The working capital necessary to start a business is likely to come from the founders (or their friends/family) and banks. In some cases funding will come as a result of a loan or debt on which you pay interest. But you may also raise money through what’s known as equity capital (where you provide shares in your business in return for an investment of money).
It is important to get the balance between debt and equity capital right. Bank terms can vary significantly and may include unexpected triggers for repayment. Loans from individuals need to be documented to protect both the business and the private lender.
If the business has been successful and has good prospects, funding may be available from “private equity” investors who provide capital for a stake in the business. Advice on the terms of such funding is essential. The equity investors will likely have substantial legal advice on their side which needs to be matched on yours if you want to end up with a fair deal.
The priority in every case is to be sure that the legal terms deliver what the business is expecting and to reduce the risk of unpleasant surprises from the small print.
Many routine tax issues are best dealt with by accountants but some areas require a lawyer, either because they require the application of the law to particular facts or because they go beyond the tax issues usually dealt with by accountants.
For example:
If these do arise, the business may be technically insolvent and the directors may come to be at risk of personal liability if they don’t act correctly. Trading through and out of difficulty may be a legitimate course but this should not be attempted without the right legal advice from an insolvency specialist. The taking of advice and acting upon it is likely in itself to reduce personal exposure.
Insolvency processes threatened or actioned against people who owe you money may also be an effective way of collecting larger debts where a business is being harmed by the cash flow difficulties of their debtors. Insolvency lawyers will often act very economically in relation to debt recovery if there is a prospect of being involved in the insolvency of another business.
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