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.
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.
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.
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.
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.
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.
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.
I am starting a new business with two friends. What are the options open to us in the formation of a business?
The choices available to you are to trade as partners, as a limited liability partnership or as a limited company. Each 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, a limited liability partnership agreement or a shareholders' agreement.
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.
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%.
I am in a dispute and would like to take action against the other party. Who do I sue?
It is important to correctly identify who the action is to be taken against at the outset. For example, if a contract was with a limited company but you sued an individual, then your claim would fail. Therefore, you should establish before entering into a contract or dealing with another party, who exactly you are dealing/contracting with.
How do I commence action against a party?
The first step that should be taken is for a letter before action to be sent to the Defendant setting out the details of the claim. If the dispute is not resolved at this time then further action can be taken.
What are my options if a dispute is not resolved after the letter before action is sent?
There are a number of options open to you, namely Alternative Dispute Resolution Court proceedings or insolvency proceedings.
Is Alternative Dispute Resolution ("ADR") mandatory?
Whilst ADR is not mandatory, the Court encourages parties in a dispute to try this before commencing Court proceedings or insolvency proceedings. There are various forms of ADR from formal mediation to round the table meetings and before embarking on any form of legal action, this should be considered as an option.
How much will court proceedings cost me and how long will they take?
The cost of court proceedings varies on the type of matter in dispute. However, we offer fixed fees so you will know from the start what the cost will be. In addition to this, we offer a no win no fee service on certain matters and all options will be discussed with you prior to starting any action. It is difficult to confirm how long a matter will take. We will however, give an indication of the likely timescale at the outset and keep you constantly updated throughout.
Is the insolvency route more effective than court proceedings?
The insolvency route is a good tool for debt collection and is a strong tactic. However, this should only be considered where there is no disputing the debt owed to you is due. If there is a dispute then the insolvency proceedings could be defeated easily and you may have to pay the other parties legal fees.
I am being sued. What should I do?
Initially, we will need to consider the merits of the claim against you and also consider if you have any potential counterclaim against the other party. Once we have established this, we will then advise you as to the best way to proceed and what the likely cost will be.
Will my credit rating be affected if I am sued?
Despite debt collection agencies telling people their credit rating will be affected, it will only actually be affected is if a Judgment is obtained against you. Even if a Judgment is obtained against you, then providing you pay the Judgment within one month from the date of the Judgment, it will not affect your credit rating. The key is, do not ignore Court proceedings.
Do I have to attend Court?
This will depend on the nature of the dispute. In some cases where you need to give evidence then your attendance will be crucial. However, cases can be conducted without the need for you to attend. In addition to this, a lot of cases settle without the need for a Court hearing.
Do I need a lawyer or can I conduct the case myself?
Everyone has the right to represent themselves. We can offer as much or a little guidance as you require. However, there may be cases where you will be at a disadvantage by not instructing a lawyer and we would suggest at the very least that you take advantage of our free half an hour scheme to discuss your case at the outset.
I have heard the phrase "Litigation Risk". What is this?
There is no guarantee of a successful claim with Court proceedings. Factors such as how a witness comes across at trial or how the Judge interprets the case can turn a case on its head. As no guarantee can be given then this is the Litigation Risk. To assist you in deciding whether or not to proceed with a claim, we can give an opinion on your case and whether or not in our view, you should pursue the case.
Won't my web-designers make sure the legal end of the site works?
It depends - some designers have taken the trouble to familiarise themselves with the legal requirements, some of which are discussed within these FAQs; others are not so strong in these areas. An appreciation of the legal needs has developed in the wake of the growth of the world wide web, with design and effects taking first place. But as in any business you need to get both the function, and the legal effectiveness right.
Why do websites need privacy notices?
Following the development of data protection legislation, and particularly the Data Protection Act 1998, personal data which is collected for the purposes of processing can only be collected in accordance with the principles set out in the Act. Following on from this, if you do collect such data on your site, you would be committing an offence if you did not give the reason for doing so, and in particular whether such data could be passed on to third parties, you would be committing an offence. If you intend to pass on data, you must give visitors an opportunity to opt out of that process. Certain sensitive personal data can only be collected after an "opt in"
Can I stick my terms and conditions somewhere where they needn't bother anyone?
No - because if they are not seen and accepted, they won't form part of whatever contract you are making. You won't be able to rely on them.
Do I need to bother with "click-to-accept" terms?
We recommend that you do, since that way, in the case of dispute, you can show that your terms have been effectively incorporated in any agreement you reach.
Do I need to be concerned with what people put in the chatrooms on my site?
Yes - because if defamatory material is put there, and you become aware of its potentially defamatory nature - and leave the material there - you could be regarded as the publisher of the defamation. This, in effect, happened in the case of Godfrey v Demon. You could be obliged to play the role of censor.
Would it be okay if I registered a domain name similar to my business rivals', or use their name in my metatag to intercept people trying to find their site?
No, in both cases. because you would be regarded as seeking to trade off the goodwill of another, using fraudulent means. Your rival would be entitled to a court order to stop your activities, and if you have registered someone else's name (in effect) you could be ordered to transfer it.
I've only done business in the UK before? Does it matter that I am now selling overseas through my website?
You are now potentially doing business anywhere in the world. You need to be aware of two principal elements - you must make clear which country's laws govern any transaction , and must be aware of countries where your business or business practices may contravene local law - such as selling alcohol into strict Muslim states. The set up of your site must take account of these elements.
What problems could I have if there's a mistake in the price of something on my site?
Two main problems - first, you may be committing an offence under consumer protection legislation, and find trading standards officers beating at you door; and you may also find that you are legally obliged to sell at the incorrect price. Proper drafting of the site terms can help reduce you exposure on this.
Should there be some agreement between the designer of the website, and the client - and what should it say?
For the protection of both parties, there should be an agreement in place which sets out the responsibilities rights and liabilities of each company. It is particularly important that there be a specification of what the designer is to do and at what cost. Without this, the project can grow and keep growing, with no agreement as to the funding of the extra work. The customer may believe it's all part of the original package, whereas the designer regards it all as extra - and may also be aware that the customer will resist this view.
Who owns the site - what if I want another designer to work on it?
Without proper agreements in place ownership of the materials could rest with the designer in whole. This is generally unsatisfactory, but if the designer has used programs and functionality for which it has a licence or is the proprietor, then the whole of the site cannot be handed over. It is essential that there be a clear understanding and explicit agreement as to who owns what.
If I sell the business, what happens to the domain name?
The domain name is likely to be an asset of the business, and will need to be transferred together with the other assets. This will involve giving notification to the correct registration authority. With a .uk domain name this will be Nominet, and with .com (etc) it will be Internic, in the USA.
What should an Internet Use and E-mail policy cover, and why?
Such policies should cover the ways in which employees use these media, with a view to maximising the benefit for business, but also minimising the considerable risk which these open up - including the possibilities of infection by computer viruses, the ease of casual defamation, and the need to keep records of e-mail correspondence. Such policies should be tied in to employment contracts and rules. As use of e-mail and the internet have increased, and with such use, an appreciation of the its effect, so have such policies grown and evolved.
Why do people put long blocks of text at the end of their e-mails - they aren't letters, are they?
The accepted view is that e-mails should be treated as letters, and all the statutory information (such as registered office, company number, directors, partners) which a letter has to display, must be shown. In addition, the medium itself would lead us to recommend statements covering misdirection of messages, and virus protection.
Do I have to sell my business name?
It is not compulsory to sell a business name with a business. In the majority of cases the business name is sold with the business. In many businesses a large part of the value of the business is in the name and the amount you receive for the business may therefore be reduced if you wish to keep the business name.
I own the building from which my business is run. Can I keep it if I sell the business?
It may be possible to keep the building and grant a lease of it to the new business. The new business may not be interested in buying the building as this would involve a large capital outlay. The idea of leasing the building from you might therefore be very attractive to the buyer of the business. This would also have the benefit to you of providing an income over a period of years and reducing a capital receipt and the potential tax liability on that capital receipt.
Who will have the benefit of the debts owed to the business when it is sold?
The contract for the sale of the business will make provision as to whether you or the buyer will collect any debts owing to the business at the time the business is sold. It is more common for the buyer to have the benefit of any moneys owing to the business and that benefit will be reflected in the price paid for the business; the sums would have to be defined. Often, if the business is not a limited company, the seller will be entitled to money owed.
I would like to retain some interest in the business when it is sold. Can I?
This will depend upon the buyer of the business. The buyer may wish to have complete control of the business so that he can do with it what he wishes. If the buyer is happy for you to retain an interest in the business then this would be possible in one of a number of ways eg. if you are the sole owner of the business by becoming a partner of the buyer or a consultant to the buyer. If the business comprises a limited company, you could retain some shares in the company and those shares may or may not have voting rights which would enable you to have a say in its running
My business has a liquor licence. Will I have to transfer it?
More than likely, yes. A liquor licence comes with some responsibility and potential liability. You would therefore wish to transfer the licence to the buyer. It is also very unlikely that the buyer would want you to retain the licence and thereby some control over the business.
Will I have to sell the business equipment with the business?
It would probably be in your own interest to sell the equipment with the business as it may be of very little use to you once the business has been sold. The buyer will probably want the equipment so that he can continue the business with the minimum of the disruption which would be caused if he had to replace all equipment at the outset. You can only sell what you actually own i.e. not assets subject to lease or hire purchase.
I have been told I will not be able to run another business if I sell my current business. Is this correct?
Probably. The buyer of the business will want to ensure that you do not set up in competition with him and take the customers away from the business which you have sold and have received money for. With the odd exception, a restriction will be imposed upon you against running or being involved in a similar business to that sold for a period of up to two years within a specified radius of the business premises.
Will I have to assist the buyer of the business once I have sold it to him?
There will be no obligation on you to assist the buyer of the business, unless such obligation has been put in the sale agreement. However, it is common, particularly in small businesses, for the seller to assist the buyer in making introductions to customers and suppliers so as to provide a smooth handover of the business.
I have people working for me. Can I protect them?
You can make provision in the agreement for the sale of the business for the buyer to take on the existing staff of the business. If the buyer takes on the staff, he will have to do so upon the same terms and conditions of employment as exist at the time of the sale of the business
Do I have to pay any tax when I sell the business?
If you have made a profit when the business is sold, there may be a liability to Capital Gains Tax. The amount of tax payable will depend upon a number of factors, eg. how long you have owned the business, your age and whether you intend to invest the proceeds of sale of the business in another business.