some delays are outside your control. For example, how long it may take for a lender to process and approve a loan, however there are other matters, which can be controlled, and although they may seem small, these small margins can accumulate to lead to unnecessary delays and additional costs which could be prevented from the outset.
Every company has a duty to maintain and keep their statutory registers up to date. Maintaining accurate statutory registers is essential because they provide a historical and current record of the company’s ownership and the individuals responsible for controlling the business. Some details on a public record such as Companies House only need to be updated annually, which is why statutory registers are necessary to provide an accurate picture of the company’s ownership on any given day.
This may sound simple but you cannot sell what you do not own, and so you must be able to demonstrate your ownership of the company you are intending to sell. If there has been a number of share transfers or reorganisations and the statutory registers have not been updated or copies of any historic stock transfer forms (with the correct amount of stamp duty paid at the time of the transfer) cannot be located, then it can be difficult to prove ownership to the buyer or investor; and this could potentially derail the deal.
In addition, it is valuable to ensure that the company has up to date addresses and emails for all of the shareholders and/or option holders, particularly if there is a large number of them.
It is important to ensure any Companies House filings are up to date, including the current company directors, persons of significant control and any outstanding charges. It is also beneficial to have your web filing code to hand at the time of completion. The web filing code is needed so the lawyers can complete any post-completion Companies House filings. If you have to request a new code this can slow down the process as it has to be posted to the company’s registered office address rather than being available immediately.
It is extremely useful if there is already an accurate structure chart of the company, particularly if the company structure is complex, for example if there is a group of companies with a large number of subsidiaries, or there is a number of sister companies. A structure chart will clearly show the relationship between each of the companies, which can avoid confusion.
Intellectual property is a hot topic and can be key to many businesses. IP includes copyright, trade marks, patents, design rights and domain names. It is important to document your intellectual property so if you come to sell the business it is evident that the intellectual property is owned by the business, particularly if the business has engaged a third party to create the intellectual property. It is useful to have a record of who created the intellectual property, when, and retain copies of the contracts with third parties that transferred ownership of the intellectual property to the company.
It is helpful to take the time to ensure you are certain what properties are owned by the company you are selling (we refer to this as the target), any subsidiaries or sister companies. If the properties are not where you would want them to be at the point of sale, for example a property crucial to the operation of the business is actually owned by a sister company rather than the target, ensuring they are transferred, or valid leases are in place beforehand can save everyone hassle in the long term.
Employees are also key to many businesses and employment can be an area which is heavily focused on during due diligence. Businesses should keep a list of employees and ensure they have been paid correctly in accordance with national minimum wage, and that they have implemented correct holiday entitlements. Businesses should retain copies of the service contracts, and be clear on who is actually an employee, consultant or self-employed.
It is good to involve lawyers as early on as negotiating the heads of terms. If the heads of terms are negotiated with the involvement of lawyers, it is more likely that they will be in line with what we normally see and are advantageous for you. If the heads of terms comprehensively set out the details of the transaction at the outset then it is less likely the deal will fall through or be delayed down the line as there will be less to negotiate and agree during the transaction.
For more information, please contact a member of the Corporate team at Howes Percival.
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