MONEY FOR PRIVATE LIMITED COMPANIES

Budding entrepreneurs often approach us for advice on how potential finance providers (be they family, friends, business angels or other investor) can provide "seed finance" to fund the start-up of their company or invest money to move the business up to the next level

There are a wide range of options, each with their own advantages and disadvantages, both to the entrepreneur and the finance provider

Loan Capital

A straight loan to be paid back within a finite period

• with interest at an agreed rate

• With the interest being paid monthly (or at some other regular interval) or rolled up until the end of the loan

• With or without security, in the form of a personal guarantee from the director or a charge over his home or both

 

Share capital

The finance provider takes a certain percentage of the shares

Certain levels of shareholdings bring certain rights.  The entrepreneur needs to understand these

Shareholders agreement ought to be signed.  These are set out what is to happen in certain events including the death, physical incapacity, mental incapacity, bankruptcy, liquidation, administration of the entrepreneur and the finance provider turned shareholder or, simply, what is to happen if they should just simply "fall out".

Usually, one will give be given the right to buy the other out and so a mechanism for establishing value and a procedure to follow is essential, especially if they are "not talking" to each other

Perhaps the "joint-venture" should have a finite shelf life.  In other words, it is agreed at the outset that the business will be run for X years or until X event and then one of the shareholders will buy the other out (with the valuation mechanism and under the procedure as above) or the business is to be sold to a third party

Conclusion

Too often, the entrepreneur has spoken only with one potential finance provider and is negotiating "in a vacuum"

It always better to have several potential backers so that you can see who will be prepared to provide "the best deal"

 

Call, to set up a fixed fee meeting

• • one of our Commercial Team 

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