Entrepreneur and Investor’s Guide: Immigration in Due Diligence

Securing an investment or buyer for a UK start-up is an exciting milestone. However, before finalising the deal and transferring funds, a thorough due diligence process must take place. Regardless of the deal's size, this legal investigation ensures compliance, minimises risks, and identifies necessary post-closure actions. 

Due diligence traditionally covers business operations, finances, intellectual property laws, and litigation risks. However, should immigration also be included in this assessment? Absolutely, yes!
According to the Entrepreneurs Network report from 2023, 39% of the UK’s fastest-growing startups have at least one immigrant co-founder.

Within this segment, 14% were founded entirely by foreign-born individuals, while 25% were joint ventures between British-born and foreign-born co-founders. Consequently, investors into the UK’s tech sector must consider immigration when conducting due diligence, as hiring and retaining international talent is integral to business growth.

Please note that the guidance below is written with the specifics of UK laws, but it can apply to overseas and international investors looking to invest into a UK company.

Immigration Considerations in Due Diligence

1. Founder’s Immigration Status
   Investors should assess the immigration status of all company founders. Certain visa types, such as student or visitor visas, impose work restrictions. Ensuring a founder’s presence in the UK is often critical for business success, so any immigration issues should be resolved before completing a deal. Evaluations must be standardised and non-discriminatory across all portfolio companies.
2. Key Team Members and Employees
   Beyond the founders, employees are the backbone of the company and contribute to its growth. Investors should verify that all employees have the appropriate permissions to work in the UK. If employees require visa, consulting an immigration professional may be necessary.
3. Immigration policy and strategy for growth
   As the company scales post-investment, establishing an immigration policy can be a strategic advantage in hiring and retaining top talent. Obtaining a sponsor licence allows businesses to attract skilled global talent and remain competitive in hiring. Although obtaining such a licence involves administrative costs, it can be a valuable long-term investment.
4. Ongoing Immigration Licence Compliance 
   If the company holds a UK sponsor licence, any corporate changes — such as mergers, acquisitions, or restructuring — require action from the company. Failure to comply can lead to licence revocation and the loss of UK visas for key personnel. In the event of regular updates to the shareholding, it is worth reviewing corporate structure to minimise relevant sponsor licence action. Regularly reviewing the corporate structure and obtaining legal advice ensures compliance and minimises disruptions.

Key Immigration Questions in Due Diligence

• Investors should ask the following immigration-related questions during due diligence:
• Who are the founders, and what is their nationality, place of residence and UK immigration status?
• Is a UK presence essential for their role?
• If permission is needed, what type of visa are they on? Does it allow them to work in the UK?
• Does the company have a UK legal entity already?
• Are employees legally employed by the UK company?
• Does the company already have a sponsor licence? Which entity holds the licence and do any of the corporate transactions affect that entity? 
• If not, does the company plan to have a sponsor licence?

Practical and Financial Implications

Non-compliance with UK immigration laws can lead to severe penalties, including legal costs, civil penalty fines of up to £60,000, and even criminal liability. A breach can be cumbersome, time-consuming, and damaging to the company, its directors, and investors.

While most founders do not need to consider immigration, those requiring visas have various options depending on their circumstances, but those details need to be resolved early. If a skilled employee or founder requires a visa, it is often worth the investment.

As such, startups and investors in the UK market must take immigration matters seriously and integrate them into the due diligence process from the outset.

Read more here about how AGA's Global Mobility team can help you with your cross border mobile workforce challenges.

Nelli Shevchenko is a Senior Associate in the Employment and Immigration team at Sherrards London office. With over 10 years of experience, she has advised a wide range of clients, from institutional investors and venture capital firms to founders, scaleups, and SMEs in the UK’s technology sector. This article was first published in TechUK.

About Sherrards:

Sherrards, AGA's legal representative in London and South East England, is a full-service commercial law firm, located in the City of London at the heart of the financial district, and has since expanded and transformed from a small local player to a mid-tier firm with a strong sector-led offering. The firm's strong culture and the impressive work they do attracts talent from across the UK and internationally.

Sherrards has four international desks covering off work from China & Southeast Asia, Russia & CIS Regions, Egypt & North Africa, and France and Germany.

Sherrards has been a member of Alliott Global Alliance since 2005 and works hard to continue to strengthen the membership, relationships, and potential opportunities, Together as One.