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“Brick to Click” – Moving traditional businesses on line

David Anderson at Sykes Anderson Perry sets out the key legal issues

Please note that the information herein is of a general nature and you should not act or refrain from acting on it without professional advice on the specific facts of your case. No liability is accepted by the author or Sykes Anderson Perry Limited in respect of this article. Taxation and law are complex subjects and the above is a basic outline only and is intended only as a general guide. Nothing herein constitutes financial advice.
There is a lot on internet about moving traditional brick and mortar businesses online and how to blend the two so you appeal to customers who like to use both channels of distribution. This article looks at some of the legal issues for traditional businesses going down this route.

What are the options?

You have the following options:

  • A separate stand-alone online business,

  • An online distribution system which compliments your traditional business.

Form a new company for e-business?

If you go for the former, separate stand-alone online business, it is probably best to set up a new company. This could either be a group company and so part of your current company structure or a separate company which you own direct and which is outside the group. Essentially this is a commercial decision. If for instance you see the existing business winding down as the online business takes over and the traditional business owns premises you intend to sell or redevelop and turn into a property company then a new separate company may be the way to go. This may tie in with your retirement planning. Tax advice is essential early on.

You should think whether the e-business is going to be fast growth with potential buyers for it within a short time. If this is the case a separate company will make sense as a buyer may only want the e-business part of your business. Similar principles apply for attracting new investors.

On the other hand you plan to go down the second route with the e-business complimenting your existing business then having it within your business or a group company may make more sense. Essentially it is a new channel for distribution rather than a new business.

Set up of e-business

Planning pays dividends here. Some key things to consider are:-

  • Contract with your computer software provider especially for support. Many business people simply sign what is put in front of them and then regret at their leisure. You should spend as much time checking your computer contract as you would checking a lease of a new shop. Make sure it will do everything you want and that you can cancel the contract if not and are not tied in for years with complex procedures if you want to terminate.

  • Terms and conditions for online sales. Do not simply use your existing terms and conditions, they will not be suitable.

  • Contracts with staff dealing with online sales who say have access to sensitive data such as your client lists. You need to make sure you are able to stop them sharing sensitive information if they leave. This is very important if they are involved in any form of development of your online business which is cutting edge.

  • Do you need to tie staff in with share options especially if the e-business is going to be a fast growth business and you need to keep them with you? This is quite common for hi-tech start-ups and following what they do may be a good idea.

  • Directors’ service contracts may need to be amended. Competitors will watch you closely and the easiest way for them to catch up is to poach a key director. You should also review shareholders agreements which are a minefield for fast growth e-businesses.

  • Review your company Articles of Association. Do you need a different class of shares for people investing in the e-business? If the business is going to be fast growing what about rights to sell the company?

  • Think about just buying an e-business which is already doing what you want to achieve.

Being a “disrupter”

In established business sectors a company developing an e-businesses strategy is likely to be seen by their competitors as a “disrupter” tying to take a bigger slice of business. You need to anticipate potential problems which could give rise to litigation and have a strategy to deal with it. This may also be a good time to look at legal fees insurance.

Get down with the kids!

For business people whose experience mainly predates the e-commerce revolution, the change to online trading may seem daunting. However with the right planning and applying your years of business experience in a new context the odds are that it will be a big success. Detailed planning is key; thinking through what could go wrong and ensuring your e-commerce team will not want to jump ship.

November 2017
David Anderson
Solicitor-Advocate and Chartered Tax Adviser
Sykes Anderson Perry Limited