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Legal Eagle Advice: Case Examples for Small Businesses to Take Note Of!


Nick Gould Partner / Solicitor at www.aria-grace.com has been providing us with his legal advice and expertise for over 12-years here he provides case examples that small companies and start-ups can learn from…

Nick Gould

‘I’ve been working with Fashion-Enter / FashionCapital for a while. I like to think I’m a commercially minded, deal doing lawyer. I also give seminars to start-ups and growing companies. I know that (most) small companies / start-ups, in particular, tend to think asking a lawyer to deal with almost anything is a waste of time and / or money. But that, of course, depends on which lawyer you ask and what you think needs to be done. Over a few short notes, I’ll try and give you some ideas to think about.

Here are two examples (below). You can see some of the weird things that I have come across – and there could be many, many more examples. Then I’ll discuss why I think common sense is so important when thinking about commercial / contractual arrangements and the downsides of it too often being ignored.

Example 1

Wibble and Wobble each own 50% of a PR company. They disagree on the future direction of the company. It is all very friendly but they don’t want to continue working together. The company is extremely successful and has a very large pot of money in the bank. They are both equally relaxed as to whether they go or stay but one of them will have to go – the other person will continue to operate and, indeed, own the company. The fact that there is a significant cash sum in the bank but yet again, there is no shareholders’ agreement or any other document which plots a route to determine how they divide up the company.  In this instance a truly “commercial” solution was suggested. The fact that they were media related companies inspired their legal adviser to suggest they invited their friends and contacts, together with as many media sources as they could find. They would toss a coin. The person who chose correctly would then decide whether he took the cash or the company – in this case, remarkably, both were sufficient to satisfy each party. Unfortunately, although one of the two shareholders thought this was a great idea – the other didn’t. The outcome is not known but the rumour is, again, they ended up in court.

The fact there was no shareholders’ agreement added significantly to this drama. A good lawyer advising clients setting up a business together would always suggest some sort of written document between them.  It could be as long or as short as they wish. None of this is particularly difficult or particularly expensive. The cost of litigation is significantly greater in time, cost and management terms, than the cost of having a short, clear shareholders’ agreement drawn up at the outset. That said, the number of times people just don’t, won’t bother never ceases to amaze me.

Example 2

Hero and villain are close friends — and sophisticated buyers of legal services and have, in the past, spent hundreds of thousands of pounds on legal fees. Villain agrees to lend Hero about £12 million. Villain uses legal advisors, but this time, Hero doesn’t.  Alas,15 months later, Hero had spent about £500,000 on trying to get himself where he should have been at the start.  He had also part paid down the loan as to about 30 per cent. The total legal fees for this one were probably more than of £5 million. Ouch.’

More from Nick…

Tap the links to read:

Legal Eagle Notes: The Value of a Contract in Writing

Legal Eagle Notes: Paper Trails

Nick Gould – A Lawyer’s Legal Life

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