15
Nov

Richard TurnerAs business enterprises have grown in size and complexity, it is not uncommon to find them owning and/or controlling one or more subsidiary corporations. These subsidiary corporations may be for-profit subsidiaries, or in some cases even nonprofit subsidiaries. In either case, the relationship between a parent company and a subsidiary may create some unique problems for the parent company.

Why A Subsidiary?

There are many reasons why a business enterprise may establish a subsidiary corporation. These reasons often include, for example:

(1) the parent company desires to engage in a new line of business activity unrelated to its current business;

(2) the existing or projected revenues from the new line of business activity are substantial;

(3) the business enterprise prefers not to expose its assets to the liabilities associated with the new business line; or

(4) the new business activities may carry risks of liability unacceptable to the parent;

(5) the parent is a public corporation and it desires to keep the subsidiary privately held;

(6) the parent wants to posture the subsidiary for going public without affecting the parent’s shareholders; or

(7) that the organization desires to reward certain employees with increasing compensation, etc.

The Parent/Subsidiary Relationship

It is common to use the term “parent/subsidiary” when describing the relationship between a business enterprise and its subsidiary. But, a caveat is in order here. The term “parent/subsidiary” is not equivalent to the term “parent/child”. This is an important point.

While the parent business enterprise may incorporate its subsidiary corporation, name its board of directors and officers, enunciate the subsidiary’s business purpose, adopt bylaw provisions preserving the parent’s control of its subsidiary, etc., it is important that the subsidiary be established and recognized by the parent, as well as third parties, as an independent corporation managed by a board of directors.

Subsidiary Independence: A Stumbling Block?

The matter of subsidiary independence is oftentimes a stumbling block to the parent business enterprise which may view an independent subsidiary as an uncontrolled subsidiary. But recognizing a subsidiary as an “independent” corporation is not the equivalent of regarding the subsidiary as “uncontrolled.” At all times, provided that appropriate bylaw provisions are adopted and maintained, the parent has the legal authority to hold the subsidiary accountable to meet “bottom line” financial objectives, to pursue acceptable policy mandates, to fulfill its goals and to otherwise conduct its affairs in a manner pleasing to the parent.

How Does The Parent Control An Independent Subsidiary?

Upon reaching a decision to organize or acquire a subsidiary corporation, the business enterprise parent controls its subsidiary by being its sole stockholder. By holding, i.e., owning all of the subsidiary’s voting stock, the parent has the power to elect and remove the entire board of directors.

To maintain control of a subsidiary and at the same time allow the subsidiary to operate as an independent entity under the direction of its board of directors, a parent business enterprise should:

(1) be the sole shareholder;

(2) include voting control provisions in the subsidiary’s articles of incorporation along with provisions that prohibit amendment of the articles without the approval of the sole shareholder;

(3) prepare comprehensive bylaws defining the designation and authority of officers, their term of office, their removal (for cause, or for any or no reason);

(4) include in the bylaws the procedure whereby the parent elects and removes directors; and

(5) prohibit bylaw amendments without the sole shareholder’s approval, etc.
The board of directors of the subsidiary are responsible to manage the business and affairs of the subsidiary. The board selects officers and the officers are responsible to execute the policies of the board. The officers of the subsidiary do not “report” to the officers or board of the parent nor are they responsible to the officers or board of the parent corporation. This does not mean, however, that there is no communication between the subsidiary’s CEO and the parent. After all, the parent owns the subsidiary and by virtue of its ownership or control is entitled to examine the subsidiary’s financial reports and business plan, and to otherwise hold the subsidiary and its management accountable for the performance expectations of the parent.

What Legal Risks Are Likely In The Parent/Subsidiary Relationship?

A parent corporation may hold its subsidiary accountable for the expectations of its board of directors. And, this is the purpose of the parent’s control of its subsidiary: to hold it accountable for performance. As long as the parent permits the subsidiary to act independently under the direction of its board, there is little risk to the parent of being found liable for the negligence or wrong-doing of the subsidiary. After all, the parent in a parent/subsidiary relationship is merely a stockholder, and the law is clear that a stockholder is not liable for the actions, debts, or obligations of the corporation.However, if the parent exercises excessive control over the subsidiary by, e.g., commingling funds, interchanging employees, having its board serve as the board of the subsidiary, sharing office facilities, using a common letterhead, and otherwise blurring the distinctions between the parent and the subsidiary as separate independent corporations, then each corporation is at risk for the unfunded liabilities of the other under the legal doctrine of “alter ego.”

Under this doctrine, a litigant may “pierce the corporate veil” of the subsidiary corporation and reach the assets of the parent corporation under the theory that the two corporations, for legal liability purposes, are not two independent corporations, but are but one corporation in fact. In this way, the litigant may seek payment of an unfunded liability of one corporation from another corporation. It must be noted, however, that a litigant pursuing an alter ego theory of liability has an uphill fight. Courts are not likely to permit a litigant to “pierce the corporate veil” of a corporation and reach the assets of its parent shareholder, unless it is abundantly clear that the two corporations were indistinguishable as separate corporate entities and are operating as one corporation.

How Should The Parent/Subsidiary Relationship Be Managed?

The parent corporation, by virtue of its voting control of the subsidiary, has the power to hold the subsidiary accountable for its performance. Since the parent retains voting control, it has the authority to select the subsidiary’s directors. This is a most important aspect of the parent’s control of its subsidiary. By selecting qualified, and to some extent indoctrinated, directors, the parent puts into place the subsidiary’s board of directors. This board manages the business and affairs of the subsidiary, makes policy, selects its officers, provides oversight of the subsidiary’s activities, and functions as the subsidiary’s governing body.
The parent’s selection of the subsidiary’s directors is a critical exercise of authority. A wrong-headed decision here risks mismanagement of the subsidiary.

Thus, not only should the subsidiary’s directors be selected with care, they should be “schooled” in a formal board training program which teaches individuals what they should know about being a director of a corporation. Not everyone is suited for being a director of a corporation. Today, a business corporation can often present challenges which tax the ability of the most gifted board members. While it would be a stretch to impute liability to a parent corporation for its “negligent” selection of subsidiary directors, nevertheless prudent selections should be made, and individuals selected as directors should undertake a board training experience to prepare them to meet the challenges of the corporation they serve. A procedure for schooling directors is a matter best defined by appropriate provisions in the subsidiary’s bylaws.

 

 

18
Oct

Jeremy LawrenceWe had a terrific reaction to the iPad offer. Thanks to all those who are already in line for one and for the rest – there is still time! Because it was so popular, we are going to extend the iPad offer to the end November.

And this update brings a new offer – please see below. This is an exclusive – something you won’t see anywhere else!

Business Review

Like everyone I speak to, the summer was predictably quiet and although we signed up some really interesting new clients and did some great deals, the level of activity was lower than usual. Since the end of the summer, the level of good enquiries has rocketed up – thanks to all my brokers and other introducers!

However, I think we have shared a similar experience to others – namely an all round reluctance on the part of potential prospects to commit.

I put this down to genuine and understandable fear and uncertainty at both the micro and macro level – better to do nothing than to make a wrong decision.

Our strategy for this economic climate – let’s work together!

My view is that if a business is reluctant to commit there is not much anyone can do to change that and it may well be the right strategy anyway. However, not committing need not be the same as doing nothing.

As I think you are all aware our single invoice factoring product can work very well in an uncertain marketplace because of the fact that the client makes no commitment

I think we can use this to everyone’s advantage. Why not think of single invoice factoring as a safe way to help your potential clients to dip their toe in the water without having to make a decision which is later regretted? Once that client has experienced the benefits of factoring as a concept there is a good chance they will want to talk to you about moving to a full factoring facility.

So if you are a funder or a broker working with other funders, let’s talk about ways of working together. We can get your prospects started using single invoice factoring while they make up their minds about committing to your full factoring offer.

Case Study

A business supplying the construction industry was turning down business for fear of being unable to finance the upfront purchases needed to start the work. Catalyst agreed to open a facility which potentially gave him around £150k line of credit. As a result of having access to cash at short notice, this client was;

a) able to negotiate improved terms with suppliers by ordering in larger quantities and paying up front and

b) was able to take on profitable business which he would otherwise have turned down.

Most of our factoring cost was covered by the supply discounts he was able to negotiate and the ability to expand has turned the business round from break-even static to profitable growth. If things carry on as they are, his need for factoring will reduce and he has the comfort of knowing that he can stop using our service any time he wants to

And now to the new offers;

1) iPad as before extended to 30 November - see my previous post for details
2) Portrait photography offer (same terms as for iPad)
Why not treat yourself and your family to some really top quality professional portrait photography? Catalyst will pay up to £400 of sitting fees and prints by Sylvain Guenot who is one of the best professional portrait photographers in the country.

For examples of his work look at his website – http://www.portrait-photographer-gloucestershire.co.uk/

11
Oct

IPL joins forces with Catalyst Venture Partners to provide a leg up to early stage IT companies

Catalyst IPL Partner ProgrammeNew partnership between corporate finance advisors and IT services company provides young software companies with combined investment and research & development assistance to boost business growth.
Download press release

Press Release 11 October 2011: IPL, an IT services company specialising in business intelligence and information management, has partnered with corporate finance advisers Catalyst Venture Partners to provide businesses with a combined investment and software development proposition that is specifically designed to help small technology businesses enter new markets and accelerate their growth.

Catalyst Venture Partners provides early stage technology businesses with development funding, commercial expertise and consultancy in order to help grow the businesses into highly successful operations. The partnership with IPL will mean that once an organisation is identified that has a strong proposition and concept, the IT services company, with extensive software development expertise, can be brought in to help define, drive and deliver the development of the software product or portfolio.

Richard Turner, CEO at Catalyst Venture Partners, comments, “There are plenty of businesses in the UK SME technology market that have excellent propositions and the potential to radically change their respective markets, but simply investing in them is not enough to help them realise that potential. Often, technical guidance is required on the best ways to develop the software and the practical requirements of bringing the product to market. We therefore needed to partner with an organisation that could offer reliable direction and assistance, no matter what the technology or industry sector.”

Turner continues, “We chose to partner with IPL because of their broad experience and success in multiple vertical markets and in high-profile and demanding projects, including for the public sector, defence & aerospace and telecoms. We had to be certain that if we were going to invest time and money into these organisations, we could be confident that the IT services partner who we entrusted with guiding the software development would be able to deliver success. IPL’s highly impressive track record with so many varied projects meant that trust became thoroughly implicit.”

Shaun Davey, CEO at IPL, comments, “IPL as a business has an enviable reputation of success in high profile projects and in the development of new products to enhance our clients’ portfolios. However, it was important to us to show that we are not solely focused on blue chip companies or large public sector departments, but are equally interested in and equipped to help smaller organisations with their software and product development. Joining forces with corporate finance advisors such as Catalyst Venture Partners, especially considering their history of working with technology companies in their early stages, allows us to approach SMEs that have ambitious ideas for their own organisations and their markets and use our broad expertise to help them achieve those goals.”

The new partnership is open to UK B2B or B2C entrepreneurial technology start-ups, or companies with proven propositions, in any sector. Following successful application for funding, IPL and Catalyst will work together with the partner organisation to develop the software prototype, test the final product and ensure its market feasibility so that the new products can be profitably launched to the target market.

Turner concludes, “Securing investment from third parties has been notoriously difficult in the current economic climate, meaning that we have had to create inventive ways to make investments more secure and less risky. Technology companies in the UK that aspire to lead their markets but lack the expertise with which to develop – both from a technical and commercial stance – are now able to take advantage of a funding package that brings with it proven exceptional practical benefits.”
ENDS
About IPL: www.ipl.com

IPL – Information Processing Limited – is a software development and consultancy company, established in 1979, based in Bath and has 260 employees.

IPL prides itself on its professional and reliable approach to software development, delivering ‘right first time’ solutions which significantly reduce Total Cost of Ownership.

IPL’s quality, environmental and information security management systems are certificated to ISO 9001/TickIT, 14001 and 27001.

IPL provides enterprise level solutions for major industry sectors including aerospace and defence, banking and finance, emergency services, government, telecoms and media.  IPL’s clients include Nationwide, BT, ITV, Thales and Sony.

5
Oct

Richard will be giving a paper on ‘Routes to Funding’ next Friday. Alpha Version’s annual event for tech ventures in the software, digital media, consumer applications and Web 2.0 space.

The event offers the opportunity to meet some of the most active investors in UK, hear their thoughts on the investments they are looking for and discuss your plans with them over lunch. Other participants include:

Oscar Jazdowski: Head of origination, Silicon Valley Bank UK

Kevin Douglas, Partner, Antrak Capital

Dan Somers: Partner, Boundary Capital

Tickets are available from the Alphatech website.

Date: Friday 14th October

12 Henrietta Street
Covent Garden
WC2E 8LH London

21
Sep

Win an iPad with Catalyst IFG!

Posted by RB   Categories: Blog   No Comments »

Win an iPad2

Win an iPad2

Here at Catalyst we have become quite specialised (and quite good) at Single Invoice Factoring. In fact in July we completed our fastest deal for an existing client. The invoice was submitted for funding at 11.30am and cash was in the client’s account at 2.00pm the same day. So that’s our new target –2½ hours from start to finish!

Catalyst survives on introductions and we are happy and proud of the large number of professional firms and other finance providers and advisers who are already recommending us to their clients. We want to say thanks to them and hopefully encourage others to give us leads as well.

So we will be handing out iPads to all our introducers over the next two months.

Like everything we do, the rules are simple. ..If you introduce us to a client between now and the end of October 2011 and we are able to complete a deal which involves factoring a minimum of £50,000 of invoices for at least a month then we will send you an ipad2. It will be sent to you as soon as the invoices have been paid.

The more deals you do, the more iPads you get! So that’s the Christmas present list sorted out – just get referring!.(NB: this offer does not replace any brokerage you may earn on the deals you refer to us.)

A reminder about Single Invoice Factoring:

Key features? It’s just like traditional invoice factoring but….

  • It’s non-contractual:
  • There are no fixed fees
  • It’s quick and easy to set up;
  • It’s incredibly flexible and;
  • It requires virtually no administration
  • Above all it gives businesses unprecedented control over cash flow – it’s like a tap which can be switched on and off according to the actual day to day cash needs of clients.

Recent Case Study

A Company in Exeter with a long history and good client base had run into difficulties. The bank was supportive to a degree but the account had been transferred to “special measures”. The business was struggling to recover and was being starved of cash. The bank could not extend more facilities and frequent returned direct debits and bounced cheques were incurring massive fees and unauthorised overdraft charges.
After a short review we were satisfied that the business was not only fundamentally sound but had a great customer list and strong customer relationships. All our “one-off” agreements were put in place within a few days but there was a delay before we could actually start helping while the bank looked at its position. Clearly we couldn’t do anything without a debenture waiver from them.Once the waiver had been granted we moved very quickly and started buying invoices within a couple of days.

We now hold more than £200k of high quality invoices at any one time and will continue to support the business for the foreseeable future.

The Company’s FD commented: “Catalyst IFG’s Single Invoice Factoring product has proved to be a really helpful and flexible solution giving us the breathing space we needed to tackle the internal issues. Without this it is hard to see how the business could have turned itself round. The fact that the facility is there only for as long as the business needs it means we have the flexibility to cut back and then stop using it as soon as we want to”.

To finish – If you are thinking of making an introduction and are not sure it will work for Catalyst then please just give me a call and let’s talk it through. If I can help I will and if not I will tell you straight away and let you know if I can think of an alternative solution. I like trying to solve problems!

Please get in touch!

Jeremy Lawrence

Catalyst IFG 0845 528 0788

21
Sep
Weymouth launch of GreenMotion charging stations

Stewart McKee, Green Motion managing director (far right), watches on as Councillor Peter Finney MBE, the portfolio holder for Dorset Highways and Transportation, opens the authority’s new Green Motion electric vehicle charging stations, in Weymouth.

 

Catalyst Venture Partners (CVP) has signed an exclusive agreement to advise Green Motion (UK) Limited on its entry into the rapidly growing UK market for electric vehicle charging infrastructure.

Richard Turner, CVP managing partner says: ‘The move to electric transport is now well underway. For widely documented reasons of dwindling oil reserves, desire for cleaner cities and future energy security, electric car charging infrastructure is becoming a mainstream mass market.

‘In addition to massive scale, the market is a cross roads for hardware installation, software applications and smart energy management. Green Motion has brought together a uniquely talented team and proven technology to fully exploit the commercial opportunity. This is a great moment to participate directly in the energy revolution.’

In 2011/12 major car brands such as Nissan, PSA, Citroen, Mitsubishi, Renault, Ford, Toyota and VW are all launching affordable electric vehicles, which is driving municipal and private sector growth in charging infrastructure investment. By 2015 there will be 100,000 recharging stations fuelling 300,000 electric vehicles in the UK.

Green Motion has developed a new generation of charging post infrastructure, which paves the way for many innovative and essential carbon reducing technologies. Fully GSM networked and powered up with more enabling microprocessor technology than a PC, the Green Motion devices have the unique distinction of being the only UK charging points to connect electric cars directly with renewable electricity, from wind and solar sources, giving electric car owners the ultimate green credentials.

The same technology also sets up vehicle to grid load balancing and micro generation ‘feed–in’, which allows energy generators to rely more on renewable alternatives without risk of supply interruption.

Green Motion has invested £500,000 into a two-year product development programme with a key focus on energy and mobility. Green Motion smart charging networks are presently operating in several locations in Switzerland, including Ecole Polytechnique Federale de Lausanne (EPFL) – one of Europe’s leading technology institutions.

Green Motion (UK) Limited has exclusive technology IP, manufacturing and management expertise. Having established its credentials by winning a prestigious contract to install infrastructure to support the 2012 Olympic sailing event in Weymouth, the company is looking for investment to quickly scale up its UK operations.

 

For further information contact Rosie Bennett at Catalyst Venture Partners on 01225 331498 or email rb@catvp.com


About Green Motion: http://www.green-motion.co.uk

GreenMotion is an independent electronic device manufacturing, integration, and software development company. Its vision is to encourage the use of clean energy sources, by becoming Europe’s leading developer and manufacturer of electric vehicle charging stations. The company also has exclusive partnership agreements with innovative electricity retailer Green Energy (UK) Plc and energy management software specialists Smart Grid Technologies Limited.


13
Sep

Richard TurnerIn the past few months we at Catalyst have become increasingly frustrated by the number of good businesses and business projects that have been unable to raise finance. The venture capital community and the banks have raised the bar on returns and risk aversion to the point where only blue chip projects and companies can get funding.

In our search for new funds we have developed a relationship with a Japanese based group that seeks to access Japanese savings from individuals and companies to provide long term loans to companies and development projects. These funds are provided as a type of Bond which typically carries an 11% interest rate payable quarterly in arrears. The capital is repayable after five years.
Security is a debenture against the company not assets so it is effectively a form of cash flow lending. This product offers a great source of funding for established companies wishing to invest in projects with a hurdle rate of interest of about 20%, and for early stage companies who have contract backed revenue sources such as energy and recycling companies. It can also be used for property development and finance companies.

The main benefit is that the funds can help your business to grow and we are pleased that we can offer an effective, alternative way of raising finance.

Please see the finance section for more information or if you would like to know more please give me a call at 01225 331498 or drop us a line at hello@catvp.com.

« Newer Posts