New Business Essentials?
Discussion
Thanks for moving the thread Ted!
Hi all
My general question is, what are the 'essential' (i.e. strongly recommended even if not legally required) requirements for setting up a limited company with three partners?
Specifically:
(1) Must a company legally have a Managing Director, and if not it is unusual not to have an MD?
(2) Does the title of MD imply seniority over other directors even where the other directors are equal partners? My understanding is that the partners ultimately make the decisions and the board of directors execute them?
(3) Where can I get a shareholders' agreement or
equivalent from? I want to make sure that we are equal shareholders with equal rights and that if anyone wants to sell up then the other two get first call on 50% of the shares each at a fair price dictated by an independent party accepted by all of us as objective.
(4) Someone told me that one of the partners must have the largest sharehlding, i.e. that you cannot truly split a company equally three ways - is this true?
(5) What insurance should I be looking for? We are a software company and will initially just have the three partners/directors working but might have to take others on. Do we need public liability insurance and employers liability insurance?
(6) Can we insure against ourselves from software we write failing, causing loss to a client and us being sued as a result?
(7) What figure would you expect to pay for the accounts for a company turning over, say, £100k/yr with most of the contracts being fairly large and just the three directors as employees?
(8) What bank would you recommend for a small business?
(9) Can you recommend any good websites, etc. for learning about these kind of things?
(10) Are there any questions I should be asking that I haven't?
Thanks in advance - I know I'm asking a lot but hopefully this could be a valuable thread for others too, I know I will appreciate it.
Cheers.
Lee.
>>> Edited by roadsweeper on Saturday 12th February 11:28
>>> Edited by roadsweeper on Thursday 17th February 11:10
Hi all
My general question is, what are the 'essential' (i.e. strongly recommended even if not legally required) requirements for setting up a limited company with three partners?
Specifically:
(1) Must a company legally have a Managing Director, and if not it is unusual not to have an MD?
(2) Does the title of MD imply seniority over other directors even where the other directors are equal partners? My understanding is that the partners ultimately make the decisions and the board of directors execute them?
(3) Where can I get a shareholders' agreement or
equivalent from? I want to make sure that we are equal shareholders with equal rights and that if anyone wants to sell up then the other two get first call on 50% of the shares each at a fair price dictated by an independent party accepted by all of us as objective.
(4) Someone told me that one of the partners must have the largest sharehlding, i.e. that you cannot truly split a company equally three ways - is this true?
(5) What insurance should I be looking for? We are a software company and will initially just have the three partners/directors working but might have to take others on. Do we need public liability insurance and employers liability insurance?
(6) Can we insure against ourselves from software we write failing, causing loss to a client and us being sued as a result?
(7) What figure would you expect to pay for the accounts for a company turning over, say, £100k/yr with most of the contracts being fairly large and just the three directors as employees?
(8) What bank would you recommend for a small business?
(9) Can you recommend any good websites, etc. for learning about these kind of things?
(10) Are there any questions I should be asking that I haven't?
Thanks in advance - I know I'm asking a lot but hopefully this could be a valuable thread for others too, I know I will appreciate it.
Cheers.
Lee.
>>> Edited by roadsweeper on Saturday 12th February 11:28
>>> Edited by roadsweeper on Thursday 17th February 11:10
dick dastardly said:
Try www.businesslink.gov.uk/
Thanks, there is some useful info on there.
I'd still appreciate experienced PHers input on the above questions though please!
Cheers.
roadie.
All IMHO, but hope this is helpful. (Take legal advice for definitive answers...)
No, a limited company must have at least one director, and a secretary. No specific titles are required.
Something a bit inconsistent here. You have either a partnership or a limited company - except there's a newer concept of a limited liability partnership in the last couple of years.
If by partners, you mean shareholders, then the board of directors must run the company explicitly in the interests of the shareholders, not themselves, employees, or amyone else. The shareholders may have annual or exceptional general meetings, and may appoint or remove directors.
This should be covered by the articles of association for the company. These can be found on the web in almost standard form, or can be drafted to include any specific share purchase/transfer/sale/drag along rights etc, although what you suggest above is very standard.
Not true, you can have any number of shares authorised, and any number of those allocated as required.
You a required to have employer's liability insurance, which usually includes some public liability insurance.
If you are selling services or software where a defect may cause consequential losses, you may require professional liability insurance, which is a lot more expensive, although its also pretty standard. Tends to be for large amounts, and quite high premium for a small company - a previous company I was in could only get minimum cover of £2m, for a £5k premium.
For full accounts, statutory returns etc I would expect £1.5-2k p.a.
The one which is most convenient to get to. They'll all rip you off, so you might as well control the only factor which makes a difference to you.
Dunno. I just kind of picked it up as an enthusiastic amateur.
Are you going to make a profit?
roadsweeper said:
(1) Must a company legally have a Managing Director, and if not it is unusual not to have an MD?
No, a limited company must have at least one director, and a secretary. No specific titles are required.
roadsweeper said:
(2) Does the title of MD imply seniority over other directors even where the other directors are equal partners? My understanding is that the partners ultimately make the decisions and the board of directors execute them?
Something a bit inconsistent here. You have either a partnership or a limited company - except there's a newer concept of a limited liability partnership in the last couple of years.
If by partners, you mean shareholders, then the board of directors must run the company explicitly in the interests of the shareholders, not themselves, employees, or amyone else. The shareholders may have annual or exceptional general meetings, and may appoint or remove directors.
roadsweeper said:
(3) Where can I get a shareholders' agreement or
equivalent from? I want to make sure that we are equal shareholders with equal rights and that if anyone wants to sell up then the other two get first call on 50% of the shares each at a fair price dictated by an independent party accepted by all of us as objective.
This should be covered by the articles of association for the company. These can be found on the web in almost standard form, or can be drafted to include any specific share purchase/transfer/sale/drag along rights etc, although what you suggest above is very standard.
roadsweeper said:
(4) Someone told me that one of the partners must have the largest sharehlding, i.e. that you cannot truly split a company equally three ways - is this true?
Not true, you can have any number of shares authorised, and any number of those allocated as required.
roadsweeper said:
(5) What insurance should I be looking for? We are a software company and will initially just have the three partners/directors working but might have to take others on. Do we need public liability insurance and employers liability insurance?
You a required to have employer's liability insurance, which usually includes some public liability insurance.
roadsweeper said:
(6) Can we insure against ourselves from software we write failing, causing loss to a client and us being sued as a result?
If you are selling services or software where a defect may cause consequential losses, you may require professional liability insurance, which is a lot more expensive, although its also pretty standard. Tends to be for large amounts, and quite high premium for a small company - a previous company I was in could only get minimum cover of £2m, for a £5k premium.
roadsweeper said:
(7) What figure would you expect to pay for the accounts for a company turning over, say, £100k/yr with most of the contracts being fairly large and just the three directors as employees?
For full accounts, statutory returns etc I would expect £1.5-2k p.a.
roadsweeper said:
(8) What bank would you recommend for a small business?
The one which is most convenient to get to. They'll all rip you off, so you might as well control the only factor which makes a difference to you.
roadsweeper said:
(9) Can you recommend any good websites, etc. for learning about these kind of things?
Dunno. I just kind of picked it up as an enthusiastic amateur.
roadsweeper said:
(10) Are there any questions I should be asking that I haven't?
Are you going to make a profit?
Size Nine Elm said:
Lots of useful stuff.
Thanks, very, very helpful.
By 'partners' I did mean 'shareholders' - I will be careful to avoid that mix of terminology in future as I can see it would cause confusion.
Yes, I do think we'll make a profit. We have a very interesting and efficient operating model which means our overheads are very low indeed.
Thanks again.
roadie.
PS: Contributions from others still very much appreciated.
The inland revenue website has some good information on it - more than just tax too! You'll probably want to cast your eye over the HMCE (customs & excise) website too unless you are already VAT savvy.
Other than that my advice would be talk to an accountant now!! (I would say that though!) A good accountant will ensure that it all gets set up properly and therefore causes least hassle in the long run.
Other than that my advice would be talk to an accountant now!! (I would say that though!) A good accountant will ensure that it all gets set up properly and therefore causes least hassle in the long run.
Just to add...
You should be able to get an off-the-shelf company for about £150-£200, and if you want to tailor the Articles of Association - to ensure the share transfers/preemption rights etc - it might cost you the same again, depending how complicated you want it to be. Any decent accountants or lawyers should be able to do this.
One point I didn't address - all directors are equal in law, even non-exec directors - there is no explicit definition of a non-exec, its more of an operating concept.
To keep things simple, you could have the company allocated 3 shares, and hold 1 each. Job done.
Oh, and all shareholder resolutions for annual/exceptional general meetings, you will need toconsider what is deemed a majority - if you want a 2-1 vote to be sufficient; by default, there are some issues which require a 75% shareholder vote, which for you would mean unanimous.
Take into account that something which is all matey and good terms now might become a conflict in 3-4 years, when possibly things might be worth a bit more.
>> Edited by Size Nine Elm on Thursday 17th February 17:45
You should be able to get an off-the-shelf company for about £150-£200, and if you want to tailor the Articles of Association - to ensure the share transfers/preemption rights etc - it might cost you the same again, depending how complicated you want it to be. Any decent accountants or lawyers should be able to do this.
One point I didn't address - all directors are equal in law, even non-exec directors - there is no explicit definition of a non-exec, its more of an operating concept.
To keep things simple, you could have the company allocated 3 shares, and hold 1 each. Job done.
Oh, and all shareholder resolutions for annual/exceptional general meetings, you will need toconsider what is deemed a majority - if you want a 2-1 vote to be sufficient; by default, there are some issues which require a 75% shareholder vote, which for you would mean unanimous.
Take into account that something which is all matey and good terms now might become a conflict in 3-4 years, when possibly things might be worth a bit more.
>> Edited by Size Nine Elm on Thursday 17th February 17:45
Good advice all round to which I will add:
The company needs to register with the Inland Revenue for Corporation Tax purposes. It has a three month window in which to do this, otherwise it might face a penalty for late notification.
The company needs to register with the Inland Revenue for PAYE purposes - this is so that PAYE and NI can be calculated on directors' and employees' salaries and paid over to the Inland Revenue during the year.
With a turnover of £100,000, the company will need to register for VAT almost as soon as it starts trading.
>> Edited by Eric Mc on Thursday 17th February 19:48
The company needs to register with the Inland Revenue for Corporation Tax purposes. It has a three month window in which to do this, otherwise it might face a penalty for late notification.
The company needs to register with the Inland Revenue for PAYE purposes - this is so that PAYE and NI can be calculated on directors' and employees' salaries and paid over to the Inland Revenue during the year.
With a turnover of £100,000, the company will need to register for VAT almost as soon as it starts trading.
>> Edited by Eric Mc on Thursday 17th February 19:48
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