This is part of Out-Law's series of news and insights from Pinsent Masons experts on the impact of the UK's EU referendum. Watch our video on the issues facing businesses and sign up to receive our 'What next?' checklist.
Prime minister David Cameron pledged in 2013 to hold a referendum by 2017. Leaving the trading bloc was seen as the less likely result but opinion polls tightened in the final two weeks of campaigning as voters swung to the 'leave' campaign.
Economic experts and organisations including the Bank of England, the Treasury, the International Monetary Fund, the Institute for Fiscal Studies, the National Institute of Economic and Social Research and others have warned that leaving the EU would be economically damaging.
Though individual business leaders such as Wetherspoons chairman Tim Martin and JCB chairman Lord Bamford have backed an exit from the EU, business groups such as the CBI have reported that the majority of businesses backed staying in. The leaders of 51 of the FTSE100 leading UK listed companies signed a letter to The Times backing the 'remain' campaign in the days leading up to the vote.
Under EU rules the UK would leave the EU two years after it officially gives notification. There is no deadline for giving that notification, and the UK will continue to be a member of the EU for that two year period, which can only be extended with the consent of all EU countries.
Businesses should start preparing for change, then, but should be aware that it will not come suddenly, said EU law expert Guy Lougher of Pinsent Masons, the law firm behind Out-Law.com.
"Businesses don't need to take drastic action now. What they need to do is think through what are the potential implications for them of Brexit," said Lougher. "That's going to vary between sectors and even within sectors. It will have different impacts on on different businesses according to the extent for example to which they rely upon labour from other EU states, or maybe how they obtain their funding. Some businesses may find that Brexit creates commercial opportunities that otherwise didn't exist."
Leaving the EU will have an impact on who can work in the UK and where people from the UK can work, and this will affect some companies more than others, said Lougher.
"There will be changes in the free movement of workers from EU countrires into the UK," he said. "What that means is going to vary, so in the construction sector which relies on a lot of EU skilled labour that could have quite a significant impact. It will be the same for high tech sectors such as research which rely on a lot of very skilled EU labour. Other areas it might have a particular impact are those which rely on a regulatory passport which is obtained in the UK to operate in other EU states, for example financial services and airlines."
Companies will also need to consider the wider financial impact of leaving the trading bloc, especially if they have significant funding or need access to loans or investment in the near future.
"What businesses need to think about if they're relying on external funding is: what are the conditions of those funding arrangements? Might they be affected or triggered by Brexit events?" said Lougher.
If no trade deal is agreed by the time the UK's two year notice period has passed then trade will automatically be conducted under World Trade Organisation (WTO) rules, which means that the selling of goods across borders will attract tariffs.
Contracts and commercial agreements will have all sorts of elements which either rely on aspects of EU law which may not apply in the future or which have their power within territory names which are EU-related and may no longer apply, and sorting out these anomolies will be a major task, said Lougher.
"Some supply arrangements will have a definition of a territory which may just be defined as 'the European Union'. Is it clear how Brexit is going to affect that? Is the UK going to be considered to be in the definition or not? Businesses are going to need to go back to basics and look at the core agreements they have and review those to see what the impact might be and it's going to be a pretty painstaking process," he said.
"The possible application of tariffs means companies should look at their commercial agreements. What do they say? Do they allow the tariffs to be passed on? Who's going to pay them?" said Lougher.
