Lawyers – a Necessary Evil in Capital Raising ?
Lawyers – a Necessary Evil in Capital Raising?
That’s not a fair heading as a good commercial lawyer will save clients $thousands.
I’m not a lawyer but have played in this space for enough time to have picked up the basics on the law around capital raising.
However it’s not the capital raising part of the journey that trips clients up. I would put a stake in the sand that in at least 50% of cases, a client needs some type of pre capital raising legal ‘tweaking’
• Current shareholders – Unclear / conflicting rights / inappropriate agreements/ overly complex agreements / no agreement / etc
• Director and Management Agreements – Lack of agreements.
• Constitution – Conflicts with prospective capital raising strategy/plans by way of classes of shares, shareholder rights and responsibilities, etc.
It’s a matter of aligning key agreements and the constitution with the prospective capital raising plans. Such issues are usually very simple to clear up by way of passing resolutions and tidying up agreements when there are a small number of shareholders.
However, if not dealt with prior to any major capital raising, backtracking once more shareholders have joined the share registry does become a more complex, and expensive exercise. It doesn’t serve the company’s branding either.
Imagine having to send new shareholders a correspondence explaining ‘we didn’t quite do this right, please sign these new agreements altering your rights or note these resolutions we’re about to table at a shareholder’s meeting altering your rights or disclosing our directors salaries you didn’t know about.’ Not fun.
This is why prior to commencing the writing of an investor offer document I generally have a lawyer I trust perform a quick assessment of the client’s corporate landscape. This ensures that my client is protected from having to backtrack and reconcile any issues once new shareholders join the registry and lays the pathway for a much more seamless capital raising.
For assistance please contact The Financial Writing Company 1300 477210.