Zara Diloo, part of the MMS Advance Team at Maclay Murray & Spens, identifies some of the start-up basics that every entrepreneur needs to consider including choosing the right business structure through to protecting your IP.
Starting your own business can be an exciting yet daunting experience. There are so many things to consider. Having met many young entrepreneurs and advised them from inception through to successful funding rounds and exits, Zara Diloo of Maclay Murray Spens identifies some of the fundamental points that should be considered when getting set up for scale and ensuring you are ‘investor ready’.
Ensuring the corporate structure is appropriate
Should you go it alone (sole trader)? Should you set up with a partner (partnership)? Or should you set up an incorporated company with limited liability (a ‘Company‘)? Among the multitude of items to consider, an appealing benefit of setting up a company is personal assets of the directors and shareholders are generally not at risk. Starting a business is inherently risky and therefore putting in place a structure that limits your liability may turn out to be the best business decision you ever make.
It is important that you decide on a structure that will fit with your business plan and growth requirements and not one that restricts the business. For example, if you are looking for investment in the future, a company structure can be beneficial as it allows you to issue shares to raise capital.
Current and future shareholder relationships and agreements
When you set up a company or when new shareholders come on board, it is important that the relationship between the shareholders is regulated.
Who will make the critical decisions? Should any individual be able to overrule the others? Is there someone different in the driving seat for day-to day/operational decisions? Has someone contributed more money to the start-up and will they get more return in the future? What if someone wants to leave? Can they transfer their interest to anyone else? These are all important questions to consider early on, rather than when there is a disagreement. These items are commonly dealt with in a shareholders’ agreement. It doesn’t need to be a complicated or long document, and it can develop over time as your business grows. The key thing is to have something with some ground rules in place as early as possible.
Ensuring contracts are in place and are suitable
Agreements don’t need to be in writing. Even if they are in writing, there is no right or wrong format for that agreement. It may be the case that all you have is a chain of emails or LinkedIn messages. That said, communication that lacks precision can make it very difficult to confirm what the terms of the contract actually are if there is a dispute down the line. If a contract is high in value or is critical to your business, you should proceed with caution and get some appropriate advice. While the cost of the advice might be unwelcome at the time, it should be weighed against the cost of a potential dispute down the line and how much it might cost to resolve, particularly if the contract terms are not as clear as they could be.
Protecting your intellectual property
Intellectual property is often one of the most valuable assets in a start-up, and if it is not protected appropriately, a business-critical asset can be lost. If you engage a third party (for example, someone on a freelance basis), it is important to ensure that the work they create (and therefore the intellectual property created) is assigned to you/the Company.