Commercial Agreements Faqs

Our company would like to enter into a joint project with another company but still retain our independence. Can we?

 
One or more companies can enter into joint projects without losing their own independence, save for that project, by entering into a Joint Venture Agreement. The agreement may be for a specific period of time or may last for the life of the project. Once the time limit set out in the agreement for the project has been completed, the relationship between the companies will cease and each company will revert to their original status. The Joint Venture Agreement will set out the responsibilities of and benefits to each company party to it.
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We would like to raise capital to enable our company to grow. The company has no tangible assets. How can we do this?

 
Some banks may be prepared to lend money but money may also be available from venture capitalists. If a venture capitalist lends money it will take its security by part ownership of the company. Normally the venture capitalist will require a proportion of the shares in the company to be transferred to it in return for the money it provides. The attraction to the venture capitalist is that it will benefit from the growth of the company by an increase in the value of the shares transferred to it.
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We would like our staff to enjoy the benefit of the work they are doing in helping our company to grow. How should we do this?

 
There are a number of ways in which staff can be rewarded. You may have a bonus scheme in place or provide other benefits eg. a car or health club membership. A better incentive may be to let the employees share in the ownership of the company by creating a share option scheme whereby the staff have an opportunity to buy shares in the company at an attractive price in the hope that those shares will increase in value.
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We are thinking of buying another company and want the owners of that company to remain working. How can we ensure this will happen?

 
The price paid for the company can be structured in such a way that it is paid over a period of time and payment is dependent upon the seller remaining with the company and also upon the bought company performing in line with your expectations and the former owners projection. As well as retaining the former owners, this structure would have the benefit of spreading payment over a period of time and ensuring the company you bought turned out to be that which you had expected.
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We are buying another company and have agreed a price for it. How can we be sure we are not paying too much?

 
Before entering into an agreement to buy the company you should undergo a process called "due diligence". During due diligence, accountants will be employed to go through all accounting records of the target company and solicitors will be employed to go through legal agreements. This will, to some extent, ensure that you are paying a fair price for what you are buying.
 
In addition it is possible, in the purchase agreement, to add a provision whereby an adjustment can be made to the price paid, based upon the first set of accounts prepared after completion of the purchase of the company. If the profits produced in the first year are less than those predicted and upon which the price was based, then the seller would be required to refund to the buyer a proportion of the price paid. If a profit achieved is greater than anticipated, then the buyer would be required to pay another amount over and above the purchase price.
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We wish to develop our company but cannot afford to employ expensive staff. How best can we have the benefit of expertise without taking on the "baggage and cost" of employing staff.

 
You should consider having the benefit of experts by the use of Consultancy Agreements. With such agreements, the expert is classed as self employed and he will not have the protection given to employees by legislation and you will not have the additional National Insurance costs. The Consultancy Agreement will be for a fixed period agreed between you and the Consultant or will last for the length of a particular project. The amount paid to the Consultant will be set out in the agreement.
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We wish to make an approach to another company with a view to buying it but we are worried about this information becoming common knowledge. How can we protect ourselves?

 
Prior to discussing any terms at all, you should ask an authorised representative of the other company to sign a Confidentiality Agreement. These agreements can be unilateral, that is where only one company provides confidential information or bilaterial, that is where each company provides confidential information to the other. The agreement can limit the amount of information which is to be disclosed and can also set out the financial penalties to be imposed should the agreement be broken.
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I am starting a new business with two friends. What are the options open to us in the formation of a business?

 
Currently the choices available to you are to trade as partners or as a limited company. A third option, limited liability partnerships, will be available shortly. Both partnerships and limited liability companies have pros and cons on matters such as public accountability and personal liability. Whichever option you go for, it is advisable that you record your business relationship between you either through a partnership agreement or shareholders' agreement.
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My company wants to lease a property to run its business from. The owner of the property is only willing to lease the property to me if I give a personal guarantee to him. Can he insist on this?

 
Unfortunately the Landlord can insist upon you giving a personal guarantee. If you are a new or very small limited company with few assets, the Landlord would have very little security should you fail to pay the rent, cease trading or simply leave the property.
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If I buy the shares in another company, will stamp duty be payable?

 
Yes, stamp duty is payable at ½% of the amount paid for the shares. When buying a company you should consider carefully how best to structure the purchase, whether it is the purchase of assets or the purchase of shares, with the value of the assets forming the share value, e.g. the main asset of a company is a building valued at £1,000,000.00. If the purchase is a purchase of assets, stamp duty will be payable at 4% on the transfer of the building. If the building is written into the value of the company and you buy the shares of the company, the stamp duty payable will be ½%.
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