FAQs about Start-Up/Small Business Advice

SMALL BUSINESS FAQS – DUDLEY SOLICITOR

What issues should be considered when buying a new business ?

The following are some basic issues you may wish to consider :-

  • Look for hidden costs
  • Look closely at the accounts of the business
  • Consider any existing lease agreements as these can be notoriously restrictive.
  • Do your market research
  • Ask yourself why the owner is selling?
  • Check carefully the position on employees
  • Location – for a retail businesses with premises, location is crucial.
  • Negotiate on the asking price – when you’re buying a business, negotiation on the final sale price is expected.
  • Don’t sign a new commercial property lease without taking advice
  • prepare a business plan
  • checking existing contracts.

Jurisdiction in contracts

A ‘jurisdiction clause’ is an integral clause which is found near the bottom of a contract. This clause activates the agreement so that if a dispute arises it may be governed by the laws of a relevant country, location or state. If the parties involved in the dispute are domiciled or operate their business in the same country the jurisdiction clause may not be considered as integral.

This clause may become important in a number of situations outlined below:

The parties reside in different countries

  • If one party has a large amount of assets in a country other than where they reside
  • If the agreement states that performance must take place in a different country
  • If the agreement states that a different country has authority of jurisdiction. This could be relevant if the contract came into being in another country.

Exclusive Jurisdiction

There are a number of different jurisdiction clauses. There is one type that requires both parties to submit to the authority of a particular jurisdiction. This may not be the best clause to agree to if one party has considerable assets in a different country. Another type of jurisdiction clause nominates a certain country but also permits action to be taken in other countries.

Law Governing the Contract Itself

Remember that the choice of law that should govern the contract will not necessarily be the legal domain which resolves disputes that may arise.

The Brussels I Regulation

The EU guides courts to accept disputes in the jurisdiction where the defendant is residing.

There are however, caveats to this general principle such as if a contract’s performance must be fulfilled in a certain country then a court within this location will have precedence over any others.

This regulation governs the location of the arena where commercial and civil disputes will be resolved if they arise. It is part of the Brussels Regime which states that judgments given by Member State courts will lead to any dispute which arises being resolved in that court. This regulation has the effect of negating any jurisdiction clause which may be present in within an agreement.

Reciprocal Agreements

If you are in the UK then the principles determining where the jurisdiction should take place will depend on whether the relevant country is:

  • in the EU
  • a country that has a Treaty with the UK or is part of the Commonwealth
  • a country that does not have a Treaty with the UK

The last bullet point is the most difficult to deal with when trying to ensure an overseas judgment takes place in the UK.

What are directors duties ?

The Companies Act states that the role of directors is to act in a way which they consider most likely to promote the success of the company for the benefit of its shareholders as a whole and that, in doing so, they will need to have regard where appropriate to long term factors, the interests of other stakeholders and the community, and the company’s reputation. There is particular focus on the area of conflicts of interest.

There are now 8 general duties specified as a company director’s role :-

  • Act within their powers and in accordance with the company’s constitution
  • Promote the success of the company for the benefit of shareholders, paying due regard to

the likely consequence of any decision in the long term interests of the company’s employees, the need to foster the company’s business relationships with suppliers, customers and others, the impact of the company’s operations on the community and the environment, the desirability of the company maintaining a reputation for high standards of business conduct

  • Exercise independent judgment
  • Exercise the reasonable care, skill and diligence that would be expected by a person in that position in a company of that size (eg an experienced non-executive director would have higher standards expected of them than a more inexperienced executive, but there is a minimum expectation of any director)
  • Avoid conflicts of interest, including conflicting multiple directorships
  • Not accept benefits from third parties.  Note that this does not necessarily include a director receiving a benefit from a person or company which provides services to the company. A more difficult area is the giving or receipt of corporate hospitality so it’s often advisable to put a policy in place regarding the limits on what can be received
  • Declare interests in proposed transactions or arrangements.  Note that a director may not necessarily be party to the transaction or arrangement to be ‘interested’ in it
  • Seek external advice where necessary, particularly if the company is in financial difficulty.

Options