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Starting a technology business the basicsDocument Transcript
STARTING A TECHNOLOGY BUSINESS – A BRIEF GUIDEDo I need a company?It is not essential to set up a company when you start in business. If you intend to run the business by yourself you could set up as a “sole trader”. However, there are a number of practical and tax advantages in operatingthrough a limited company, and if you’re going into business with other people, a company really is essential.How do I set up a company, and what are the costs?Setting up a limited company is very simple; there are many company formation agents advertising on the webwho will incorporate a company for under £30. Alternatively you can do it yourself by following the guidance onthe Companies House website (www.companieshouse.gov.uk); there is a filing fee of £14 for online applications.How do I choose a company name?There are some restrictions on using company names. You cannot choose a name that is already in use, or is so similar toanother existing name as to cause confusion. There are also restrictions on using certain kinds of words in the name if theyimply that the company is a certain kind of business or has a certain status; a searchable database of existing names andguidance on choosing names can be found on the Companies House website. It is worth bearing in mind that a companycan trade using a name which is not the name of the company - this is called a “business name”.When choosing a company name or a business name it is very important to ensure that no other business is using it andthat it doesn’t infringe someone else’s intellectual property rights. It’s a good idea to check the register of trade marks at theUK Intellectual Property Office (www.ipo.gov.uk) and also to do some web searches to check that your chosen name is notprotected or being used by someone else.What are “articles of association”?These are the general rules which govern the running of the company. If you wish, the company can adopt the “modelarticles” which is a standard set of articles created by legislation; these can be found on the Companies House website.Alternatively you can have your own bespoke set of articles (which could be based on the model articles), but you will needa solicitor to help you prepare these. It is possible to change the company’s articles at any time.Isn’t there lots of administration involved in running a company?Not really. Once the company is set up, the directors will need to file an annual return at Companies House to notify anychanges during the year (there is filing fee of £14 if you do this online). You also need to inform Companies House usingspecial forms each time the company does certain things such as issuing shares or changing directors, but all the forms areavailable on the Companies House website and there are no fees for most filings. A company must prepare and fileaccounts every year, and if it has been trading you will generally need an accountant to help you prepare them. Everycompany must also keep, and keep updated a set of “statutory books” which often take the form of a loose-leaf binder andwhich contain details of the company’s shareholders and directors, amongst other things. A binder containing the requiredpre-printed registers and blank share certificates can be bought online for about £30.Directors and shareholdersEvery limited company must have one or more directors (who together manage the day to day running of the business), andone or more shareholders (who collectively own the business). The directors and shareholders may or may not be the samepeople. Directors and shareholders have different sorts of powers and rights in relation to the company; directors also owea number of duties to the company, most of which are set out in the Companies Act 2006.Do I need a shareholders’ agreement?Where a company has more than one shareholder it is worth thinking about putting in place a shareholders’ agreement.This is an agreement between some or all of the shareholders which can cover many things including, for example: who can appoint directors what things (if any) require the consent of the shareholders whether shareholders can sell their shares and to whom what happens to someone’s shares if they leave the companyShareholders’ agreements are extremely versatile and can cover anything which shareholders can legally agree betweenthemselves. Thought needs to be given as to how any shareholders’ agreement will work with the articles of association ofthe company. It is generally a good idea to get a solicitor to help you prepare a shareholders’ agreement.How does the company raise funds?Most companies are not profitable at the outset, and require finance to develop the business to the point where it cansupport itself. There are a number of sources of finance for companies e.g. friends and family, business angels and venturecapital institutions. Of course banks are also a potential source of finance, but banks are generally unwilling to lend to early-stage private companies. If you or anyone else puts money in to the company then this can either be treated as a loan (withthe associated expectation of repayment at some point), or as a subscription for shares (an “equity investment”). An equityinvestment in a private company should be regarded as a long-term investment, as there is no market for the shares andshareholders will not usually receive any return until the company is sold or is floated on a stock exchange.