Coronavirus - Managing Business Innovation and Investment
If you take the view that out of adversity comes opportunity, you may already be working on innovative new business ideas or remodelling your existing services or products to meet the current and future requirements of your clients.
This may bring with it upfront costs and, if Coronavirus (COVID -19) has had a significant impact on your existing revenue streams, the question then becomes, where can I obtain finance to pursue these opportunities?
Sources of Funding
Whilst the government is facilitating access to debt finance via the Coronavirus Business Interruption Loan Scheme and the COVID-19 Corporate Financing Facility, not all businesses will be keen to increase their borrowing given their existing cash pressures. Despite the government's backing, many companies may be nervous about incurring additional liabilities with fixed repayment dates in light of the current economic uncertainty. Please see a recent article on Business Interruption Loan Scheme to help you.
As an alternative then, you may be looking to attract investment in your business, and whether that be from friends and family, professional investors, business angels or alternative sources such as crowdfunding, there is a raft of regulation to navigate, even in unprecedented times such as these.
Compliance With Regulations
There are key considerations when offering shares in a private limited company to ensure compliance with fundraising regulations - these include:
- Does my communication constitute an offer of shares to the 'public'?
- Do I need to prepare a prospectus?
- Can I rely on a specific exemption from the complex rules which apply to financial promotions?
- Does my communication include any false or misleading information, which may induce another person to buy or refrain from buying shares?
The answers to these questions will be influenced by the number and identity of the recipients, the content of the communications and the manner in which communications are made. It's important to get this right - in some circumstances failure to comply with the legislative requirements can lead to criminal prosecution in addition to civil liabilities.
Investment Terms
Once you have obtained an offer of investment, you should clearly document the agreed terms. Depending on the amount of the investment and percentage of shares being acquired, the investor may try to negotiate contractual rights and protections in an investment agreement or the company's articles of association. Existing shareholders and directors will be keen to limit any personal exposure and to retain the necessary control and flexibility to pursue the opportunities that led them to seek investment in the first place.