Entrepreneur? Setting up your own company is arguably easier than ever. With a bit of time on Google and working through the Government's guide, people are able to use the online registration service at Companies House to get a company set up in the space of 24 hours without incurring substantial fees on lawyers or incorporation agents.
Incorporating the company is usually the easy part; however once registered, the company, its shareholders and directors will be subject to the Companies Act 2006 - legislation which, when introduced, was the longest Act in British Parliamentary history! Amongst the 1,300 sections and nearly 700 pages, are a vast number of legal requirements in relation to the running of a company. These include (amongst numerous other matters) provisions regulating:
- Meetings of the directors or shareholders
- The keeping of registers (e.g. a register of members and persons of significant control)
- The ability of shareholders to take action against the company
- Directors' legal duties to the company
- Transactions entered into by directors
- The appointment or termination of directors.
Failure to comply with some provisions of the Companies Act can even result in criminal liability! Therefore, if you are setting up your own company it is paramount you research and understand your obligations / restrictions under the legislation to avoid getting into serious trouble in the future. Most law firms will offer a retainer to give you ongoing advice and hold your hand through this complex legislation.
Once you have got your head around the above matters, what about your relationship with your co-founder(s)? If you have a business partner, there are a number of issues you should consider and agree between you at the outset. These would normally be documented by way of a shareholders' agreement. Some common considerations would be:
- How you will finance and generate further financing for the company in the future
- Whether you will pay dividends to the shareholders or require profits to be re-invested to help the company's growth
- How decisions are taken and whether there will be certain issues that should be decided unanimously
- How disputes between shareholders should be resolved
- Whether you want to restrict the transfer / sale of shares to ensure they aren't sold to an unknown third party
- Whether any events should force a shareholder to transfer their shares (e.g. if they become bankrupt or persistently try to disrupt the operation of the business)
- Whether shareholders should be prevented from competing with the company once they leave
- What happens if one of you were to die.
A solicitor can help you and your business partner talk through these issues and document them whilst your relationship is amicable. That way, if your relationship were to break down, there's an agreed thought-through path to resolve matters.