Are you prepared for success? Some legal implications of rapid growth

SME Publications/ SME XPO 2024

By Stephen Britt, below, General Counsel,  The Legal Director

Who doesn’t love an unlikely success story? Every small business dreams of making it, of getting that breakthrough that launches them into the big leagues. And in a world where social media holds considerable clout, that success can literally happen overnight.

Take Binley Mega Chippy as a prime example. A song on TikTok (or maybe a chant would be more accurate) clocked up hundreds of thousands of views and catapulted the West Midlands chip shop into online fame. With coach loads of people reportedly travelling from across the country to sample the feted fare, its trade increased tenfold leaving the owner happy, if somewhat bewildered, and journalists having a field day with fish-based puns.

However, rapid growth can have many legal implications and throw up a lot of considerations for businesses. Here are just some of the areas to consider as you plan for growth. They might even ensure you’re not a fish out of water if your business’s fortunes change overnight.

Build on firm foundations

Limited company

Are you a sole trader? Ask yourself if this model is right for your ambitions. A limited company   offers a degree of protection and can provide a structure to bring in outside investment down the line.

Corporate hygiene

Keep your house in order and make sure your corporate housekeeping is up to date. This includes board & shareholder resolutions, dividend & income declarations, minutes of meetings etc.

Shareholder/ co-founder agreement

If you’re an ambitious company, a shareholder or co-founder agreement can be an important part of the  framework for orderly growth.  These deal  with matters such as decision making, dispute resolution and what happens on an exit, e.g., IPO, sale etc.

Employees

Existing

Any significant changes in your business are likely to impact your staff. You need to know their contracts inside out and be aware of relevant employment law. Can you require them  to work overtime, for example? Are there collective agreements, maximum working hours, minimum rest breaks, additional health & safety rules etc?

And of course, you may need more staff to support you with your additional work. How do you engage them? On a permanent/ temporary/ zero hours contract? Do you need to notify HMRC? These are important decisions, so it’s best to think about them early rather than when the heat is really on.

Suppliers

It’s unlikely that every supplier will trade on your terms, but having standard terms of trade in place as early as possible has obvious advantages and can provide  additional  controls over operational matters.

In any event, you should have written contracts in place with all, or at least all key, suppliers. Familiarise yourself with the terms, particularly whether you can call off more product quickly enough to meet increased demand and what happens if your regular supplier can’t deliver.

An increased demand for your product or service is of little benefit if you can’t fulfil it, so you need to be on top of your supplier agreements.

Customers

Likewise, your customer agreements. Up to date terms of trade are clearly a “must have”. Avoid the temptation to “borrow” a competitor’s template as your business will have its own unique risk profile.

Your terms & conditions will vary depending on the nature of your business, the type of customer (commercial entity, consumer, government agency) and where your customers are based. It is quite likely you will need  more than one set so make sure your staff are aware of which Ts & Cs should be used when and where.

Intellectual Property (IP)

A growing business’s value is likely to comprise its brand and/or its technology. Clear licensing, contractor and employment agreements  can help ensure that your  business rather than someone else  own the IP. This is particularly important if you have taken on contractors or consultants to meet the spike in demand.

Insurance

Your insurers will need to know  about any changes to your business –  policy limits, terms and exclusions must be kept under constant review as your business grows.

Get support

Having good corporate hygiene has innumerable benefits. Business expansion must be funded, and keeping complete, accurate and reliable records and following best practice in its contracts, policies and procedures can make you more attractive for future investors.

Consider bringing in legal help to get this right from the offset. An upfront investment in establishing a sensible structure and good governance will help you avoid costly pitfalls in the event of rapid growth.

The Legal Director provides SMEs with senior in-house lawyers on a part-time retained basis.

SME Publications/ SME XPO 2024