Shareholder Agreements/Articles of Association
The sale of a midmarket privately owned business is a complex process and you need to prepare your business for sale. In some instance a company may be many years old and the location of the articles of association are not known, there may be a shareholders agreement and loan agreements. When a prospective buyer is reviewing a company particularly for a share purchase, they want to reference these documents. Where there is more than one shareholder, the rights of the shareholders need to be understood, what the decision-making rights are for the directors and what are the rights of the shareholders. In some instances the shareholders need to approve a debt instrument such as a convertible note while in other companies this may not be required.
Often company owners make loans over years which can total many millions of dollars however poor housekeeping by accountants can leave these records incomplete and therefore another matter of contention and possible surprise. In some cases, particularly where one of two or more shareholder wishes to divest, the process of this divestment will be dictated in the shareholders agreement. When large sums of money are involved this can be very controversial often with the need for legal intervention, a significant cost, damaged relationships as well as loss of value.
In some instances there are strict limitations on altering the capital structure of a company primarily to preserve control and limit dilution. This can make it very difficult to raise new capital particularly where the option for normal bank debt funding is limited.
Other matters which impact on the deal is the state in which a company is incorporated. Stamp duty is a significant issue in states other than Victoria while pre-CGT is an important factor for the shareholders tax considerations and possible deal structures.
Founding Documents and Share Certificates
It is important that no matter what size of your business and how it has grown over the years, to manage and keep copies of founding documents, loan agreements, other business agreements including the sale and purchase of businesses, IP ownership, agency and distribution agreements along with employee contracts etc. When you prepare your business for sale ensure that you have good housekeeping and access to all important company documents, this allows the sale process to focus on marketing and maximising deal value.