Corporate mistakes your business may have made

...and what you should do about them.

Corporate requirements can be fiddly and, sometimes, unintuitive. It is easy for businesses to trip up on corporate issues. In this series we look at 10 of the most common corporate mistakes companies make, and, more importantly, what they should do about them.

When does it happen?

When two businesses join forces, perhaps with a hope of creating synergies and a “whole” bigger and better than the sum of its parts. In the UK, companies don’t actually “merge” into one entity (subject to very limited exceptions) – typically one company buys the other or a new company buys both of them. The respective businesses and assets are then normally transferred into one entity (in theory leaving one or more empty companies). Often young businesses do these restructures (understandably) on a shoe-string budget.

What mistakes are made? 

It depends, but for example:

• Formal requirements for transferring certain intellectual property and client contracts are missed – for example for a client contract to be properly “novated” (i.e. fully taken on by a new company) there needs to be a tripartite agreement between the old company, the new company and the client.
• Transfers where employees are involved trigger TUPE and the relevant requirements are not complied with.

Tax implications are also sometimes not properly considered.

Why does it matter? 

Assets can be in the wrong company if they have not been properly transferred (which is especially problematic if that company has been wound up). This creates additional complexities (and potentially significant cost) when the business needs to demonstrate that it owns the relevant assets – for example in the event of a potential claim or if the business comes to sell.

There can also be unforeseen tax implications which were not dealt with at the time of the “merger”, for example if one shareholder ends up with a piece of the bigger pie worth more than their smaller pie.

What can you do about it? 

If the “merger” was a long time ago, then the risk can be smaller. However, it is always best to make sure you keep all your records and get legal and tax advice if you have any concerns about how it was implemented. It will always be easier to address any issues when the need is not pressing.

Interested in reading what other mistakes you business may have made? You can read the full article with #1 – 10 here.