Useful Pointers if You Are Considering Investment in Your Business



Written By:

Theresa Grech

Partner and Head of Corporate (Cardiff)


1.     Consider sources of finance

There are a number of sources of investment funding. The type of investor(s) available to you will depend on a number of things; from the stage of the company, the sector in which it operates, and the amount of the investment you require.

Some examples are:

Business angels – these private investors (usually high net worth individuals acting individually or together with other individuals) invest directly in a company in return for shares in the company and perhaps a position on the board of directors. Business angels often seek to invest under the Enterprise Investment Scheme (EIS). The amount they invest will depend on the amount the business angel or group of business angels are willing to invest in the company.

Specialist private equity houses – these investors take a number of forms e.g. Investment funds; investment trust companies; venture capital trusts (VCTs) and banks (usually investing through a subsidiary company).

Corporate strategic investors – these are usually companies in the same sector as the company, which own perhaps complementary intellectual property and/or technology to the company. The investment by such corporate investors is usually to gain access to novel intellectual property and/or markets of the company.

You need to consider what type of investment would suit your business. Also, remember that once the investment is made, you are likely to be working closely with this investor so it is important that you can see that you will be able to have a good working relationship with the chosen investor.

2.     Prepare a business plan

Investors will want to know not only the status of the business, but also your plans for the company’s future growth.

A comprehensive business plan should deal with the following:

Overview of the company;

  • Products and services;
  • Target market of the company;
  •  Marketing/ sales plan;
  • Targets;
  • Management team and personnel;
  • Financial plan; and
  • Any recommendations.

Be clear what you want from the investment and how this will help you achieve the targets and recommendations set out in your business plan.  You will need to be clear with investors how you think their investment will benefit your company in the next one to five years.

3.     What documents can I expect to sign before contract?

Term sheet – an investor who has reviewed your business plan, and held discussions with management, may then proceed to issue a draft term sheet. This will set out details of the proposed investment and any additional rights it may expect in consideration for its investment.

The term sheet is not usually a legally binding agreement between the investor and the company (with the exception of some clauses that may be binding such as confidentially, exclusivity etc.). Although not legally binding, you should seek advice on the term sheet from professional advisers, so that you understand the terms of the proposed investment and the effect it will have on the operation of the company.

Confidentiality agreement/ Non-disclosure agreement – sometimes an investor may require you to sign a separate confidentiality agreement. However, sometimes the confidentiality obligations will form part of the binding terms of the term sheet (see above).

4.     Prepare for due diligence

An investor will raise due diligence enquiries in relation to a company before they invest. You should therefore, ensure you get your house in order at an early stage – this will give the investor confidence in the company and management before it invests.  It will also help you avoid any future legal issues in the future.

Both legal and financial due diligence are undertaken by investors:

  • Financial due diligence – in early stage investment rounds, the investor will likely undertake its own financial due diligence, rather than appoint a firm of chartered accountants to report on the company's financial position.
  • Legal due diligence – the investor will likely appoint a lawyer to undertake the legal due diligence on the company. The extent of the due diligence required by the investor will depend on the trading history of the company e.g. an investor will undertake basic due diligence on an early stage company with little or no significant trading history.

Areas that the due diligence will potentially cover are as follows:

  • Reviewing the structure of the company – i.e. the board and shareholders;
  • Reviewing the employment contracts for the current directors and key employees;
  • Reviewing the company’s current business plan;
  • Reviewing the company current property arrangements;
  • Reviewing the company’s existing banking arrangements and other facilities;
  • Reviewing any existing intellectual property licences, or, research and development agreements with third parties;
  • Reviewing the company’s material customer and supplier contracts.

If any issues arise from your review, you should contact your lawyer so that they can address any potential problems.

5.     What approvals will I require?

As with any transaction, the company will need certain approvals in order to proceed with any proposed investment:

Board approval – the proposed investment should be approved by the Board at each stage e.g. they should approve the business plan, the term sheet, the investment documentation etc.

Shareholder approval – shareholder approval will be required as part of the investment e.g. the new issue of shares to the investor; adoption of new articles of association (see below); execution of the shareholders’/investment agreement; waiver of any existing rights of pre-emption in relation to any new issue of shares etc.

Existing investors or bank approval – if the company already has investors or loans from the bank, their consent may also be required to any investment.  Any rights that such parties have is likely to be contained in the existing investment agreement or in any loan agreement. The requirement for consent will arise during the course of the legal due diligence exercise (see above).

Material customer consent – if the new investor proposes to subscribe for more than 50% of the share capital of the company, then this may breach a change of control clause in any existing material commercial contract. Again, the requirement for consent will arise during the course of the legal due diligence exercise (see above). If this is the case, the company will need to seek consent to the investment from the relevant material customer before completion.

HMRC clearance may also be required depending on the source of the investment funds -your accountants will be able to advise you in this respect.

6.     What documents will I be expected to sign?

The principal documents you should expect to sign as are follows:

Articles of Association – this is a public document filed at Companies House and sets out the rights attaching to the shares in the company.  It is likely that the investor will want shares, which have preferential rights over the ordinary shares in the company (preference shares). This will require changes to the Articles of Association, to accommodate the creation and rights afforded to the preference shares, which the investor requires.

The investment agreement – this is a private document made between the investor, company and shareholders.  It will set out the basic terms of the transaction e.g. the amount due to be invested, the shares to be received by the investor, and the terms upon which the investor will invest.  It will govern the ongoing contractual relationship between the investor, management and the shareholders of the company.

Disclosure letter – it is likely that the managers will have to give a number of warranties to the investor about certain aspects of the company. An investor will expect the managers to stand behind the supplied information upon which it is relying to make its decision to invest.  A disclosure letter is a letter given by the managers to the investor, which details matters that are inconsistent with the warranties. If the investor accepts disclosure of a particular matter in the disclosure letter, it will mean that the investor will be deemed to have knowledge of the disclosed matter, and that the disclosed matter will qualify the warranty and will therefore be non-actionable.

Service agreements – the investor will want to ensure that key employees are tied into the company by way of a service contract. Even if these key employees already have contracts with the company, an investor is likely to insist on them entering into a new contract in a form, which is acceptable to the investor.

The above does not constitute legal advice nor is it complete list of issues to consider pre-investment.

Should you need help in relation to proposed investment in your company, please do not hesitate to contact Partner & Head of Corporate at Ince (Cardiff), Theresa Grech, on 07849 834082 or [email protected]  or your usual contact at Ince.


Ince has strong roots in Cardiff; as local solicitors Francis Ince and John Ingledew first set up practice here before founding the firm in 1870. We are proud of our heritage; which has enabled us to cultivate a seamless ‘one-firm’ approach across our global group.

We understand the ever-changing market in England and Wales, and how to support the growth of your business. Whether you are a business start-up or an established multinational corporation, through our Cardiff office you can access fully serviced commercial legal advice. Our Cardiff team also provides advice to individuals across the full-spectrum of personal law matters; from family law to residential property.

As a part of The Ince Group, an international legal and consultancy services provider with offices across Europe, the Middle East and Asia, we work seamlessly with other leading regional and international firms to offer you a wealth of legal services.


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