Seven Forming the Business

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SevenForming the Business

• Ian Harris
• Entrepreneurial Champion

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Objectives

• Start Right
• Legal Form
• How to set-up a business
• Your business Name
• Other legal requirements

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Start Right

• If youve found the finance, determined the
  markets, understood the logistics, then its time
  to choose the company form
• If you set up the business correctly, you will
  reduce costs and maximse profits

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Four Main Choices

• Sole Trader
• You are self employed, with no special legal
  structure for your business
• Partnership
• Two or more self-employed people work together
  and share the profits/losses
• Limited Company
• Separate legal entity, distinct from its
  shareholders, directors and employees
• Co-operative
• Controlled by its workforce

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Sole Trader

• There are distinct advantages and disadvantages
  to this
• Advantages
• You can keep simple, unaudited accounts
• National Insurance Contributions are low
• 2.00 per week
• Unless you can earn lots, your total tax
  payments can be less
• You can form a limited company later, bear in
  mind stamp duty may be levied
• http//www.inlandrevenue.gov.uk/ebu/sdlt1.pdf

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• Disadvantages
• Personally liable for all your debt
• What precisely does this mean
• Lower social security benefits
• Because of the lower Class 2 Conts
• Money raising options are limited
• It is harder to sell on your business
• Investors look for legal support

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How do you set up as a sole trader..?

• Relatively simply
• Use form CWF1 Starting your own business
  (available from Tax office, VAT office etc)
• http//www.inlandrevenue.gov.uk/startingup/registe
  r.htm
• If you sell more than 54K then you need to
  register for VAT
• http//www.hmce.gov.uk/business/vat/vatregist.htm
• Check with the planning officer that your place
  of work is suitable
• If you trade under a different name, e.g. IH
  Associates, then you need to put your full name
  on any headed paper
• You can start trading
• Fail to do any of the above and you will be fined!

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Partnerships

• Advantages
• More capital
• More skills
• People whom you trust to bounce ideas off
• More potential equity
• Committed personnel

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Partnerships

• The principal drawback of a partnership is that
  each partner is jointly liable, with the other
  partners, for the whole of the debts
• Usually includes all your personal assets
• Trust is essential along with an explicit legal
  agreement

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• Several Sorts, all need to be managed properly
• Full Partner
• Someone who shares the profits and losses in an
  agreed manner (see later) and will be part of the
  management
• Sleeping Partner
• Someone who has no part of the management, but
  will still be held responsible for the debts
• Introduction of new partner
• Useful if you need to inject new skills or money

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Shareholders Agreement

• The names of the partners, company, and what it
  does
• The date when the partnership starts and when/if
  it terminates
• The capital each partner will contribute
• How profits/losses will be shared and how much
  money each partner can take from the business
• How the business will be run

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• Dont forget the what-ifs
• What if we need more capital next year
• Who is responsible for what business areas
• How will progress be monitored
• How fast will you expand
• How can you buy each other out
• Can the company be split

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Limited Liability Partnership

• The form is exactly the same as standard
  partnerships
• The advantage is that they have limited
  liabilities
• The disadvantage is that they must report much
  more extensive accounts to companys house and
  have them audited
• For more details
• http//ws1.companieshouse.gov.uk/frame.cgi?OPTnot
  esfaq

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Limited Company

• Generally a job for solicitors or accountants
• However, you can get a starter pack from
  Companys House
• http//ws1.companieshouse.gov.uk/frame.cgi?OPTnot
  esfaq
• If you have the time, its not really that
  difficult
• Memorandum of Association
• Articles of Association
• Form 10
• Identification of Directors and Secretary,
  Registered Office
• Form 12
• Declaration of Compliance
• Form 287
• Prior to trading start
• Registration Fee 20 made payable to Companies
  House or 100 for same day

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Memorandum of association

• A document that sets out
• The companys name
• Where the registered office of the company is
• What it will do
• Type of company being incorporated
• Precise form is controlled by The Tables

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Articles of Association

• Sets out the rules for the internal running of
  the company
• Model articles are available that you can just
  use without modification
• Must be signed by each subscriber
  (directors/registrar) and witnessed
• Lecture7\Compliance Online Articles of
  Association.doc

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Form 10
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Form 287
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Form 12
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I feel your pain

• It really is not that difficult, but you dont
  have to do it yourself or use an Accountant
• You can buy a ready-made one
• All you do is change its trading name (takes
  between 5 and 20 days)
• Registration fee for name change is 10
• Dont believe me, take a look in Exchange and
  Mart ready made companys from 69!
• http//www.formationshouse.com/

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Directors responsibility

• To comply with the requirements of the Companys
  Acts, such as providing audited accounts
• To have regard for the interests of employees
• Not to deceive shareholders
• To act in good faith in the interest of the
  company
• Not to carry out business with the intent to
  defraud
• http//www.winters.co.uk/information/directors_res
  p.html

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Advantages

• Limited companys have more credibility
• Liability is restricted to the amount of shares
  you own
• Or the equity you owe on any loan amounts
• Easier to raise large sums of money
• Tax advantages for high earners

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Disadvantages

• Greater cost of incorporation
• Annual accounts are more complicated
• They have to be submitted within 6ish months of
  the end of the tax year
• If you do not submit, then you are heavily fined
• NI payments are higher
• http//www.inlandrevenue.gov.uk/pdfs/emp2003/ca44-
  03.pdf
• If you decide to cease trading, it can be more
  expensive to wind the company up
• But it really only matters if youve not gone
  bankrupt

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Co-operative

• Eh..?
• Why one of these
• Work very well in some areas, less so in others
• Community businesses are ripe to be co-operatives
• There is some specific help for Community
  Co-Operatives

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• All assets of a co-operative are owned by the
  workforce
• A voting system is needed such as one worker,
  one vote
• Agreement necessary as to whether the
  co-operative can be disbanded without the
  agreement of all members
• Types of co-operative
• Worker Co-operative
• Marketing or Service Co-operative
• Neighbourhood Co-operative
• Community Co-operative
• Equity participation co-operative

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Choosing a Business Name

• Sole Trader
• Can easily trade as Ian Harris
• Partnership
• Similar to above Harris and Walker
• Company
• Can trade as the formal company name or another
• You can protect your name via a trade mark or
  domain name, or both

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Tips

• Made up words
• Google, Microsoft, BodyShop, ASDA
• Dont create positive or negative perceptions
• Existing words
• Craftsman
• Try it out on potential customers
• Brainstorm ideas
• Imus, e-consult, corynweb (coryn is Welsh for
  Spider)
• Check your chosen name is not already used
• Yellow Pages/Yahoo choose a name beginning with
  A
• www.amazingrugs.co.uk
• Does the name youve chosen mean something
  negative in another country
• Durex
• Name that just uses Capital letters
• DABS, GAME
• Try not to upset anyone

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Other Legal Requirements

• Do you need a trading licence..?
• Yes if you are trading in the CBD
• E.g. the new marital aids shop sought
  permission
• Do you have adequate insurance
• Public/Private Liability
• Buildings/Vehicles
• Does your property comply with the legal
  requirements
• Will you fall foul of environmental regulations
• Do you have terms and conditions
• Are you registered for Tax, NI and VAT