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Glossary

Agency Agreement: An agent facilitates contracts between the principal and a third party
(the customer) by introducing the third party, soliciting orders from the third party or by
concluding contracts with the third party on behalf of the principal. An agent usually benefits
from the relationship by receiving a commission from the supplier. An agent does not contract
with customers in his own right and he therefore generally has no liability to them.

Allotment: Where a person acquires an unconditional right to be registered as the holder of a
share. Allotment precedes the issue of the share. A share will be treated as allotted for cash
with effect from the date on which the cheque for the share is received, provided that the
directors have no reason for suspecting that the cheque will not be honoured.

Business Angels: Are high net worth private investors who invest directly (personally or
through a syndicate) in private companies in return for a shareholding in the investee
company and possibly a position on the board of directors. Investments range from £10,000
to £2m.

Buy in management buy out: The combination of an existing management team with an
external management team for the purposes of an acquisition of a business by the methods
used in a management buy out or a management buy in.

Company Share Option Plans (CSOP): Enable companies to grant share options to their
employees. If certain strict conditions (in relation to the issuing company and the employee)
are met a CSOP can be approved by HMRC and favourable tax treatment can result. A CSOP
is risk-free for the employee in that there is no initial financial commitment or future
obligation to exercise the option. The participant is given the right to purchase shares at a
specified time in the future at a price set at the outset.

Confidentiality Agreement: An agreement binding the parties to keep certain information
confidential.

Copyright: An intellectual property right which seeks to protect the form of expression of
ideas, and not the ideas as such (which may be protected by confidentiality). It is intended to
reward authors for the creation of original works, that is, works where the author has
expended independent effort to create the work. Copyright law is intended to prevent copying
but does not provide a monopoly; it does not matter if a similar work already exists provided
it has not been copied. It lasts for a set period, most often the life of the author plus 70 years
from the end of the calendar year of his death. No formalities need to be observed in the UK
for a work to receive copyright protection. Protection in the UK automatically applies to all
works recorded in any form provided that they conform to certain requirements.
Corporate venturing: The term covers a range of mutually beneficial relationships between
companies. The relationships range from those between companies within the same group,
through to those between unrelated companies and collective investment by companies in
other companies through a fund. The companies involved may be of any size, but such
relationships are commonly formed between a larger company and a smaller independent one,
usually in a related line of business.

Corporate Ventures: Are larger trade companies looking to gain access to novel ideas
and/or markets.

Are larger trade companies looking to gain access to novel ideas and/or markets.

Database rights: Arises when a set of data becomes a database i.e. a collection of
independent works/ data, which is electronically accessible. It gives a protection right if there
has been a substantial investment in obtaining, verifying or presenting the contents of the
database.

Debenture/Legal Charge/Mortgage: A document executed by a company in favour of a
creditor, providing the creditor with security over the whole or substantially the whole of a
company's assets and undertaking, typically creating a fixed charge over the assets of the
company which are not disposed of in the ordinary course of business and a floating charge
over what remains. In the event of your default, the deed will reserve to the creditor the
power to appoint an administrator and manager with extensive authority to get in the assets,
run the company's business and dispose of the assets either piecemeal or as part and parcel of
a sale of the business as a going concern, to ensure that the lender is paid back what is owed.

Deed of Postponement of Loans: A document between creditors of a company which
effectively restricts the repayment of a loan to one creditor before the repayment of a loan to
another creditor.

De-merge: Means effecting a transfer of business and assets between companies within the
same corporate group for the purpose of re-organising the structure of a group. It can also
involve the segregation of business activities into one or more companies or groups of
companies.

Design rights: Legal protection for the external appearance of a particular item, including its
shape, configuration, pattern or ornament. A design right is distinct from a patent, which
protects the internal workings of the item. The right entitles the owner to prevent others
making items of the same design.

Direct means: A private sale between one seller and one buyer or a sale to a number of
interested buyers.

Directors: As a company has no voice of its own, its directors make decisions on its behalf.
Directors therefore have day-to-day control of the company. Directors also owe statutory
duties to the company, its members and the general public under the new Companies Act
2006.

Distributorship Agreement: A person who buys goods on his own account from the supplier
or exporter and resells them to customers in his own territory. He is essentially an
independent contractor. He does not act as a channel of communication between the supplier
and the customer and will usually have no authority to create a contract between the supplier
and the customer.

Enterprise Management Incentive schemes (EMI): Enjoy very favourable tax treatment
and are specifically targeted at small, higher-risk trading companies. The government's
purpose is to enable these companies to attract high calibre individuals, with the aim of
benefiting the overall economy. There are strict conditions that must be satisfied in relation to
the option, the company and the employee, but it is the easiest approved incentive scheme to
set up in so far as the option does not require HMRC approval in advance. This lack of red
tape is often appealing to companies who qualify for the scheme.

Group: Means the family of companies where one company (parent company) owns a
number of subsidiaries and/or where those subsidiaries themselves own shares in other
companies.

Incorporated: Means a limited company having been formally established and registered at
Companies House.

Inter Company Guarantees: A document entered into between the creditor, the borrower
and the companies in the same group as the borrower, whereby the group companies
guarantee the liabilities of the borrower to the creditor.

Inter Creditor Deeds: A document entered into between the company and two or more of its
creditors. The creditors agree with each other and the company to rank their security in order
of priority and effectively restricts non priority creditors from exercising their debentures
before the preferred creditor.

Invoice discounting (factoring): Invoice Factoring involves the cash purchase of a business’
sales invoices at a discount, after which, the factoring company collects the invoiced amounts
from the business’ customers. Factoring is used where the business needs immediate cash and
is a cost effective way for profitable businesses with a proven track record and a turnover of
over £500,000 to improve their cash flow. The business retains control over the
administration of its sales ledger and the facility is only available to businesses who sell goods
or services on credit to other businesses. The discounter may advance a percentage of the total
outstanding sales ledger for a monthly fee and interest on the amount advanced.

Issue: The actual issue of a share certificate to a shareholder.

The actual issue of a share certificate to a shareholder.

Joint Venture: Co-operation between two independent businesses under which both parties
contribute towards the working and success of the proposal.

Know how: Technical information often exploited in conjunction with a patent. EU
Regulation 240/96 governs the terms that may or may not be included in a knowhow licence
agreement.

Limited company: A company limited by shares or by guarantee. It is more common
(unless incorporating a charity) to use a company limited by shares. A company is a
separate legal person. In a company limited by shares, the shareholders’ liability is
limited on liquidation to however much they owe to the company for their shares. In a
company limited by guarantee, its members’ liability is limited on liquidation to a sum
set out in the Memorandum of Association (usually £1).

A company limited by shares or by guarantee. It is more common (unless incorporating a
charity) to use a company limited by shares. A company is a separate legal person. In a
company limited by shares, the shareholders’ liability is limited on liquidation to however
much they owe to the company for their shares. In a company limited by guarantee, its
members’ liability is limited on liquidation to a sum set out in the Memorandum of
Association (usually £1).

Limited liability partnership: A hybrid form of business entity: it is neither a partnership
nor a company. Like a company, an LLP is a body corporate and therefore a separate legal
entity and an LLP member’s liability is limited. However, like a partnership the relationship
between the LLP members is governed by private agreement. An LLP does not have
shareholders or directors and is taxed like a partnership.

Management buy out: Where the existing management team buys out the business it
manages by way of transfer of that business to a newly formed company and the purchase of
the shares in that company.

Management buy in: Where an external management team is assembled to make an
acquisition of a business by way of direct sale of the business (or shares) where applicable or
by way of transfer of that business to a newly formed company and the subsequent purchase
of that new company.

Overdrafts: A tool to aid cashflow by a bank providing a reserve of easily accessible money
to meet any shortfall in working capital. The facility is usually repayable "on demand" which
means whenever the bank demands. Consequently, it is usually shown as a current liability on
the balance sheet. It is a relatively expensive way of borrowing capital, interest being
calculated on the amount outstanding each day.

Patents: An intellectual property right which permits the inventor to stop third parties
from using the invention. Patent protection does not arise automatically and the filing of
an application for a patent, followed by its grant, is necessary in order to obtain
protection.

An intellectual property right which permits the inventor to stop third parties from using the
invention. Patent protection does not arise automatically and the filing of an application for a
patent, followed by its grant, is necessary in order to obtain protection.

Partnership: The relationship which subsists between two or more persons carrying on
business in common with a view to profit. Partnerships are governed in the UK by the
Partnership Act 1890. A partnership is not a separate legal entity. Partners generally have
unlimited liability, unlike shareholder in a limited company.

Personal Data: Data which relates to a living individual who can be identified from that data
and includes any expression of opinion about the individual and any indication of the
intentions of the data controller or any other person in respect of that individual.
Private equity: A term which covers a range of transactions in which the source of finance is
usually a fund established to invest specifically in unquoted securities rather than in publicly
quoted securities or government bonds.

Pre-emption: This is the right to be offered shares first, should the owner decide to
dispose of them. Such a right may be agreed expressly between parties, or it may arise
under statute.

This is the right to be offered shares first, should the owner decide to dispose of them. Such a
right may be agreed expressly between parties, or it may arise under statute.

Revolving credit facilities: This enables a firm to borrow up to a pre-specified amount
usually over 1-5 years (i.e. over a specified term). The facility allows the borrower to draw
down and repay tranches of the available capital almost as and when it chooses in the term.
The facility allows the flexibility of an overdraft with the certainty of the term loan. The
borrower can save money by not drawing down the whole loan at once and can also elect to
repay outstanding tranches that it no longer requires so interest repayments can be kept to a
minimum. It is intended to meet working capital requirements and as such is a short term fix.
As repayments of outstanding balances are made, the loan facility is replenished and can be
re-drawn by the borrower.

Save As You Earn (SAYE) schemes: Have two elements: a saving arrangement and a
share option. The employee uses the proceeds of the savings arrangement to fund the
exercise price of the option. The schemes are tax favoured but this is conditional upon
the scheme, the company and the employee meeting strict conditions.

Have two elements: a saving arrangement and a share option. The employee uses the
proceeds of the savings arrangement to fund the exercise price of the option. The schemes are
tax favoured but this is conditional upon the scheme, the company and the employee meeting
strict conditions.

Shareholders: Persons or other companies who are allotted with shares in a company. Once
the shareholder has paid for their shares, they are entitled to be registered in the company’s
register of members whereupon they become members of the company and are entitled to
vote at shareholder meetings.

Share Incentive Plans (SIPs): Provide employees with the opportunity to acquire shares (as
opposed to share options) in their employing company. SIPs are established and operated as
HMRC tax-favoured schemes. Companies can choose to offer free shares and/or partnership
shares. In respect of awards of partnership shares, the company can decide whether to offer
matching shares. Companies can also determine that any dividends payable on the shares in
the SIP are to be reinvested in further shares, known as dividend shares. This is a complex
arrangement and strict conditions must be complied with in order to take advantage of the tax
advantages.

Shares: Are the shares in the authorised share capital of the company. They confer a right of
ownership of the company and reflect the holder’s investment in the company. There can be
different classes of shares that give the holder different rights, be it in relation to dividends or
voting.
Subsidiary: Means a company, the majority of whose shares are owned by another company.

Terms & Conditions of Sale/Purchase

Sale: This document governs the terms upon which you sell your products. They can
include payment mechanisms, penalties for late payment, limitation of liability clauses,
import/export terms and can also cover retention of title provisions.

Purchase: This document governs the terms upon which you buy products. They can
include payment mechanisms, product warranties, transport and responsibilities for delivery.

Term loans: A company may borrow a lump sum for a period of time to fund a specific
project such as setting up a business or renewing assets. There is an agreed schedule of
repayment usually in the form of "amortisation" where the borrower makes repayments in
equal amounts at regular intervals, "balloon payment" where the borrower makes repayments
over several instalments where the final instalment is larger than the previous instalments and
"bullet repayments" where the borrower repays the loan in a single payment at the end of the
term. They are usually "committed" facilities in so far as the bank is obliged to advance funds
at the borrower's request. Funds can be drawn down in any number of tranches allowing the
borrower to borrow only what it needs.

Trademark: Refers to a sign which can distinguish the goods (or services) of one trader from
those of another. A sign includes, for example, words, logos, pictures, shapes, sounds or
smells. The main function of a trade mark is to enable customers to recognise the goods of a
particular trader. Trade marks can be registered in the UK, EU or worldwide. Once registered,
the owner of a trade mark has a monopoly over the use of the mark for the goods for which it
is registered. The monopoly can be maintained indefinitely. A trade mark is infringed if it is
used without the consent of the owner.

Venture Capital: HMRC approved Company listed on the stock exchange which invests in
high risk private companies and typically offer between £250,000 to £1m in one round, with
follow up investment if required. Usually equities (shares) are acquired but it can take the
form of equities and debt.

Unincorporated: Typically sole traderships and partnerships.