With the ever-increasing spotlight on companies and their directors and investors, and regulators becoming progressively more aware of the issues of a poorly managed business, a well-managed company should ensure that its rules, practices and processes are fair, accountable and transparent. A company’s annual financial audit will review historical company performance, but a legal health check allows a company to successfully plan for the future.

Whether in preparation for a business sale or as a matter of good business practice, a legal health check will identify key areas of potential liabilities and exposure to risk, so that a company can try to avoid or minimise these risks in an efficient and effective manner, before they adversely impact on the business or any potential sale.

The areas we will review during this process will largely mirror those of a legal due diligence process during a potential sale of a business. Knowing a business’ weaknesses and identifying issues prior to a potential sale will significantly reduce time and cost spent by a company’s shareholders dealing with a due diligence process in the future.

A legal health check will, in most cases, consider the following key areas of the business:

Business Structure

Surprisingly often, a company’s articles of association are not updated following incorporation, even when new shareholders come on board or others leave. Often, these issues are left unaddressed until a dispute or financial difficulty arises, when a company requires a prompt solution in order to protect its financial position. A director or shareholder stalemate or deadlock can be particularly onerous and settlement of these issues can be costly, both in time and in money. Reviewing these documents regularly allows for a growing business to ensure that any disputes are dealt with in the most suitable manner for the company.

Directors’ Duties

Directors should ensure they are kept up-to-date with their legal duties and responsibilities. However, in particular, when a company faces financial difficulty, awareness of these obligations becomes ever more important. For example, granting preferences, approving transactions at an undervalue or trading insolvently will have serious implications on not only the company but also on the directors personally. A legal review ensures that directors are aware of their duties and adequate checks are in place to ensure that nothing is overlooked.

Customer and Supplier Contracts

Ensuring a business’ dealings with customers and suppliers are on favourable and enforceable terms is extremely important. Considering and possibly updating a business’ terms and conditions as well as key customer contracts will allow a business to stay ahead of the curve and protect important relationships and dealings with key customers and suppliers, through clarity and contractual certainty.

Employees

Retaining good employees and ensuring that a company complies with employment laws will always be at the forefront of the minds of business owners. A legal health check will help identify key employees, examine terms of employment, consider whether adequate restrictive covenants are in place to protect the company, and identify gaps in policies and employment terms which may need to be addressed.

Premises

One of the largest overheads for any business will be its premises. We can help identify areas of renegotiation of the lease, review the terms of any mortgage and security documentation or ensure that the company has good title to premises (in the case of freehold property).

For Further Information

For more information about the TSP Business Health Check service, please contact Corporate and Commercial Solicitor Caroline Nicholls by email at caroline.nicholls@tsplegal.com or by telephone on 01206 217031.