ALWAYS Read the Small Print - 31/08/2010

When Sharon Wright entered the BBC's Dragon's Den and won the confidence of all the Dragon's with her polished pitch for funding for her business idea, MagnaMole, she could not have envisaged how her failure to stick to the most basic business rules - read the small print and don't sign anything without your lawyer - would nearly bring her fledgling business down.

Sharon was in the enviable position of being able to choose which Dragon to support her business as they were all prepared to back her. She chose James Caan and Duncan Bannatyne, being the two Dragons for whom she had the highest regard. Sharon saw Caan as a kindly man with compassion and empathy. The deal was that they would provide £80,000 and their business expertise in exchange for a 22.5% stake in her business.

A few weeks passed, no money or guidance had been forthcoming but two pre-contracts had landed on the mat which revealed that the £80,000 was a loan rather than a sum to be invested for a share of the company. She considered pulling out but decided to go ahead. By July she was close to the financial edge as her booming business had received such a boost by the television exposure that she had to take on extra staff despite being insufficiently funded. Sharon was invited to a photo shoot in London after which the Dragons told her that the contract had to be signed. Feeling that she was obliged to agree, regardless of her lack of legal representation, and as she was now desperate for the money Sharon signed the contract without legal advice. Duncan Bannatyne had asked if she wanted to have her lawyer present but she simply thought that as they were considerably richer than her that they would not rip her off.

The first money finally arrived in late August but not before she had received a whopping great bill from a web design company recommended by James Caan for a re-design of her web page which Sharon had assumed was part of Caan's investment commitment. Sharon received only £4,000 initially followed by a further £22,500 over the next few months.

It was only then that Sharon instructed her solicitor to look over the contract. The size of her blunder was then revealed; to obtain their 22.5% stake in the business the Dragons had bought shares at a nominal fee of £1 per share effectively enabling them to buy nearly a quarter of the business for £29 together with the promise of a loan of up £80,000 interest free. There was no money by way of investment and there was limited access to the loan which could be reduced by the Dragons at any point to a sum of their choosing. The contract also stipulated that the loan was re-payable "as soon as the cash flow of the company permits".

Sharon was horrified to learn that she had also agreed to the Dragons charging her a fee for their expertise and the use of a PR company amounting to £3,000 per month. She was then asked to take a salary drop from £50,000 to £12,000. However the final straw was learning that one of the Dragons was to appointed chairman of the company and would have the casting vote on all decisions; she had lost control of her company.

Sharon's solicitor said it was the worst contract he had ever seen. She managed to wrest her business from the Dragon's hands and regained full control the following January but not without a cost to both the business and her health. Sharon has found another investor who has provided £100,000 in exchange for 10% of the business and allows her a free hand.

The golden rules in business are sacrosanct -ALWAYS READ THE SMALL PRINT and DON'T SIGN ANYTHING WITHOUT YOUR LAWYER PRESENT.

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