A. The 3 basic types of business entity are sole trader, partnership and limited company. As a sole trader an individual trades on his own either under his own name or under a trade name and can be pursued personally by creditors in an insolvency situation. A partnership must comprise at least two people and will be subject to the provisions of the Partnership Act.

In most cases the liability will be joint and several between the partners for the debts of the partnership and the relationship will be governed by a partnership agreement which details profit share, return of capital and entry to and exit from the partnership. The incorporation of a limited company creates a separate legal entity which will be subject to the corporate insolvency law regarding liquidation and receivership in the event of failure. This entity protects the shareholders from any financial loss beyond the level of their capital investment in the company.

To balance this protection, limited companies are regulated by the terms of the Companies Acts which make provision for the public disclosure of the names of the shareholders and officers of the company and its accounts and fairly strict controls on the protection of capital and directors' responsibilities.

A. If you proceed by means of a share purchase then you will acquire the whole company with the benefit of its assets, staff and all of its contracts but also subject to all of its liabilities, debts and obligations. If there are any claims against the company whether they be employment, tax, litigation or of any other sort they will be your responsibility and therefore it is very important to fully investigate the background of the company.

The company will also be subject to its financial agreements and facilities and full investigation should be carried out of the obligations contained within these contracts. The advantage of an asset purchase, however, is that you have the freedom to hand pick the assets which you want and to leave the debts, liabilities and obligations should you desire. While the selective nature of an asset purchase can seem more desirable you will need to ensure that you get all the assets necessary and that there are assignations put in place of ongoing contracts, that the employees transfer on similar terms and conditions in accordance with the TUPE regulations and that the customer base and suppliers will also transfer.

In each case it will be very important to ensure that you obtain suitable warranties and indemnities from the vendor that protect the value of the assets that are being purchased and to protect you from any unexpected liabilities.

A. From a solicitor's point of view it is much easier and more cost efficient to advise a client with whom you have an established relationship rather than a client whom you speak to on a very occasional basis. Building such a relationship helps your solicitor understand your business needs and aims and the commercial approach you take to your business' dealings.

Each of these elements mean that when you speak to your solicitor on a specific matter they are up to speed more quickly and more in tune with your requirements. While being cost aware when instructing a solicitor to deal with corporate and commercial issues can seem of short term benefit, the advantages brought to a corporate transaction of a solicitor who deals with specifically corporate and commercial work can save time, effort and can identify specific areas of risk which are not immediately evident to a less specialised practitioner.

A. The sources of funding available to you will depend on the existing health and size of your business and the level of involvement in the company which you are prepared to grant to a funder. The most basic and simplest type of funding to obtain is a corporate banking facility. This type of lending may take the form of an overdraft facility and/or a term loan facility. The level of facility will depend on the financial health of your company and the forms of security available to the bank. Typical sources of security will be a standard security over any heritable property and a floating charge over the remaining assets of the company.

An additional/alternative source of funding which benefits cashflow might be an invoice factoring arrangement whereby a lender will make available a certain percentage of invoices rendered immediately in exchange for a monthly fee or commission based arrangement. A second type of funding may be grants which are made available by the Scottish Office or a local enterprise body for a specific purpose. This type of funding will generally not fall to be repaid providing that there is not a change of control within the company for a prescribed period of time and the grant is used for the identified purpose.

The third principal type of funding is equity funding whereby a third party provides certain funds in exchange for a share in the equity of the company. This basic principle can cover a range of levels of involvement from further funds being injected by existing shareholders and capital from investors who are prepared to invest a small sum as a personal favour and not become involved in the company, through individual high networth individuals and venture capitalists who invest on preferential terms and seek board representation, to large corporate bodies who seek shareholder control of the companies but are prepared to leave the existing management in place. The preferred method is up to the shareholders and directors of the company but in many cases the old adage applies "better 10% of something than 100% of nothing".

A. Due diligence is the process of investigation and examination of a particular opportunity which is carried out by one party prior to entering into a binding agreement. Where a party is being asked to commit itself to certain obligations in return for a certain consideration it should take action to fully investigate the opportunity, the potential liabilities and the promised level of return. This concept is equally true for a small commercial contract as a large acquisition. Who are you dealing with, what is their track record, how much of what is being presented to you is factual and how much of it is sales pitch?

Diligence can cover many areas and will range from accounting and financial diligence on figures that are presented to you, through legal diligence as to the enforceability of the contracts that make up the asset and property rights to commercial diligence identifying areas of risk, trading practices and testing assumptions.

A. This type of group structure is often used in companies where one or more of the business areas pursued by the group is volatile or carries large risks or obligations. Due to the protection of limited company status if a company becomes insolvent it does not affect the shareholders of that company or other subsidiary companies of that shareholder. It can therefore be beneficial to set up a business area with particularly high risks in its own subsidiary to protect the rest of the group.

You should remember, however, that this protects other entities related to the shareholder but not entities down the chain that are subsidiaries of the volatile entity. Insolvency of the parent company will be likely to result in a sale of the subsidiaries to realise value for the creditors of the insolvent parent. The difficult part of this structure is creating the group in the first place, as any lender to the company may want to obtain cross guarantees from each of the other companies in the group to support the lending to the group as a whole.

This scenario therefore is best applied where there is minimal lending to the group or the lender can be persuaded that there is sufficient security in place already without the inclusion of the volatile company.

A. The joint venture company will be owned partly by your company and partly by the other company in whatever proportions are appropriate. The JV company will contract with the customer to provide the services required and will either subcontract the work to your company and to the other company as required or will provide the services through staff transferred to it from the two respective parent companies.

Any profits made within the JV company will be distributed by dividends to your company and to the other company in accordance with the respective shareholdings in the JV company or as otherwise agreed. One additional benefit of this structure is that it provides the insulatory effect detailed in the answer above.

A. The main difference between a shareholder agreement and the articles of association of the company is that the articles are a public document whereas the shareholder agreement would be a private document between the shareholders. By taking shares in a company an investor takes those shares subject to the provisions of the articles, however, whether or not they enter into a shareholder agreement is a different issue.

In general the articles will deal with general provisions and the shareholder's agreement will deal with more specific arrangements between the shareholders such as voting rights on specific matters and other subjects peculiar to that company. The effect of a deadlock clause is to dictate what procedures will be followed in the event of the shareholders being unable to agree on a certain matter and the voting rights being such that none of the shareholders holds or can control a majority.

This scenario arises most often in a company with two 50% shareholders but can also occur where there are two polarised camps within a company such as two branches of a family. The simplest form of deadlock clause is a provision that the chairman has a casting vote where there is an equality of votes although this can be tied into a rotating chairmanship. Other alternative deadlock provisions can involve an independent arbiter being appointed or in extreme cases even a forced sale by one party to the other in the event that agreement can't be reached.