Brewery’s Successful EIS Fundraising Round

Introduction

Our client, a thriving brewery (“Company“), sought to secure up to £500,000 investment under the EIS tax relief scheme. With the looming deadline for raising funds and issuing shares, the Company was aware of the time constraints and the need for swift action. Effective communication between the Company and potential investors was crucial, especially considering that many investors were investing in a company for the first-time.

How We Assisted

Financial Conduct Authority (“FCA”) Considerations

The Company sought funding from local business owners and customers. However, when seeking such funding it is vital that a careful and considered approach is taken when approaching investors and preparing the necessary documents.

The Company initially undertook a very limited probe into who would be interested in investing before providing more extensive information regarding the offer of shares.

We advised that an offer of shares cannot be an offer to the public and that an individual seeking to invest in the Company will be required to self-certify that they meet the necessary FCA requirement (i.e., being an everyday investor, sophisticated investor, or high-net-worth investor).

To assist the Company further we produced:

• an everyday investor certificate;
• a sophisticated investor certificate; and
• a high-net-worth certificate,

to ensure that each investor was aware of the risk associated with investing in the Company and were satisfied that they met the necessary requirements as an individual investing in the Company.

It is key to any funding round that each investor meets the necessary requirement as an individual, is aware of the risks, and the offer has not been made to the public.

Articles of Association

To safeguard the interests of both existing shareholders and incoming investors, we focused on updating the Company’s constitutional framework. We tailored the articles of association to incorporate essential provisions such as:

• pre-emption rights;
• drag along and tag along rights, enabling majority shareholders to force minority shareholders to sell in an exit scenario and to also allow minority shareholders to sell their shares alongside majority shareholders where a third party is looking to take control of the Company; and
• provision for the repurchase of shares by the Company, within legal limits outlined in The Companies Act 2006.

Shareholders Agreement

We also prepared a comprehensive shareholders’ agreement to outline the rights and obligations of all parties involved. Our tailored agreement included:

• mandatory inclusion of investors and future shareholders in the shareholders’ agreement via a deed of adherence before any allotment or transfer of shares;
• establishment of good and bad leaver provisions to govern share valuation in potential employee or consultant exits; and
• imposition of restrictive covenants to safeguard the Company’s business interests and each investor’s investments.

Subscription Agreement

To streamline the fundraising process, we designed subscription agreements that provided clarity and structure for each investor, incorporating:

• deed of adherence provisions ensuring new investors’ inclusion in the Company’s shareholders’ agreement (without the need of a separate deed of adherence document); and
• flexible completion terms allowing the Company to close the round in proximity to the EIS deadline.

Ancillary Documents

Written Board Resolutions:

We facilitated the recording and approval of varying decisions by the Company’s directors in connection with the fundraising round through written board resolutions (preventing the need for a formal board meeting to take place), ensuring compliance with the director’s statutory duties and the Company’s adherence to its constitution at the time.

Written Shareholder Resolutions:

To implement amendments to the Company’s articles of association, enable the issue of shares to investors by disapplying pre-emption rights, and shareholder resolutions were prepared and executed by the Company’s shareholders,

Companies House Filings:

We completed the necessary SH01 form filings to document share allotments to the investors, including details of the amount paid for each share.

Share Certificates and EIS Compliance Statement:

Upon completion of the fundraising round, we prepared and circulated the signed share certificates to each investor before preparing and submitting an EIS compliance statement application on behalf of the Company. This application has to be submitted to HMRC wherever a company raises EIS investment, in order for investors to be able to claim EIS tax relief on their investment. Once approved, HMRC provides us with the EIS 3 certificates and we completed the first page of each certificate before circulating the certificates to each investor with instructions on how to complete the remaining pages.

Throughout the fundraising round we used our DocuSign account to maximise efficiency and improve communication with investors, this process allowed us to provide regular updates to the Company so they can keep track of who has signed what document.

This successful fundraising round exemplifies our commitment to providing tailored legal solutions that facilitate growth and mitigate risks for our clients.

If you are interested in raising EIS investment, our experienced solicitors can help. For most new matters we offer a 20-minute introductory call to find out more and discuss the proposed fundraising round before providing you with a relevant fee quote.