‘We’re a family-owned business planning to bring in outside investors, but we’re concerned about protecting our confidential information and maintaining control. How can a commercial lawyer assist us with this?'
Bringing in Outside Investors Without Losing Control: How a commercial lawyer can help.
For many family businesses, attracting external investors is a strategic way to fund growth, expand operations, or support succession planning. However, it can also bring challenges to family businesses that want to protect their confidential information and maintain control over the business they have worked so hard to build. A commercial lawyer that strategically partners with your family business can assist with options to get the best of both worlds.
- Protecting what’s private
Investor discussions require sharing sensitive financial and operational details. You should always ask any investors to sign a confidentiality agreement (also known as a non-disclosure agreement) to clearly identify what information is confidential and how that information is permitted to be used. This agreement will also dictate how confidential information is returned or destroyed if the investor decides not to join you.
You can negotiate for certain information to be provided in stages, meaning that you can choose to release certain information after a milestone has been reached.
If you are introducing external investors for funding reasons, your confidentiality agreement or subscription agreement (the agreement that allows them to receive an interest in your business, depending on how your business is legally structured) can also prohibit the investors from approaching competitors or using information for other purposes.
- Maintaining family control
Inviting external investors into the family business does not mean that you must lose control of your business. The family are in control of setting a framework about the expectations that they impose on external investors.
A shareholders’ agreement, for example, governs the relationship between the shareholders. It covers matters relating to decision-making power, dispute resolution and matters that need a greater degree of consensus (such as decisions relating to the sale of business etc). This document supplements the constitution and is tailored for the business’ specific needs. Most importantly, this document should exist side by side with your family charter. It should be used as a mechanism to construct a decision-making framework that supports the values and objectives that are articulated in your family charter and are important for the broader family business.
External investors can also be offered different types of interests in the business (such as different share class rights) that limit decision-making in certain areas. Ultimately, a commercial lawyer can take your objectives and determine the best way to achieve them in the legal framework.
It can feel like an overwhelming decision but remember “you can’t steer a stationary ship”. When thinking about bringing on external investment, a family business advisor will guide you through the options that are available to you which align with your family and business goals, and don’t cause you to give up what is important to you.
By SA based Family Business Accredited Advisor
Lisa Christo
Director
