Just how thorough is your due diligence?
“When you invest in a company – whether it be your own capital or as part of an investment strategy for your clients – you naturally undertake due diligence to ensure that it makes sense and that everything stacks up. Do the financials add up? Do they have the right IP in place? And ultimately, are they invest-able?”
Eloise Ellis of Larks, recognised by Angel News as one of the top “15 Heroines of the UK Angel Market,” discusses the value of due diligence.
“So assuming they tick all the right boxes and you’ve invested the money. What happens if the company become embroiled in litigation? What if they have a fire and lose all of their stock? If they don’t have the right insurance in place then that may be the end of the business and your (or your client’s) investment.
“Insurance is often at the bottom of the list of boxes that need to be ticked, and even then it is normally a case of ‘have they got insurance?’ rather than, ‘is it the right cover’?
“A due diligence exercise covering the insurances could prove to be of benefit for a number of reasons, none more so than to ensure that the assets, people and future earnings of the business are adequately protected.
“Each case is different, and we adopt a made-to-measure approach for each of our clients. However, the key insurances to consider that apply to the majority of businesses are as follows:
- Public Liability Insurance – This covers a businesses legal liability to third parties for any property damage or bodily injury that is caused in the course of the business activities. The policy covers defence costs and damages awarded against the company up to the chosen policy limit.
- Product Liability Insurance – This is similar to Public Liability, but specifically relates to liability that leads to injury or damage arising from products that the company supply, design, manufacture or sell.
- Employers Liability Insurance – This is a legal requirement and companies must buy cover or else face the possibility of fines and/or imprisonment. We come across a lot of companies where there are two directors and no staff and they thin that they don’t need the cover, but under HSE regulations, if the company is limited and there is more than one director then they must still buy the cover, even though there may not be any staff.
- Directors & Officers Liability Insurance – This is often an after thought, when really it should be the first thing that start-ups buy. Policies provide cover for financial protection for the Directors & Officers of the company in the event they are sued in connection with the performance of their duties as they relate to the company. Even though the company may have a limited liability, the individuals liability is unlimited and personal assets are therefore at risk. There are over 200 possible offences that could give rise to a claim from the Companies Act alone, plus there is the Health & Safety at Work Act as well as Employment Law to name but a few.
Read the full article on linkedin.