What we do
SMEs raising finance
Sources for finance raising
Finance raising is essential for entrepreneurs and start-ups to establish and expand their operations, develop new technologies and products, and invest in new staff, equipment and facilities.
Charltons understands that one of the most common problems for entrepreneurs and start-ups is the difficulty in obtaining access to capital.
We provide high impact advice to entrepreneurs, start-ups and small medium enterprises, Hong Kong SMEs looking to obtain finance and finance raising from various sources including, venture capital and private equity, banks and financial institutions, leasing and hire purchase arrangements, and asset-based financing such as invoice discounting.
Our lawyers provide an insightful and highly personalised service, building deep relationships with clients. We fully understand the concerns and expectations of founders and entrepreneurs of growing businesses. We advise businesses at every stage of the finance raising process, from start-up funding through “Series A” and subsequent preferred investor rounds, debt financing, pre-IPO investments and listings.
Venture capital and private equity
Entrepreneurs and start-ups may look to venture capital companies or private equity funds finance raising.
Charltons advises small medium enterprises, Hong Kong SMEs, on funds in relation to venture capital as a way of providing financial capital to early stage start-up and growing companies.
Charltons advises entrepreneurs and start-ups looking to private equity for finance raising, whereby investors and funds make direct investments into private companies to assist small medium enterprises, Hong Kong SMEs, with expanding working capital, funding new technologies and making acquisitions, or strengthening a balance sheet.
JV series – deadlock
Small medium enterprises, Hong Kong SMEs, may determine to raise capital and begin finance raising by issuing shares or setting up a joint venture entity with an equity partner. In the case of a 50-50 joint venture, the issue of deadlock may be material.
When will deadlock be an issue?
A joint venture in which two joint venture parties each own 50% of the shares of the joint venture company is sometimes known as a deadlocked joint venture. Such a joint venture will be governed by the principle that the joint venture parties must reach agreement on any step to be taken by the joint venture company: if they cannot agree on a certain course of action, the action will not be taken.
The structure and management of the joint venture will usually reinforce the deadlock position, eg:
- each party will be able to appoint an equal number of directors to the board
- the parties will take turns to appoint the chairman of the board and the chairman will not have a casting vote
- each party will have equal voting rights
- advance notice of matters to be discussed at board and shareholder meetings may be required to be given to each joint venture party or its representatives, and
- the quorum provisions may require representatives of each joint venture party to be present at board and/or shareholder meetings before they can take place
Importantly, a joint venture party should not be able to prevent decisions being taken by deliberately remaining absent from meetings and frustrating the decision-making process. Each joint venture party should therefore be required to procure that its representatives attend board and shareholder meetings.
Deadlocks may also arise where the joint venture is not 50/50 in relation to reserved matters, i.e. those requiring the approval of all joint venture parties. The list of reserved matters will depend on the bargaining power of the parties.
The parties will need to balance their interests in being able to veto key decisions against the need for the joint venture to operate efficiently. Even in 50/50 joint ventures, the parties may therefore allow the majority of day-to-day decisions to be taken by management without reference to the joint venture company’s board. Whatever the structure of the joint venture, the joint venture agreement and/or the articles of association should clearly specify which decisions will require unanimous approval and trigger deadlock resolution procedures if agreement cannot be reached.
For methods of resolution of deadlocks, please refer to Google for “SME – Start-ups”.