By Simon Deans, Partner, Corporate & Commercial, B P Collins
Some individuals will have set their sights on a new venture for 2015 – that may be starting a new business, expanding an existing outfit or perhaps even acquiring a brand new organisation. Whilst this can be an exciting prospect, it’s important not to overlook the potential risks it may bring and ensure that you and your business are prepared for the challenges.
The business lifecycle encompasses numerous legal challenges – some of them predictable, some unexpected. But failing to prepare for, or at the very least protect against, the unexpected can have damaging repercussions for UK companies.
The question for owners is: are your operations fit for purpose? Are your processes, policies and documentation aligned with the strategic challenges of your current business environment? What are the potential risks? In reality, they exist across all stages of a business, but the most common challenges remain in traditional areas.
The first challenge comes right at the start of a business; the shareholder agreement. Business ownership is often a source of complication and conflict, with disputes between shareholders ranging from disagreements over personal financial returns, potential liabilities or a business’s general direction. Inadequate shareholder agreements can leave parties vulnerable to avoidable risk. Key aspects such as future financing, income and capital value, authorities and responsibilities, and succession planning should all be provided for in a shareholder agreement. Combining this with tailored Articles of Association can significantly minimise risk. Moreover, it can help companies proactively identify likely challenges at a time when shareholders are not in dispute – building cohesion, shared goals and a better platform for the ongoing business relationship.
The shareholder or partnership agreement doesn’t have to be complicated – it could start with just a few simple principles. Once in place, however, it can act as an enabler as you set about strengthening your legal arrangements to reflect what’s happening in the business.
For example, ensuring organisations are adequately protected in employment contracts is a commonly overlooked area. When working relationships turn sour or valuable employees leave, safeguarding key company information such as client lists, pricing structures, order books or IP rights is vitally important. The most effective way to protect against valuable trade secrets disappearing out the door is to draw up personalised restrictive covenants for key employees – and review them on a regular basis.
Managing risk in this way is crucial – companies need to ensure that they not only have adequate short term protection, but also that their systems and processes are agile enough to be able to respond to the demands of the evolving business environment in the long-term.
In a modern, post-recession business, proactivity is critical. The most effective companies will be those that are aware of the challenges their competitive environment may present and ensure they are well-placed to protect themselves against the dynamics of a changing marketplace. To succeed, businesses should develop a continual, long-term relationship with a strong legal partner. A trusted law firm can help prepare organisations for the common challenges of modern business, as well as providing guidance and protection against the unexpected.
The best partnerships will begin with a comprehensive review of companies’ existing conditions – a legal ‘health check’ – and an assessment of whether current operations are both fit for purpose and future proof. The development of a sustainable and proactive partnership can help businesses ensure their operational infrastructure is appropriate, robust and current.
There are many common challenges along the business lifecycle, but through preparation and partnership, companies really can avoid the unexpected.