Dear Doctor, I’ve just incorporated my first company! What next?
Caroline Sherrington says...
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I thought we’d go back to basics for this Startup Surgery piece and look at some of the key issues that you need to start thinking about once you’ve incorporated a company. It’s an exciting time and people can sometimes get carried away thinking that this means they are done with the admin side of things for the time being.
Unfortunately, that’s not quite the case… there are now quite a few new obligations on you (as a company) that you need to start considering and it’s also a good time to start planning out the next steps for your business (from a legal perspective) and what you need to be prepping for further down the line. So… (*deep breath*) here we go…
1. Company set-up – things to consider:
a. Directors’ responsibilities – as a director of a company, you now owe certain duties to the company (and its shareholders) and must always act in the company’s best interests to promote the success of the company. It’s worth googling and having a read of the directors’ duties set out in the Companies Act which includes things such as exercising independent judgment, disclosing any interest you may have in particular transactions that the company does, exercising reasonable care, skill and diligence in everything you do, keeping accurate records and accounts of the company, etc. Although you can outsource a lot of the admin to your lawyers, accountants etc, ultimately you will be responsible for what your company does (and doesn’t) do so make sure you know what’s going on and who is doing what.
b. Do you have statutory books (either in electronic or hard copy)? If not, you need them. These are the official record books of the company and set out who your shareholders and directors are, what transfers and allotments of shares have been made, etc. They should be stored at your registered office address and should be updated as necessary after any director appointments/resignations, new share issues, etc (Companies House can fine you if they’re not).
c. Company signage and promotional material – all companies must display their company name at their registered office and any place where your company does business (although this isn’t necessary if you work from home). You also need to include your company name, registered address, company number and where the company is registered (e.g. England and Wales) on all company documents, letters, order forms, publicity, etc.
d. Accounting records – it’s time to get serious with your finances… You need to be keeping track of money spent and received, any assets owned, debts that you owe or are owed, stocktakings, goods you have bought and sold, etc etc. This will all need to be fed into your annual accounts and the company tax return so make sure you are on top of everything. If you’re not good with numbers, make sure you get an accountant/finance director on board as this stuff is important!
e. VAT registration – you cannot claim or charge VAT unless your company is VAT registered. VAT registration is compulsory if your VAT taxable turnover is more than £82,000 in any 12 month period. Whilst not mandatory, you can register voluntarily if your taxable turnover is less than £82,000 and the products/services you sell are not exempt from VAT. Best to speak to a tax adviser/VAT specialist if you have any concerns/queries on this.
f. What about insurance? Some forms of insurance are compulsory and others are advisable. If you employ staff, you are required to have employer’s liability insurance. There may also be sector-specific forms of insurance that are mandatory depending on your profession (e.g. lawyers) so make sure you double-check if any of these apply to you. The other forms of insurance to consider are: public liability insurance, product liability insurance and key man insurance.
g. Data protection – ignoring your data protection obligations can lead to huge fines and (sometimes) personal liability. If you are processing or storing any personal data whatsoever (which includes storing any customer or employee email addresses) then you need to register with the Information Commissioner’s Office (it’s cheap and very easy to do) and comply with the eight data protection principles from the Data Protection Act 1998 (soon to be replaced… watch this space!). More details on this, along with the registration form, are available on the ICO website (together with lots more helpful information) so definitely have a read of that site and make sure you take your data protection obligations very seriously. (Also, why not check out our Legal Surgery piece on Data Protection and Privacy).
2. Notifying Companies House
Throughout the life of your company, you will need to keep Companies House up to date with any changes to your company records. This includes the following (each of which has a special form that needs to be completed and filed at Companies House either in paper form or electronically):
a. Change of registered address
b. Appointment or resignation/removal of directors
c. Change of company name
d. Sub-division of share capital
e. Creation of a new class of shares
f. Issue and allotment of shares
g. Amendment to Articles
(Please note the above it not an exhaustive list!)
In addition, some shareholder resolutions need to be filed following certain transactions and each year you’ll need to file a “Confirmation Statement” (this has replaced the old “Annual Return”) as well as your company accounts (oh, and don’t forget your company tax return for HMRC too!).
It sounds like a lot, I know, but your lawyers or a company secretary can take a lot of this off your plate if you need help with it.
Legal documents to be considered
I don’t have time to run through in detail all the documents that your company is going to need but below is a quick overview of the sorts of agreements that you should be thinking about putting in place at some point during the first year or so of your company’s life (exactly when obviously depends on each company’s individual case):
a) Company Structure/Corporate formalities
- Articles of Association – the likelihood is that you will have incorporated your company with standard “Model Articles”. These are absolutely fine for an early-stage company but it’s worth giving them a read so you know what the “rules” of your company are (remember my point on your duties as a director above!). Once you start growing and taking on investment, you will likely need to update/amend these to deal with slightly more complicated scenarios.
- Shareholders’ Agreement – this isn’t a must but if you’ve got more than one shareholder this can be a useful document for setting out the relationship between you and your fellow shareholders (you’ll definitely need one of these when you take on investment in any event).
b) Website Documents – make sure you have these on your website:
c) Business Agreements
- Terms of Business – not to be confused with your “Website Ts & Cs” (above) although this document may also appear on your website under the title “Terms and Conditions” (often people merge the two together). As it says on the tin, this document will set out the key terms of your business (e.g. payment details, length of contract, termination provisions, limitation of liability, etc) – it’s important and pretty fundamental to your business so worth spending some time to get it right.
- Other third party supplier/distributer/manufacturer/developer agreements – make sure you can get out of these arrangements if you need to and that you limit your liability where possible.
d) Employment matters
- Founders’ service agreements – you probably won’t have these in place formally until your first investment round (hence also why the shareholders’ agreement is important as that will be the only written record of the actual agreement between founders and what is expected from each of them). Just be aware that these will be needed at some point…
- Employees – if you have any employees (N.B. as opposed to contractors/consultants), they will need to receive an employment contract and the company will need to register as an employee with HMRC (and set up PAYE, possibly enrol them in a pension scheme, etc)
- Contractors/consultants – it’s useful to document your agreement with any contractors or consultants so that they know what your expectations of them are and, most importantly, so that you can ensure any IP created by them is automatically assigned to the company.
And of course there are many more… We at Ignition Law can help you with all of the above so please just drop me a line at email@example.com if you have any concerns/queries!