To Protect the Guilty (3Cs Diaries #17)

No animals were harmed during the making of…..

There you are watching the closing credits with the usual warnings about any resemblance to people, places or happenings being purely coincidental etc and sometimes “names have been changed to protect the innocent”. It’s the last 3Cs Community meeting of the year at solicitors Taylor Wessing and in one of the four presentations, the names are changed or rather omitted, to protect the guilty.

It’s the Little Things

First presentation by Simon Walker of Taylor Wessing has some reminders and a few surprises. Entrepreneurs still like to cluster with new ones springing up in London and elsewhere. Getting things right from the start is important and life only tends to get complicated when things are not done properly.

Free or Open Source documentation is available from Taylor Wessing’s Tech Focus site. Switched on clients tend to print these off, pencil in the blanks and then bring them in for TW to draw up. Surprisingly, Shareholder Agreements are dismissed as unnecessary as there is not any agreement yet drafted that can prevent other shareholders not getting on with you. An example might be a shareholder who now that the money is in, says that he is off to the beach telling his mates to be sure to send him his dividend cheque.

Options will be important if a business grows and becomes valuable and 431 elections which deal with the taxation of share options have to be signed within two weeks. Forget to do this and they could be taxed under Income Tax rules rather than Capital gains Tax rules, costing the entrepreneur £millions in extra tax in one case.

We seem to like big numbers and people tend to be more turned on by 100,000 options to buy shares with a nominal value of .001p or maybe 1,000 options to buy shares with a nominal value of 10p than 100 options to buy shares with a nominal value of £1.

Dept of the Bleedin’ Obvious

If you don’t understand a document, don’t sign it. Just because it is drafted by a legal professional, does not mean that it is right for you. Don’t be shy of asking – you will feel a lot more stupid if you find out you have contracted to do something you never meant to.

A Sad Tale

Second speaker is Chris Parr of City & Westminster Corporate Finance LLP. Having done deals worth many £millions and being a corporate lawyer does not prevent things from going pear-shaped. When you want a deal so much you may not dig as deep as you ought. After paying over the money, you find your business partner has three passports and is evasive about the Bachelor and Ph. D degrees he says he has. With a couple of people with similar names and initials, your request for further background and proof from the university concerned is met with the response that they need the authority of the “graduate” concerned! With a groan, he mentions that the system seems designed to protect the villains.

Rather than fleeing with the money, the villain brazens everything out, denies everything but proves increasingly unresponsive. He does make one small mistake by winding up the company that owns his 30 per cent of the business meaning that C&W can buy back the shares for £1. On the brighter side, we hear that HMRC are wonderful when they refund some VAT in two days.

After the machine stops working, further investigation reveals that it is available from China at a fraction of the price it was acquired by the business and that the valuable chemical stored in the factory is someone else’s waste product bought for pence! In the meantime, the police investigation continues, two failed joint-ventures in China are discovered, but the guy concerned is still out there peddling his scheme.

So Why did we Do It?

This deal was to be the seed for a much bigger one. Vetting is expensive and the top level vetting which might be done by the Foreign & Commonwealth Office for example, costs £40,000. With hindsight, any resistance to questions ought to raise suspicions (confirmed by members of the audience) and if there is a moral to this tale, it is Trust by all means – but Verify as well.

Next 3Cs Community meeting Tuesday 21st January 2014 at UCL’s business incubator unit UCL Advances  Contact me if you want to pitch

George Emsden
Now retired, George is busier than ever: working through an OU Maths & Physics degree, blogs, volunteering at Muswell Hill Soup Kitchen and Haringey Winter Shelter plus being a very proud granddad.