What is an Advanced Subscription Agreement?

In our ongoing series, "Anatomy of a Deal - The 9-step Guide to Selling Your Business," we've been breaking down the intricate steps involved in selling a business to provide clarity and guidance to business owners embarking on this journey.

In the previous instalments, we've covered crucial aspects such as engaging advisors, drafting heads of terms, conducting due diligence, preparing transaction documents, addressing disclosure, and finalising ancillary documents. Now, as we delve deeper into the intricacies of the deal, we'll explore the pivotal steps that take place during the exchange, completion, and post-completion phases.

In this part 2 of our Anatomy of a Deal blog series, we delve into the complexities of transaction documents, disclosure, and ancillary documents.

Business owners spend many years and a lot of effort building their businesses to the point where they can look to sell it, building a wide range of skills and tactics to deal with issues that arise.  However, the process of buying and selling companies is often outside their experience and can seem overwhelming. In the first part of our three-part series, we'll explore the initial stages of the sale process. From engaging advisors to crafting heads of terms, we break down the critical first steps on the path to selling your business.

As of 31 January 2024, significant changes are set to take effect in the certification process for high net worth individuals (HNWI) and sophisticated investors. These amendments, extending across England, Wales, Scotland, and Northern Ireland, will impact the financial promotions landscape, requiring individuals and firms to adapt to the new rules.

The Online Safety Bill recently received Royal Assent and became law in October this year (the “Act”), at which point the Office of Communications (“Ofcom”) was granted broad powers to regulate online service providers. Essential detail concerning the legislative framework within the Act will be disclosed in the course of consultation and stakeholder engagement concerning the secondary legislation, codes of practice and guidance which will underpin the Act.

Our investment and technology teams regularly advise tech startups as they progress from the initial pre-seed stage to being venture-funded enterprises on the cusp of an exit. Whilst the journey of every tech startup is unique, we’ve noticed that certain legal issues commonly crop up, and so we’ve created a case study to shed light on those issues and share our expertise on how to deal with them.

KNow Wear Limited has been going from strength to strength and is now looking to expand and market the product overseas. For our founders, this will mean significant time commitments over the next few years as they carry out their expansion plan. Chris has concerns about the business taking time away from his family and he is now looking for a less-demanding role. You, Chris and Sarah have an informal meeting to discuss Chris’ role in the business and the future of KNow Wear Limited.

The EMI share options which KNow Wear Ltd granted to Aggie and Edith in episode 12 have really worked to incentivise them; and thanks in large part of their efforts, the company is getting lots of advanced orders for the product. In order to ensure that the company has enough bandwidth to keep up with demand, you, Sarah and Chris have started to think about raising more funds. This is to ensure that the company can produce the number of units it needs to fulfil the orders, and then actually physically fulfil them.

In advance of trialling the product with a test group of 100 consumers you, Sarah and Chris are now turning your attention to compliance with data protection legislation, given that the trial phase will mark the commencement of the company processing a significant volume of consumer personal data. Users will need to provide their personal details in order to register an account with KNow Wear and reap the full benefits of the wellbeing wearable via the web-based platform which works alongside it.

KNow Wear Ltd is now starting to flourish. The sample products manufactured in Burnley have tested above expectations and the company is looking to take on new staff to build out the sales and development teams. It has a difficult task now however – how does it hire the best staff, when it can’t offer the best salaries?

The COVID-19 pandemic saw a rise in entrepreneurship, with the Bank of England reporting that contrary to the typical cycle of company creations, which tend to rise in booms and decline in recessions, the number of new companies set up during the pandemic in fact clearly increased.

KNow Wear Limited has used the investment received to date to further develop the wearable tech product to the extent that it now has a minimum viable product with basic features to introduce to the market. The company has identified a test group of 100 consumers who will test this version of the product and provide feedback. Following the test phase the company will collate the feedback and further develop the product before releasing a final version of the product to the market.

KNow Wear Limited have identified some overseas talent that they would like to hire to help to expand the business. This candidate does not currently have permission to work in the UK and therefore KNow Wear Limited is considering whether it can apply for a sponsor licence from UK Visas & Immigration (“UKVI”). Obtaining a sponsor licence, will then enable the company to go on and sponsor individuals to apply for immigration permission to work in the UK.

Having raised £500,000 and, in episode 8, hired a software developer, KNow Wear Limited is starting to flourish. As Ben Franklin wrote when the USA was in its infancy, nothing is certain except death and taxes. Knowledge of the UK tax system is valuable for any UK business owner, start-ups can dramatically improve their chances of success by ensuring they claim the various tax reliefs and incentives available. Episode 4 looked at the valuable tax reliefs a company can offer its investors, your focus today is on the tax relief (or repayment) available to companies carrying out research and development activities.

Social media has revolutionised the way in which we interact with businesses and each other and has shown that it can be a generous friend to business owners and entrepreneurs, helping them to harness a following, build their brand and grow a worldwide customer base. 

In our previous blog in our Lifecycle of a tech startup series, KNow Wear Limited secured investment of £500,000. Having completed the raise, you, Sarah and Chris have decided that you need more help in developing and marketing the product. You are looking to create two new roles in the business - the first is a Software Developer to support Sarah’s work and the second is a Head of Marketing.

Having decided in episode 4  of our lifecycle of a tech startup series on targeting angel investors to raise £500,000 investment in the business, the founders of KNow Wear Limited researched various angel investor networks which aimed to connect start-ups like yours with angel investors. You applied to pitch at a couple of events and were invited by one network to interview with them in person. The network was very impressed with the business and invited you to pitch at their next event.  

If you are involved in investing, either as a startup or an investor, you are likely to come across an advanced subscription agreement. So what is an advanced subscription agreement and what do you need to consider when entering into one? 

You are aware that the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) are two tax incentive schemes for individuals who invest in early-stage companies. What are the key considerations when determining whether a particular investment is eligible for SEIS/EIS relief?

In the last instalment we talked about the ways in which the founders of KNow Wear Limited could protect the intellectual property in their business. Since then, the business has been progressing well and our founders have been working on developing a prototype.