Selecting Your Legal Advisor When Selling Your Business

The following article was written by Equitable Law's principal (Mr. Dan Johnson) for Evolution Capital and published in its February 2015 email newsletter - 'The Evolutionist'

http://www.evolutioncapital.com/news-articles/selecting-your-legal-advisor-when-selling-your-business#.VNDnpS5sSox

Legal Article – ‘The Evolutionist’

”SELECTING YOUR LEGAL ADVISOR WHEN SELLING YOUR BUSINESS”

The Thoughts Of A Poacher Turned (Occasional) Gamekeeper

Dan Johnson – Legal Advisor – Evolution Capital

So a decision has been made that you wish to sell your business, and discussions have commenced regarding the process.  At some point you will need to think about what will be necessary in terms of legal advice and assistance.

The following reflects my musings (as a lawyer active in this area of business, for in excess of twenty years) as to how I would recommend you approach the process.

Number One – Don't Leave The Selection Of Your Lawyer Until The Last Minute

There is a natural tendency to consider that lawyers are expensive, and the longer you can put off involving them, the cheaper it will be.   You have to balance that approach with ensuring that you don't disadvantage yourself by placing the lawyer you belatedly instruct in a rushed position, and with limited background information. 

After all, military chiefs rarely raise their fighting forces the day before their battles – and if they did, they should hardly be surprised if those forces performed in an unsatisfactory manner.

The huge advantage which Evolution Capital has brought to the market is that (as a closely integrated part of its services), it offers a highly relevant legal advice and assistance service to its clients from the start of the process, operating in close liaison with the rest of its services.   These services need not be hugely time consuming - nor expensive, but it allows for early legal input designed to ensure that your proposed transaction proceeds in a smooth manner, which stands the best chance of success. 

The last position in which you wish to find yourself is to have progressed through agreeing outline heads of terms, to then belatedly present them to your chosen lawyer who recognises that there are potential significant legal issues with the deal being proposed, or finds that you have agreed in principle to a significant weakening of your legal position (often without fully realising what it is that you have conceded).

Number Two – Don't Buy Solely On Price

Despite what many may believe, the legal market in the United Kingdom is extremely competitive, and by bargaining hard with multiple service providers you may well be able to get a very competitive fee estimate for the legal advice and assistance which is likely to be involved in selling your business. 

However, what you should seek to avoid is experiencing the position which seems to have arisen in the U.K.'s property conveyancing market, where clients tend to buy their conveyancing services based largely upon the lowest price which they are able to obtain from enquiring of a range of legal services providers.  The highly competitive nature of that market leads to the widely perceived dissatisfaction with the legal process involved in conveyancing, as many lawyers simply do not have the time to adequately deal with the necessary work - for the fees they have agreed.  Conveyancing customers should not be surprised if having payed budget prices they get a budget service – and the same may well apply to you if you also take that approach. 

Remember that when you come to sell your business, you are likely to be dealing with a significant proportion of your wealth, pursuant to an agreement which is likely to oblige you to face the risk of potentially repaying some, or the entire purchase price to the buyer after the transaction.  Surely, that makes it worth focussing upon instructing someone who can really help with the process in a highly competent fashion (without price being paramount).

However, you should clearly ascertain how much a process might cost, and you should aim to mitigate costs for an abortive transaction – but a fair price for good quality work should be your aim.  Evolution Capital aims for its integrated legal services to be competitive and clearly priced (while providing full quality).    

Number Three – Don't Necessarily Choose Your Habitual Advisor

Lawyers and how they practice law is similar to how doctors practice medicine, in that while all doctors have a common training on the core elements which underlies their profession, relatively soon into their professional life, they tend to focus upon areas of medicine in which they have started to gather experience (and hopefully expertise). 

In exactly the same way that you would not expect to receive expert advice upon a heart problem from a cancer specialist, going to a legal adviser who has recently helped you with (say) an employment law claim against your business (however adequately) – is not necessarily going to be appropriate in terms of obtaining assistance with the legal aspects of the sale of your business. 

I know that certain of my colleagues have views as to the frustrations of dealing with lawyers selected to undertake a business sale, when the business owner has selected them by virtue of the fact that those lawyers have advised the business owner in relation to all his personal asset and family matters over many years (or they know them from the golf club etc.).

I will choose to say nothing more, other than to say – do choose a lawyer with the necessary experience and expertise in what is involved in a business sale process – It’s in your best interests! 

Evolution Capital would be delighted to assist by offering its relevant integrated legal services.    

Number Four - Don't Blindly Choose A ‘Top’ Firm

Every commercial centre in the U.K. has a list of ‘top’ firms in their locale.  However, when you review that list, what you are considering are the largest firms, or (viewed from another perspective), the firms which have been the most successful in extracting more fees from more clients. 

Despite all their marketing efforts to persuade you as to their merits, large firms do not necessarily provide a great legal service to all of their clients across all aspects of legal advice – and they are certainly not likely to be considered inexpensive. 

If you want an analogy, some of you may have experience of having a luxury car brand model serviced.  That experience may be of it being extremely costly, with the nagging reflection that you’ve just paid a large sum for a lot of relatively inexperienced (but well paid) people, to blindly follow a computer–diagnostic machine’s advice.   Conversely, you may have discovered much more satisfaction from economic servicing from an experienced mechanic who really understands what is likely to be the issue with the car (as explained to him).

‘Top’ firms know the market and their business very well, from persuasive marketing through to ensuring work is done by relatively inexperienced staff at relatively high fee rates!  While it might be cynical to say that ‘the marble and the mahogany’ is for the benefit of the lawyers, if it is your money that is being spent - think hard about whether you feel you are going to receive a great service at an economic price from such service providers. 

You may have a deep psychological need to consider yourself a client of a ‘top’ firm (I’ve seen it recently), but we can recommend appropriate professionals for you if that is the case!  

Evolution Capital aims to be able to provide you with ‘top’ legal advice, but without the ‘top’ firm costings.

Number Five – Do Choose A Personal Recommendation

If at all possible, I would strongly encourage you to seek a personal recommendation (from a person you trust) as to an appropriate person to provide the necessary legal services for you. 

My view is that legal services are and should be chosen by reference to the individuals likely to be involved – both in the transaction itself, and who are going to be available afterwards. 

I am always surprised to find myself talking to contacts who say that they have recently been dealing with such-and-such a firm - but when I ask who they have been dealing with, they are unable to provide me a name!  I often question whether they have been delegated to such a junior lawyer, that they are embarrassed to tell me – but the reality is that the process has become so impersonal – that the contact did not care which individual was undertaking their work!  I am generally (in such situations) advising clients as to what it is they have agreed to – which is a position I would encourage you to avoid!      

Several years ago a businessman said to me that over the course of their career, they had been obliged to use various legal services providers, some of whom were boutique firms - who had but a small cadre of individuals involved, and some of whom were large firms - with many times that number of personnel.  It was that businessman’s perception that within the respective numbers of personnel in each business, there were about the same proportion of individuals who that businessman would welcome working with again (because they were good at what they did and the businessman liked working with them etc.) - and those who failed that test on one or more grounds.  However, the businessman remarked - within the smaller business he tended to know the identities of the individuals who fell into each respective class.  In the larger business, it was more of a ‘lucky dip’ (even for those inside the larger business)!

Evolution Capital's huge advantage is that it already offers a personal recommendation for legal advice ‘in house’, based upon its prior experience of working with its chosen lawyers.

Conclusion

I hope the above has assisted you think about some aspects of how you might select your legal adviser for your future transactions. 

I would be delighted to continue any conversations with regard to my thoughts on these issues. 

In my next article, I intend to muse upon some of the alternative approaches to undertaking a legal transaction that would involve a potential sale of your business.

Monday, 20^th October 2014

DanielRobertJohnson (Skype)

Legal Advisor

U.K. Cellular Tel.   +44 (0) 7788 537 187

The Private Office | 24 Bemish Road | London | SW15 1DG

e-Tel. +1 (646) 470 1880 | e-Fax. +44 (0) 871 264 9515

Wikimedia Donation for Festive Season 2014 & 'Happy New Year' 2015 !

As is Equitable Law's usual practice, we did not send greeting cards during the December 2014 festive season.

Instead Equitable Law made a donation to our chosen public interest organisation – which for 2014 was : https://www.wikimedia.org .

 

Wikimedia is a global movement whose mission is to bring free educational content to the world.  Through various projects, chapters, and the support structure of the non-profit Wikimedia Foundation, Wikimedia strives to bring about a world in which every single human being can freely share in the sum of all knowledge.  

Equitable Law encourages you to investigate the work of Wikimedia and to likewise support its valuable work for humanity.

We take this opportunity to wish you 'Happy New Year' - With our best wishes for your 2015.

Luxembourg Tax = Disgraceful!

The Guardian's special investigation into Luxembourg's tax arrangements with multinationals is staggering.

http://www.theguardian.com/business/2014/nov/05/-sp-luxembourg-tax-files-tax-avoidance-industrial-scale

However, for anyone who professionally advises in the field of tax driven corporate structures it will not come as any surprise.

Now this is becoming more open - governments need to 'get to grips' with it. 

Broadly - from a corporate law perspective under English law, any director who does not utilise these (admittedly - arguably legal) structures to save their company's tax - is in breach of their duties (however 'morally ambiguous' that may be).

The tax distortions it creates are hugely damaging to society in that (for example) physical 'bricks and mortar' retailers on British high streets pay relatively huge amounts of tax and are driven out of business, while e-tailers pay next to no tax.

The competition is unfair, and while I am totally in agreement with competitive tax rates between states - the practices referred to are simply abuse. 

With most of the world's developed economies running (generally large) budget deficits you would have thought that the politicians and their civil servants would be interested in sorting this situation out - It surely cannot be unpopular with the electorate (but I fear that I am ascribing a level of competence to them - which may be causing you to laugh long & hard?!)

Discuss? / Offline / Sometime!

Dan.Johnson@EquitableLaw.com

+44 (0) 7788 537 187 (U.K. Cellular Tel.)

Equitable Law's Model Articles of Association and Subscription & Shareholders Agreement Available for Use

We are delighted to announce that Equitable Law's template model 'Articles of Association' and 'Subscription and Shareholders Agreement' for British companies have now been fully prepared for use with our clients. 

Any limited liability company which has a shareholding structure involving  joint ownership (of any description) needs to put in place these documents - so as to deal with the unavoidable uncertainties of future circumstances in the development of the relevant company's affairs.

Reproduced below are the front pages and contents tables - giving (we trust) an indication of the documents' contents.  While these are fully comprehensive documents (containing a large number of detailed provisions), we believe these documents can be adapted for every conceivable joint ownership structure, from a quasi-partnership individuals' venture, through to management buy-out and substantial parties' joint-venture arrangements.  

 
Please contact us if you would like to discuss using these documents in such circumstances as are relevant to you.

Regards

Dan.Johnson@EquitableLaw.com

+44 (0) 7788 537 187 (U.K. Cellular Telephone)   

'Entrepreneur Handbook' Caps A Busy Summer of Investments - Advised and Assisted by Equitable Law's Dan Johnson

The Summer of  2014 was extremely busy for Equitable Law in terms of legally advising and assisting in relation to share based investments in United Kingdom (and international) based ventures.  It seems that in a continuing era of low interest rates upon cash deposits and a lack of bank provided debt finance - 'business angel equity investors' continue to seek to 'fill the funding gap'.   

The nature of our client base means that many of the relevant investments are highly confidential and / or commercially sensitive, such that although we would dearly like to tell you much more about the investment transactions that we have recently assisted with - such as those involving a high profile sports personality investing in one of the businesses that services them, and the cutting-edge British based technology venture which received investment from a significant mainland-Europe based engineering group - our lips are sealed!

However, the most prominent of our Summer 2014 investment transactions was the second round of share based investment into 'Entrepreneur Handbook' (www.entrepreneurhandbook.co.uk), a web based publisher creating articles, guides, resources and more to help aspiring entrepreneurs get to the next level of the development of their ventures.

Following Entrepreneur Handbook's seed round investment by West of England based Marmaduke Holdings in 2013 (upon which we also advised), we advised Entrepreneur Handbook in taking a confidential / undisclosed amount 'A Series' round of share based investment from the China based Shanghai Zhezhou Industry Co. Limited - best known for its 'Uno Ventures' operations (www.unostartups.com).

Pinsent Masons' Glasgow (and Shanghai) offices advised Uno Ventures.

Equitable Law (Dan Johnson) advised 'Entrepreneur Handbook' and its founder, Mr. David Friel and commented : 'We were delighted to be again engaged by 'Entrepreneur Handbook' to assist with their equity funding arrangements.  As one of the most prominent ventures associated with this area of the U.K. early stage business corporate finance scene this further invitation made us extremely proud'.

Mr. Friel commented : 'It is always a pleasure to take sensible commercial legal advice and assistance from Dan - and we are delighted by the smooth completion of this transaction which allows Entrepreneur Handbook access to the massive Chinese market through the connections of our new investor.' 

Thoughts Upon Problems With Structuring Business Ownership Through Companies Limited By Shares

Reproduced below are a pair of articles I recently wrote for publication within 'The Evolutionist', the web-zine of advisory client, Evolution Capital :-  

http://www.evolutioncapital.com/news-articles/kiss-off-when-keeping-it-simple-may-well-be-stupid

K.I.S.S. (Off) – 

When Keeping It Simple May Well Be Stupid

In a recent online poll seeking to establish the public’s view of the greatest invention ever created in the United Kingdom, one high ranking contender might well surprise you. Admittedly helped by a social media campaign amongst corporate lawyers (= ‘Sad’ – I know!), a contender which scored highly was ‘the limited liability company’, a business structure which was radical at the time of its first creation and in their initial uses.

Limited liability companies (in their early incarnations) had an unsurpassed ability to raise large amounts of capital from numerous investors for significant large scale business ventures (e.g. railways), allowing the providers of the capital to hope for profits, but be comfortable that the most they could lose was their investment (as reflected in their shares) - and (save for that loss) that they had no responsibility for a venture’s liabilities. Generally, (in their early incarnations) the shareholders were unlikely to be involved in the management of the company, and to protect the passive nature of their ‘stake’, company law rules sought to rigidly protect their rights as shareholders.

However, modern business life has seen limited liability companies habitually used in numerous much smaller ventures, frequently with very limited (if any) initial capital requirements (often no more than a nominal sum), and with the various ‘stakeholders’ generally being closely involved in the management of the venture (i.e. as directors of the company).

These business structures are (in truth) ‘quasi-partnerships’, and arguably would be more appropriately structured as partnerships, i.e. akin to those utilised by accountants and solicitors etc. Partnerships generally allow a much more flexible approach to stakeholder interests in the business, crucially being much easier structures within which to make adjustments between partners as businesses evolve and the partners’ roles within them change (as inevitably happens - over time).
However, until relatively recently, the only readily available and easily accessible U.K. business structure which provided the crucial advantage of limited liability was a company, generally formed with liability limited by shares. Even though the U.K. business landscape now has legal business vehicles such as the limited liability partnership, for various reasons – including, predominantly the relatively low corporation tax rates on retained profits which limited companies enjoy, this has meant that - the vast majority of quasi-partnership structured businesses continue to operate within a structure of a limited liability company.

It is now possible in this internet age for entrepreneurs to form limited liability companies online in a matter of minutes (and at a very low cost). Often the limited time expended in such a process (and the negligible costs involved) means that thoughts over the structure receive little (if any) attention. Further, the lack of experienced professional input (often absent - due to limited funds for professionals fees in the early stages of a business) means that the structure which is settled upon is remarkably simplistic and with very constrained ability to change – leaving it fraught with potential future problems.

This situation is referred to as the ‘Dragons Den syndrome’ (after the TV show of that name), where the moneyed backers of any particular venture are limited (by the producers) to only two criteria, the amount of cash to be invested and the proportion of pure equity stake which the backers might receive in the particular business in return for that cash.

The reality is that most venture capitalists, (including most of the half-dozen or so individuals who have appeared on Dragons Den over the years) use much more sophisticated ownership structures in relation to their investments, because those backers appreciate that they need to put in place structures which can evolve over time and (crucially) which allow the managers that the ‘Dragons’ are proposing backing to be incentivised on a long term basis so as to produce a ‘win-win situation for all’.

However, to revert back to the reality of business life – we are often approached by businesses which are owned within stakeholder structures which have arisen (or evolved) with limited (if any) appropriate professional input, often still reflecting a simplistic position which was settled in the early or historic stages of a business, and which structures are now not conducive to the further development of the particular business – in many cases limiting the potential to create much larger value (for all stakeholders).

If these situations are not resolved, the feelings of frustration experienced by important stakeholders with the lack of fairness in the business structure can often seriously impair the ability of the business to progress and expand, and at worst, may lead to a catastrophic shareholder dispute (to the extreme detriment of the underlying business and its stakeholders).

The types of problems that we see are numerous (and confidentiality does not allow us to outline examples), but they can (for example) include historic founders of businesses, who now feel that they are entitled to be ‘sleeping partners’ (i.e. cease to have active involvement in the business, and that the other stakeholders should carry them as passengers), and / or new or second tier management who feel that their shareholding stake in the business does not adequately reflect the increase in value of the business which they consider they are creating.

We are regularly approached in the early stages of potential business sale transactions where the stakeholders know that if they could resolve their current stakeholder issues, they may well together be able to successfully expand their business at a much faster rate, creating significantly more value (for the benefit of all) in a subsequent transaction.

If you would like an analogy, ‘the bakers’ have prepared a cake mix with clearly defined portions - but they know that if they could adjust those ‘stakes’ so that everybody felt in agreement with fully co-operating further in ‘the baking process’, the cake might successfully rise - so that their ‘bit of the cake’ might be considerably larger than may otherwise be the case - for the benefit of all involved (Work with me on this one!).

Often the stakeholders know that they have an issue which would potentially benefit from being resolved between them, but the party who is in the first instance initially at an advantage (under the historic structure), is often reluctant to make the first move, thereby potentially showing a ‘sign of weakness’.

Alternatively, the party who is in the first instance initially at a disadvantage (under the historic structure), may well be extremely motivated to ‘resolve the position’, but does not have the experience nor expertise to propose an alternative structure which produces an equitable (i.e. fair and reasonable) result between the stakeholders.

The underlying business’ established professional advisers may be hopelessly compromised in terms of assisting the stakeholders. In a worst-case scenario - it may have been them who actually produced the structure which is now experiencing problems; or (frequently) because they are closely aligned with certain stakeholder(s) who are most reluctant to change the status quo, usually being the holder(s) of the majority stake in the relevant business.

Matters become further complicated because any ‘transaction in securities’, in layman's terms any arrangement by which current value is transferred from one of the stakeholders to another of the stakeholders may well give rise to charges to taxation (which if nothing else can be agreed upon, is clearly understood by the stakeholders as being something to be avoided!).

We have repeatedly found ourselves able to assist business owners in terms of revising their ownership stakes, profit shares and management arrangements for the good of all.
Getting the relevant interested parties ‘around the table’ is only possible when each stakeholder can foresee the benefits of the proposed revised structure, and consider that their ‘slice of their pie’ is to be a fair one. In next month’s article: “An Offer You Cannot Refuse – or – A Horse’s Head in Your Bed” we will ‘drill down’ into motivators for effecting an reorganisation of stakeholder interests, including ‘carrot and stick’ approaches.

http://www.evolutioncapital.com/news-articles/an-offer-you-cannot-refuse

An Offer You Cannot Refuse

 Last month I reviewed the merits of a limited liability company (and the potential considerable drawbacks in the way that stakeholder interests are habitually structured within them).
I was subsequently (reminded by a colleague) of a Paul Weller song as sung by David Bowie: ”Oh we’re absolute beginners, with nothing much at stake”.

The nothing (in a company starting up) may well become something of substantial value in a few years, with the potential to soar even further. Alternatively, if potential issues with stakeholder interests (arising after start up) are not addressed, that value may ‘level off’, decline or in a worst case scenario plummet.

In this month’s article we discuss the pitfalls where the equitable re-distribution of ownership (and the accompanying benefits) can be problematic at best and un-achievable at worst.

Often, most of the solutions revolve around the principle of being able to calculate the current market value of the business (which has been achieved under the current stakeholder ownership structure). Once this has been established, it can form the underlying basis of formulating how (in particular) the ownership of any additional market value (which might be subsequently created in the business) might be agreed shared between the various ongoing stakeholders.

As external advisors, focused upon ensuring that the relevant business develops to become of a higher value – we can often help as ‘honest brokers’ (Copyright: Otto von Bismarck), in being able to put forward proposals & negotiate and / or mediate to put in place a revised stakeholder ownership structure for the next stages of the business’ development.

It would be naive of me to intimate that such negotiations and / or mediations revolve solely around the potential benefit (or ‘carrot’) elements of revising the structure, since all stakeholders need to be aware of the potential detriment (or ‘stick’) in not resolving their differences, and there may be a need for further ‘sticks’ to be ‘intimated’ to those who are reluctant to amend the structure.

Many film buffs will be familiar with the phrase ‘made them an offer they cannot refuse’ from Francis Ford Coppola’s original ‘The Godfather’ film (based upon the novel by Mario Puzo). When the phrase is first elucidated by ‘Michael’ (Al Pacino) to ‘Kay’ (Diane Keaton) in the opening wedding scene, it is used to graphically illustrate the forced re-negotiation of ‘Johnny Fontane’s (the - not unlike - Frank Sinatra character’s) management contract - with the band leader who held the benefit of the same:-

"So the next day, my father went to see him; only this time with Luca Brasi. An' within an hour, he signed a release, for a certified check for $1000. [Kay: "How'd he do that?"] My father made him an offer he couldn't refuse. [Kay: "What was that?"] Luca Brasi held a gun to his head and my father assured him that either his brains, or his signature, would be on the contract.

However, when you closely analyse the subsequent use of the phrase within the plot of ‘The Godfather’ [The Corleone family’s efforts to ‘win’ ‘Johnny Fontane’ a part in a forthcoming movie], you will come to (arguably) appreciate that if (say) the fictional Hollywood movie mogul had accepted Don Corleone’s lawyer’s / consigliore’s (‘Tom Hagan’ / Robert Duvall’s) offer on behalf of his client, for the minor ‘complication’ of conceding that ‘Johnny Fontane’ should appear in the mogul’s forthcoming picture, Don Corleone would make that film mogul's union problems ‘go away’ – to the likely overall benefit of the movie mogul.

It was (arguably) an excess of macho posturing and unwillingness to concede sensibly proposed arrangements which led to the horse’s head ending up in the movie mogul’s bed.

Thus ‘the offer [all stakeholder parties] cannot refuse’ needs to reflect a negotiated solution whereby all of the stakeholders (hopefully) do not lose (at least – not materially) and that they have an opportunity to ‘win-win’ in the future – which otherwise potentially or actually would not occur.
Put another way, if Francis Ford Coppola and Robert Duvall had managed to mutually satisfactorily resolve their actor’s fee negotiations for the final (and last) instalment of the film series (which they apparently failed to do), then the script for ‘The Godfather Part III’ would not have had to be completely rewritten - so as to remove the character ‘Tom Hagan’ (to the obvious detriment of the film and seemingly its financial success), and Robert Duvall might have put in a performance which would have won an Oscar (while finding his bank balance more than adequately filled - both for that and subsequent film performances).

We aim is to ensure that the legal processes involved in a potential transaction are an integral part of a successful project - with the aim of ensuring a smooth progression to the eventual transaction - so as to efficiently and economically take the interested party principals from initial discussions through to completion. Often that involves all stakeholders in non-adversarial negotiations and / or mediations prior to the transaction occurring, in which each party is led to a realisation that agreeing to a proposed universally satisfactory solution is in all parties’ long term best interests. Equitable principals of fairness and reasonableness are crucial to this process.

Finally, in the bastardised words of Tom Hagan (and so that you are in no doubt as to my love of ‘The Godfather’): –

“We have a special practice. We handle you as if we have one client. Now you have our number, we'll wait for your call.”

Simple Business Angel Investor Investment Heads of Terms - A First K.I.S.S.!

'Back to work' and 'across my desk' come instructions from a range of my business clients interested to explore prospectively accepting relatively modest cash sums for share based investments from business angel investors.

The common problem they seem to be experiencing is a reluctance upon the investor's part to commit (in principle), and without that commitment - the company seeking investment is reluctant to undertake the legal and administrative work necessary to prepare appropriate draft legal documentation with the aim of completing the share based investment (in a manner likely to be satisfactory to all interested parties).

The heads of terms set out below are designed to assist companies seeking investment by helping them to reach a 'subject to contract' commitment in principle from their prospective business angel investor(s).

Anyone desiring more detailed terms (particularly if you are - or represent - the prospective investor) should feel free to contact me - but sometimes, what's required is a first K.I.S.S. (= 'Keep It Simple Stupid'!)

Dan.Johnson@EquitableLaw.com / +44  (0) 7788 537 18

 

[INVESTEE COMPANY] LIMITED

(Company Number [XXXXXXXX])

Registered Office : [Address]

Trading Address : [Address]

[Name of Investor]
By Email

……… [September] 2014

Dear [Name of Investor],

Proposed investment of [X] Hundred Thousand Pounds (£[x]00,000) in the share capital of [Investee Company] Limited (Company) by way of subscription for ordinary shares in the share capital of the Company

Further to our recent discussions, these heads of terms set out the principal terms and conditions on, and subject to which an associated entity which you represent and whose details we would appreciate you clarifying by completing relevant details in due course (Investor) is willing to invest in the Company, subject to agreement and signing by all relevant parties of appropriate investment documentation.

For the avoidance of doubt, these heads of terms are not exhaustive and are not, and are not intended to be, legally binding except as specifically set out below.

1. INVESTMENT

1.1 The proposed investment (Investment) will be made on a basis which will represent (post investment) a [fifteen] per cent. ([15]%) equity shareholding for the Investor in the Company.

1.2 The Investment will be made in the form of ordinary shares which will the same rights as the other shares in the Company.

1.3 The Investment will be made in full at completion.

1.4 The Investment will be used for the Company's on-going working capital requirements (including such specific purposes as we may agree with you as part of the investment process).

2. CONDITIONS

The Investment is to be conditional upon us agreeing to such reasonable additional requirements in relation to aspects and issues as you may request of us as part of the investment process.

3. TERMS OF INVESTMENT

The Company and each of the existing shareholders (Founders) will agree to incorporate such additional terms as the Investor may reasonably require.

4. CONFIDENTIALITY

4.1 The matters contemplated by these heads of terms are to be treated as confidential and should not be disclosed to any person (except with the prior written consent of the other party).

4.2 The Investor undertakes that it will not disclose or make use of for its own benefit (or for the benefit of any associated person), any of the information of a confidential nature relating to the Company which has been disclosed to it during the course of the investment process or otherwise in connection with the proposed investment.

5. FEES AND EXPENSES

Each party shall bear its own costs incurred in connection with the proposed Investment.

6. EXPIRY OF OFFER

The offer set out in these heads of terms is open for acceptance until close of business on [Friday, 19th] [September] 2014, failing which it shall lapse.

7. GOVERNING LAW AND JURISDICTION

7.1 Paragraphs 4 to 7 are intended to be legally binding.

7.2 These heads of terms and any dispute or claim arising out of or in connection with them or their subject matter or formation (including non-contractual disputes or claims) shall be governed by and construed in accordance with the law of England and Wales.

Please sign and return a copy of these heads of terms as soon as possible to confirm your agreement to the above.

Yours faithfully
................................................................
[Full Name]
Director, Duly authorised for and on behalf of the Company and the Founders

We hereby acknowledge receipt and confirm our acceptance of the contents of these heads of terms

Signed .....................................................
Duly authorised for and on behalf of the Investor

Date ........................................................ 2014

Investor Details (for inclusion in the share register of the Company)

Full Name (Please PRINT) : ………………………………………………...

Correspondence Address :

………………………………………………….
………………………………………………….
………………………………………………….