The LA Business

                                                                                                                    MARCH   2010

                                                                                                                   IN THIS ISSUE:

         The information contained in this
                                                                                                    for growth
         publication is for guidance only. No
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                                                                           Top tips for exporting

                                                                           Preparing a business for sale

                        0844 967 0785
                                                                           Creating brand value
                                                                           Don’t let hard times land you in jail
Bournemouth       Southampton               London
     for growth
     Sterling’s devaluation should have made the
           task of exporting easier and exporting
    reduces the dependency of your business to
            the economic fortunes of just the UK.

                          If you are trying to export you can
                          set up your own business in the
                          countries concerned but that is
                          expensive, or you may be able to
                          export by visiting trade shows and
                          selling on the internet.

                          Many exporters will use agents or        You also have to decide whether         Although we would recommend          assumption you had not                If you need advice specific to a
                          distributors in the countries they       to make the appointment                 your agreements – and you            terminated it. An alternative route   particular country, we can quickly
                          wish to export to. Often these           exclusive or not. It may be difficult   definitely should have written       to go is the so called ‘indemnity’    arrange that from one of our
                          terms are used interchangeably           to get someone to take an agency        agreements for this – should be      route where you can specify in        fellow member law firms in MSI in
                          but agents and distributors are two      or distributorship if you don’t give    governed by English law there        writing that this applies. The        more than one hundred countries
     “Before exporting,   quite different concepts.                them exclusive rights to the            may be non-excludable local laws     agent will then be entitled to a      around the world.
           review your                                             country concerned. If you do, you       to take into account. In certain     maximum         of     one   year’s
                          An agent is someone who goes             want to ensure you have                 parts of the world, agents and       commission earnings insofar as it     We are also panel members of
      insurance cover”
                          out and looks for orders on your         adequate rights to terminate if their   sometimes       distributors  are    is fair in view of the new business   the UK Trade & Investment UK
                          behalf. You fulfil the order and         performance is not good enough.         entitled to compensation on          he has brought you.                   Advisory Network.
                          deal directly with the customer.         Often this will be achieved by          termination of their agreement.
                          The agent is paid a commission.          minimum sales targets which, if                                              Other EU countries apply the
                                                                   not achieved, will enable you to        In the EU there are non-             rules differently but, if your
                          A distributor is someone who buys        terminate.                              excludable compensation rights       agreement     is   governed     by
                          from you and then resells on his                                                         “The original designer approach of the
                                                                                                           for agents on termination of their  English law, the
                                                                   If the appointment is to be             agreements. The English courts
                          own terms and at his own prices
                          to his customers. A distributor is       exclusive you need to consider
                                                                                                                            stop you English of a should
                                                                                                                   canthat this means anunlesscourtsdispute. prevail in
                                                                                                           have decided                        the event                              Contact us:
                          therefore taking greater risk and        whether you will carve out the right    agent you have his
                                                                                                                    should be paid the
                                                                   to sell direct to certain customers     “goodwill value” of his agency                                             01202 786165
                          the discount off your sales price
                          will be greater for a distributor than   and also to sell to OEMS if that is
                                                                                                                                                        exporting, you should
                                                                                                                   agreement” Before your insurance cover with
                                                                                                           which is calculated on the basis of review                                 david.ashplant@LA-law.com
                          the commission you would pay an          part of your business or likely to      what someone would be                your insurance broker as it may       www.lesteraldridge.com
                          agent.                                   become so.                              prepared to pay for it on the        need adjusting.

1                                                                                                                                                                                                                          2
                                                                                                                                                        “Branding your
                                                                                                                                                       business will add
                                                                                                                                                         significantly to
                                                                                                                                                               its value”

                                                                   In any preparation for sale a quick SWOT analysis will help. From a legal point of view, it might throw
                                                                   up matters such as:

                                                                   1. Key employee dependency                               4. Company law compliance
                                                                      If so, ensure you have a robust service agreement        Have you kept proper company books and
                                                                      with key employees (for example, covering                followed company law procedures? Failure to do
                                                                      matters such as non-compete and gardening                so may raise issues in a sale and a requirement
                                                                      leave) and incentives to keep them on board, ie          from the buyer for a retention. It is best to
                                                                      offering them a stake in the company’s future            regularise the position now.
                                                                      success. Having to negotiate for someone’s
                                                                      loyalty at the point of sale is likely to be more     5. Protecting your brand and your technology

    Preparing a                                                       costly than pre-sale.

                                                                   2. Customer/supplier dependency
                                                                      From a commercial point of view, you will want to
                                                                                                                               Have you done what you can to establish a
                                                                                                                               brand?      Branding your business can add
                                                                                                                               significantly to its value. Obtaining trade marks to
                                                                                                                               assist with this is not particularly expensive. Also,

    business for sale                                                 try and reduce this. From the legal perspective,
                                                                      you should look to put in place suitable written
                                                                      contracts if these do not already exist and also
                                                                      have written contracts with all major suppliers and
                                                                                                                               do you have procedures in place to protect your
                                                                                                                               company’s know how and trade secrets? Do you
                                                                                                                               ensure those that do design work and
                                                                                                                               development work for you transfer the intellectual
    As the recovery starts the opportunities for those wanting        customers to give a buyer greater comfort.               property rights in that work to your company?
    to sell their business should improve. However, to maximise
                                                                   3. Problem shareholders                                  All sorts of other issues can arise and a review with
    price you need to plan well in advance and prepare a
                                                                      Do you have shareholders who might seek to            your legal team will pinpoint those which might need
    business for sale.                                               obstruct a sale or hold you to ransom? If so, does     to be addressed. They could relate to almost
                                                                     your company’s constitution give you the means         anything but common matters arising include :
    This includes considering legal matters – being caught on        to overcome this or is there a shareholders’           environmental issues and how to deal with them,
                                                                     agreement that does so? If not, addressing the         problems on property leases or title to property,
    the ‘back foot’ in negotiations because of something spotted
                                                                     issue pre-sale is going to be easier than last         intellectual property and data protection.
    by the buyer’s lawyers that you have not prepared for is         minute deals when your negotiating hand will be
    unlikely to achieve the best result for you.                     that much weaker.

3                                                                                                                                                                                      4
    Creating brand value
    Two issues to bear in mind when you are deciding   If you have a registered trade mark you don’t have        “Brands sell, so
    on a brand name are:                               to rely on a so-called ‘passing off’ claim to stop
                                                                                                                 developing a brand
                                                       others using your name. To bring a successful
    1. Does anyone else already use it? If so, they    passing off claim you have to show established
                                                                                                                 should improve your
       may be able to stop you using it. You can       reputation and goodwill and that customers will           competitive position
       check if anyone else is already using the       think they are dealing with you when in fact they         and your bottom line”
       name you want to use by doing an internet       will be dealing with someone else. These claims
       search, checking at Companies House and         are complex and expensive.
       the trade mark section of the UK
       Intellectual Property Office.                   You register a trade mark against a particular class
                                                       or classes of goods and services. If just trading in
       If you plan to operate in markets outside the   the UK then you would register here. If trading in
       UK you should check there too. Also,            other countries, you need to consider protection
       remember to check what your brand name          there. You can apply for a Community Trade Mark
       might mean in the local language to avoid       to cover the whole of the EU by going through the
       any unintended consequences!                    Community Trade Mark Office in Alicante.

       If someone else is already using the brand      Remember that having chosen a name, if you use
       name you want to use, it does not               outside designers to come up with a style of
       necessarily mean you cannot use it. It will     displaying it or a logo to go with it, make sure they
       depend on what they are using it for and the    transfer the intellectual property rights in that
       extent of their use.                            design to you or you will not own it.

    2. Trade marking a brand name will add to its      You may wish to consider holding the brand name
       impact and value. If you have a registered      and other intellectual property of value, such as
       trade mark you can stop others using it for     any secret know how, patents or copyright, in a
       the products or services in respect of          separate vehicle from your trading company. Then
       which you have your registered trade mark.      if the trading company gets into financial difficulties   Contact us:
       However, you won’t get exclusive trade          and goes under, you can still use the brand name
                                                                                                                 01202 786165
       mark rights to a name which is descriptive      and those other items. This may not always work;
       of your goods or services (eg ‘Pub Grub’ for    if you are borrowing from a bank they will probably
       a chain of pubs serving food) so it’s best to   want security over all the companies in your group        www.lesteraldridge.com
       think of something unique.                      and not just the trading one.

5                                                                                                                                            6
     Don’t let hard
                          When times are      It recently imposed fines totalling     The OFT, as well as having the
                                              £40 million on recruitment              power to impose very significant
                         hard businesses
                                              agencies for price fixing and           fines, has the power to bring
                          may be tempted      collective boycott of another           criminal prosecution against those
                          more than usual     company in the supply of                involved. Jail sentences were

    times land you       to get involved in
                              cartels with
                           competitors to
                        share markets or
                                              candidates to the construction
                                              industry. Of the eight companies
                                              involved two are locally based:
                                              CDI Anders Elite was fined £7.6
                                                                                      imposed for the first time in a case
                                                                                      heard in 2009 and other cases are

              in jail
                                              million (which it has recorded in its   Those involved in cartels try to
                            customers, rig    2008 filed accounts resulting in a      operate in secret but in the digital
                                              loss for the year of a similar          age of emails secrecy is not easy
                        bids or fix prices.
                                              amount) and Fusion People was           to maintain. The OFT offers
                        The Office of Fair    fined £125,000 (again, a not            rewards of up to £100,000 for
                             Trading (“the    insignificant amount when its 2008      those providing information that
                             OFT”) comes      filed accounts showed it to be in a     uncovers a cartel and if a
                                              loss making position).                  company involved in a cartel
                        down very hard if
                                                                                      “whistle blows” it       may get
                        it discovers such     On top of the fines imposed in any      immunity     from         criminal
                                behaviour.    such matter is the huge diversion       prosecution and from being fined.
                                              of management time and wasted
                                              legal costs in dealing with the OFT     Cartels may be engaged in by
                                              investigation, not to mention the       rogue or uninformed employees
                                              adverse publicity and loss of future    but their company will still face
                                              business from angry customers.          liability. It is therefore important
                                                                                      that companies train their staff in
                                              Third parties suffering loss (eg        this area, particularly those in
                                              customers) can also sue for their       sales. Some time and money
                                              loss and such claims are                invested now could avoid a very
                                              becoming increasingly common.           significant liability and serious
                                                                                      business disruption at a later date.

7                                                                                                                            8
    5 tips for
    1. Culture

       Take some time to find out about the culture and way of doing
       business in your target market. Showing an understanding of
       their customs will create a lot of goodwill.

    2. Language

       If at all possible communicate in their language or at least be able
       to exchange pleasantries in their language. Your foreign
       competitors are likely to have local language skills.

    3. Under promise and over deliver

       You need to impress with your first order to establish a reputation
       and secure repeat business.

    4. Letters of credit

       You will need to get letters of credit set up to secure payment.
       Make sure you can satisfy the conditions for payment before
       going ahead and that the paying bank is known to you and that
       you will be able to get payment on presentation of paperwork to
       their London office.                                                   Contact us:

    5. Speak to the UKTI                                                      01202 786165
       There is support available for exporting.       Find out more by       www.lesteraldridge.com
       contacting UK Trade & Investment.

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