Women entrepreneurs: their rise, the commercial challenges they face and what they must consider when contemplating marriage

We’d like to share this article which was drafted by the Family Law team at our Corporate Ambassador Sheridans. It touches on some important points that business owners who are women need to consider when they’re considering marriage…

The rise of female entrepreneurs
The rise in the number of female entrepreneurs during the last few years has been very exciting. As the pandemic has affected the way women work and live, many have decided to start their own venture. Last year, female entrepreneurs established over 150,000 new companies, more than twice as many as in 2018, despite the gloomy economic outlook. According to an independent review led by Alison Rose, chief executive of NatWest Group, 16 to 25 year-old women founded nearly 17,500 businesses in 2022, a figure that’s more than 22 times greater than in 2018.

Sectors like healthcare have traditionally been women-centric fields, but research shows that women are entering new fields, such as finance and investment. The World Economic Forum noted in their 2022 global gender gap report that there is a growing trend of female entrepreneurs entering newer areas of work and business.

The review by Alison Rose found that lack of funding was one of the biggest barriers to women being able to effectively grow their business and this is still considered to be a big impediment. It is estimated that breaking down the barriers faced by women entrepreneurs could boost the economy by £250 billion. In response to the review by Alison Rose, the government has announced an ambition to increase the number of women launching companies by half by 2030.

With more women becoming successful entrepreneurs, they are, in turn, inspiring the next generation to emulate their success. However, there are some challenges which female entrepreneurs should consider which we discuss below.

Legal challenges
When starting any business there are a number of legal challenges that are faced by entrepreneurs. For example, choosing the correct legal entity, protecting intellectual property and ensuring the correct employment contracts are in place to protect the business and retain key employees.

There are a number of different business structures which offer different benefits and drawbacks to entrepreneurs, but many start-ups choose to structure their business through a limited company which, although has increased filing requirements and start-up costs compared to running a business as a sole trader, for example, do offer decreased personal exposure.

Limited companies are governed by the Companies Act 2006, the company’s articles and, if in place, a shareholders’ agreement. It is important when entrepreneurs set up their business that they consider and document, amongst other things, how they wish their company to be run, what rights and obligations founders (both in their capacity as shareholders and directors) should hold and what decisions need enhanced board approval. It is imperative to discuss these provisions at the beginning of a company’s lifespan and to update throughout to provide a clear framework to regulate management of the company and ensure that there are procedures in place if issues do arise at any point in the future.

A key asset of most businesses is its intellectual property and entrepreneurs should make sure their company either owns the intellectual property that the business is based on or the correct licences are in place Legal advice should be sought to ensure the adequate protections are in place.

Another key asset of a business is its employees. Entrepreneurs should take care to comply with applicable employment laws and have adequate employment contracts in place which include, amongst other things, provisions ensuring that any intellectual property created by employees is owned by the business and restrictive covenants preventing employees from competing with the business after their employment ends.

Commercial challenges faced by female entrepreneurs
“Money is to business, what food is to the body”. With the rise in female entrepreneurs, it is generally acknowledged that, at least on the face of it, there has never been a better time to be a woman starting up a business.

That being said, one of the most prominent challenges entrepreneurs in general face is funding and investment. This finance gap continues to disproportionately affect female led businesses; with just 9 per cent of UK start up funding going to female run businesses. Even with these additional funding challenges faced by female led businesses, women continue to find alternative funding sources outside of traditional investment whether this be through crowdfunding, government grants or start up loans.

Another fundamental, but perhaps less surprising challenge that female entrepreneurs are faced with, at a disproportionate rate to their male counterparts, is maintaining a healthy work-life balance. Female entrepreneurs around the world continue to find themselves being expected to juggle many roles both within the house and with regards to managing and running a business. That is not to say that there has been no development in these areas, for example the increase in companies offering paternity leave and a general shift towards more equal roles inside and outside the household. However, there is still a long way to go and until then, overcoming these challenges means learning to say no to things that are not essential.

Women entrepreneurs that are contemplating marriage
As set out above, there are a number of challenges female entrepreneurs may face in a legal and commercial context. However, one often forgotten (and crucial) element to consider for any female entrepreneur when establishing any business, is that of their personal lives on their business.

Women are now marrying slightly later in life, usually to focus on developing their career, and with that focus on their career they can forget what steps they can take to protect what they have worked so hard to build. We set out below what we consider to be fundamental and preventative steps that female entrepreneurs can take, and should be aware of, to protect their business when contemplating marriage.

Entering into a nuptial agreement
Divorce, in the absence of an airtight pre or post nuptial agreement, can have a monumental impact on businesses. Whilst they are not legally binding, nuptial agreements, when drafted correctly (sufficient financial disclosure, both parties taking independent legal advice, etc.), in the event of a divorce, will be upheld by the Family Court provided it meets both parties’ reasonable needs. They provide clarity and are a wealth management tool for asset protection; a well drafted agreement sets out what shall remain separate property, not to be shared in the event of a marital breakdown.

Crucially to female entrepreneurs, a nuptial agreement can protect a business and any joint financial interests if there are multiple shareholders, and prevent the disruption and involvement of businesses, business partners and other third parties should the marriage breakdown.

Not involving your spouse with your business
We often see many entrepreneurs who have made their spouse a shareholder, director or employee in their business for ‘tax purposes’, when they have little or no involvement.

Whilst this is understandable from a tax perspective, in terms of long-term asset protection when faced with a marital breakdown, this leaves the door open for that spouse to argue that they had a greater role and are entitled to more on divorce. A preventative method against this is simply to not involve them in your business at all. What is often not realised, is that the business asset will still form part of the matrimonial pot for division, as a matrimonial asset if the business was built during the course of the marriage, but this is a simple tool to circumvent such arguments.

Do not mingle your business and professional lives
When a marriage breaks down, any family lawyer would look to establish what are matrimonial assets and what are non-matrimonial assets. This can be the cause of much acrimony and litigation when matters are particularly inflamed.

A preventative step to overcome such arguments is to establish, from the very start of the relationship the distinction between your business and your household finances. For example, borrowing funds from your business to fund an extension on your house mingles the two. Similarly, do not secure any borrowing against the family home for company borrowing. Again, this matrimonialises the business and allows for more arguments that the business should be placed in the matrimonial pot for division.

The impact a divorce can have on female entrepreneurs
In the absence of taking the steps above, divorce can have a profound impact on your business. If your business is considered a matrimonial asset, and therefore open for division, this can have an impact on your fellow shareholders and employees.

The business will need to be valued as part of the disclosure process, which will often be a forensic analysis of the business. Value is crucial to negotiations, particularly if the business has been extremely successful and the primary source of income to fund the parties’ marriage. Where there is a dispute as to value, usual practice is for a single joint independent expert to be instructed to value the business. There is the opportunity to ask questions, usually when one parties is dissatisfied with the value attributed.

Liquidity is fundamental, as the Court does have the power to order that funds be withdrawn from the business to pay the other party or, worse case scenario, a transfer of shares. This will of course impact the profitability of the business, and will no doubt cause much concern to third parties and other shareholders involved.

On top of all this, there is also the emotional impact to consider. If you are heavily involved in the running of a business you have established, going through the process of valuing the business and being ordered to liquidate and handover a significant share of this to your former spouse, no doubt takes an emotional toll.

This is why it is crucial that any female entrepreneur just starting out, or contemplating marriage, considering the challenges and the preventive steps they can take. A marriage certificate is not just a piece of paper; it fundamentally changes the financial landscape of your life. Whilst this is not necessarily something female entrepreneurs want to turn their minds to when in the throes of building their business or planning a wedding, the figures above show that the number of female entrepreneurs is rising, and need to enter into both business and marriage with their eyes wide open.

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