How to keep control of your business during investment

The second part of this series strikes the balance between gaining crucial funding for your business whilst still maintaining control as a Founding Shareholder.

As a Founder Shareholder who has given the blood, sweat and tears required to get your business off the ground, it can be difficult handing over all control to an investor, but it is important to bear in mind that the bigger the investor, the less likely they are to take a minority stake with no say-so. The type of investor will have a big impact on the negotiation of the investment terms, so understanding your investor and knowing how much you are willing to compromise will be an integral part of the investment process.

From an investor’s perspective, they are likely to want an element of control within your business as a means of managing their investment and ensuring that business growth is being achieved to enable a return on their investment. As an entrepreneur and a business owner, you will need to think about how much equity you are willing to give up.  

Once equity stakes have been agreed, the terms will need to be documented in an investment agreement, the company’s articles of association and a new shareholders’ agreement. Typical investor protections included in an investment agreement will include approval by the investor of:

·      Merging with or acquiring another business.

·      Seeking further financing or investment.

·      Altering the company’s share capital.

·      Introducing new shareholders, directors and key management staff.

·      Incurring capital expenditure of a large amount.

A new shareholders agreement is often necessary to set out the relationship between each of the shareholders, including the investor. This will provide the shareholders with a greater degree of certainty and clarity around the operations of the business and will set out who is responsible for what decisions.

Things you should consider as a founder during the investment stage:

·      Who will make the most important decisions?

·      Who will be responsible for the day-to-daydecisions?

·      Will an investor have the authority to appointa director? Will you maintain control of the board?

·      What happens if you want to sell your business?

·      What happens if you wish to seek further funding?

If you are a founder with the ability to be selective when it comes to investment, it will be important to lay out the terms of your investment as early as possible to ensure you find the right investor for your business. If you are not in the position to be choosy, you will need to prepare yourself for compromise.

At Glenville Walker we don’t just look at your business in terms of facts and figures, we build a personable relationship with you and your business to clearly understand your business goals. We have a life-long journey with the businesses we work with, as we aim to help your business grow and become resilient in the market. Consider us, Glenville Walker, as your dynamic legal team who have your best intention sat the forefront of every business decision you make.

Get in touch if you would like to find out more on how to gain access to investment whilst maintaining control, contact our specialist corporate team on 0151 305 9650 or email stuart.capstick@glenvillewalker.com