Lifecycle of a Business: Part 3 - Finance & Raising Capital
Our Lifecycle of a Business series captures key elements of a business's growth story - from the highs of formation right through to lows of dissolution. Discover our insights, informed from years of client experience.
Finance and Raising Capital
You may have decided upon a suitable business structure for your venture, but ensuring that it remains solvent in its formative years with sufficient finance is a key aspect of preparing for long-term success.
There are numerous ways in which companies raise initial capital and then finance the business as the need arises, but some of the most stressful disputes arise from internal differences between founding shareholders and subsequent investors and the balance of power between them. It is crucial that you think about the worst-case scenarios from the beginning, and plan your business in a way that will mitigate the likelihood of disagreements in the future.
For private companies, raising capital by issuing new shares to suitable investors can be an excellent way of obtaining a quick injection of funds, but companies should be careful to not set themselves up for disagreements in the future.
It may be useful to ensure that everyone is on the same page regarding what the investment is intended for, whether it could be expected to be followed up by further financial contributions to the company and whether the various shareholders have the same ambitions for the company in the longer term.
These concerns, along with many other issues which may cause contention, can often be resolved at an early stage by having a comprehensive shareholders’ agreement, binding shareholders under a mutual understanding of the rules and purposes of being a shareholder in the company, and tailored articles of association which detail the requirements for the management of the company as it looks to grow and take on board new investors and ideas.
Having these solid foundations may well also make it easier to obtain financial backing for growth in the future, both through capital investments and debt finance from banks and other similar institutions, as it demonstrates that the company is being managed prudently.
Reducing the opportunity for tension to grow between shareholders over their respective interests is crucial so that the business can operate effectively and be confident that it can obtain finance and raise capital without the added distraction of unnecessary internal disputes.
Even though the early stages of running a company might be the tightest financially, seeking legal advice pre-emptively as soon as possible will ensure that you can make the most of the opportunities that present themselves as the business continues to grow.
Our team of business experts can advise you on this key stage of your business, find out more and request further information to support you and your business.
Read further into our series with part 4: Lifecycle of a Business - Agreements.
Disclaimer: This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to clients of BLM. Specialist legal advice should always be sought in any particular case.