Share Issue to raise capital

[Sconhome]

I have had a look through the search system and have no luck finding information. I am trying to find out if this is possible and educate myself before approaching mu accountant.

We have a couple of new products and construction systems that we are planning to introduce, along with this development is the need for IAB certification and the planned attainment of codes ISO 14001 and 900 in our company systems.

Despite having a strong forward order book on our key business, our bank is very reluctant to help finance our progression in any manner. So much so that a lot of time and effort is being focused on pleasing the bank rather than developing our business.

The plan being considered is to approach family and friends and possibly some very good repeat clients in order to raise working capital to fund this growth. Of course there is a risk but the hope is to spread this in issuing 100 shares of equal value blocks of €1,000. Naturally the intention is a dividend per annum and an interest accrual over a fixed period, possibly 3-5 years to allow comparison with a bank bond or savings scheme, followed by full pay back of the initial investment. Our investors would retain their shareholding and gain a future dividend on all profits.

Can anyone advise on the methodology of introducing such a system?
Is is a matter of issuing more shares from the company causing a dilution of the existing 100 share allocation?

Advice and referral sites would be greatly appreciated.

Thanks,

Sean

 

[WaterSprite]

You should consult a commercial solicitor for this. You will definitely need an amendment to your Articles and/or a shareholders' agreement - the detail of this will depend on the complexity of the shareholding structure and (TBH) the sophistication of your investors. It's similar to getting venture capital funding and a good resource for information on that type of thing is the Irish Venture Capital Assoc (http://www.ivca.ie/) - their website has an explanation of the various forms of investment and a sample shareholder agreement. Bear in mind that it's obviously VC-biased, but the concepts for any investment are the same.

The standard order of events would be
- get a company valuation
- decide what %age of the company you want to allow investors to buy
- decide what structure you want (you appear to want to issue coupon-carrying redeemable shares)
- get investors on board (you should have a clear business plan for this)
- draft shareholders' agreement (for e.g. if I was investing, I would want certain restrictions on what the company can do without my approval)
- draft new Articles (for e.g. I'd want protection on pre-emption)
- necessary corporate action, like AGM, increase of share capital, issue new shares filings with CRO etc.

Bear in mind that you can only pay dividends or redeem shares out of distributable reserves, so you need to be profitable in order to do this.

The best place to get advice on this is a commercial solicitor.

Sprite

 

[MOB]

I acted in a recent fundraising in a similar scale ( a dozen investors; a little over €150k raised for circa 25% of the company); The IVCA standard documents are excellent but, in my opinion, a touch onerous and perhaps more suited to a fundraising over the $0.5m threshold. My client in this case was completely put off by the IVCA documents and instead of trying to amend them, we started from a clean slate with a more straightforward set of documents.

There are relatively complex document requirements if the thing is to be done properly. You could expect to spend well north of €12k plus VAT if you are offering shares to outsiders. There may be scope for slimming down the thing a bit if you are selling to friend\family\customer.

Google "Private Placement Memorandum" if you want to see the type of thing involved. Also try "Angel Investor Agrement". A lot of what you see will, of course, be American. But the principles are much the same.

 

[Sconhome]

Sprite, MOB thanks a mil for the pointers. I would hope to keep it a simple as possible but also to do it right.

 

[henry]

Sean,

I don't know if your business qualifies, but have you looked at the possibility of applying to the Revenue to set up the fundraising under the BES legislation. Would make the exercise more attractive to investors.