Startups

Why should I start a business?

Starting a business can be challenging yet incredibly rewarding. It’s an opportunity for you to put your business ideas into practice, reap the fruits of your labour and be independent.  You’ll get to be your own boss and work on your own terms. Most importantly, you’ll be pursuing a career in a field that you’re truly passionate about, converting your interest into a profitable business.

What makes a successful business?

There isn’t a distinct recipe for success. However, successful businesses tend to have 5 things in common.

1. An innovative business idea 

A successful business isn’t just about shiny technology or clever marketing but, it offers a solution to an issue experienced by those in the industry. It makes an impact by filling in a gap in the market. 

Successful entrepreneurs tend to have an in-depth knowledge of the field they are operating in and conduct extensive research on market trends.

Your idea doesn’t have to be entirely original, it can be an improvement of what’s already in the market. 

2. Effective budgeting and strong organisational skills 

A successful business manages its finances efficiently and avoids unnecessary expenses. Therefore, it’s important for you to plan ahead to determine what’s needed to meet the milestones set and to work smart to maximise return.

Organisational skills are key in ensuring that goals are achieved in accordance to schedule. Moving quickly will keep your business ahead of its competitors. 

3. Excellent customer service 

The success of the business is largely determined by the market, therefore, it’s essential to keep customers happy. Good customer service will build a loyal customer base and enhance the reputation of your business. As such, it’s important to know your target market and constantly review your customer service practices.

4. Networking

Networking plays a big role in a business’ success. Knowing the right people can open doors to partnerships and investments. Successful entrepreneurs have the ability to persuade investors to take a leap of faith to invest in a new business. 

Moreover, forming a network with other entrepreneurs can be beneficial as they can provide you with advice thereby allowing you to make more informed business decisions. 

5. Determination and a talented team

Founding a startup is tough and you must be ready to put in the hard work to make your business successful. It may be a good idea to learn about the field and develop the necessary skills and commercial acumen by working in established businesses beforehand.

However, success is not purely based on the founder alone. It’s also crucial to attract and retain talent as your startup develops. One way to boost your business’ attractiveness is by offering employee benefits, competitive salaries and bonuses to recognise employee contributions. A good work environment and culture also helps.

What are the key considerations I should bear in mind before starting a business?

Funding and investments

Every business requires capital to operate. You should think about where you’ll get your funding to start your business. For further information on raising finance, read Financing your business. 

To help secure funding, consider creating a comprehensive Business plan. This will help investors understand your aim and how you plan to achieve it. One of the key sections in your business plan is the Executive summary, which outlines the business proposal and acts to draw the investors to read the rest of the plan. 

Analyse the market 

Know your target audience and study their consumer behaviour patterns. Be specific about your target market - what is the demographic that you’re targeting? What characteristics do your target consumers have in common? This will impact on a multitude of business decisions eg marketing strategy and customer service practices. Detailing this in the Market analysis and strategy section of your Business plan will help investors get a better picture of the potential of your business. 

It’s also important to know your competitors and their products, services and business operations. Identify their strengths and weaknesses and assess how your business would differentiate itself from others by identifying your unique selling point. 

Marketing 

This is crucial for raising awareness of your business. You should have an effective marketing strategy catered for your target audience before launching your business. 

Consulting professionals 

Consider seeking professional advice on the accounting and legal aspects of starting a business. This can help you better understand what is required of you as a business owner and mitigate your risks.

Make your Consultancy agreement with Rocket Lawyer. 

What legal considerations do I have to account for when starting a business?

Business structure 

Picking the right business structure is important because this decision will affect: 

• the level of personal liability you face as a business owner

• the amount of tax payable and the tax benefits your business can enjoy

• the options available for raising capital and 

• the amount of paperwork required of your business

The four options are:

1. Sole trader

2. Partnership 

3. Limited liability partnership 

4. Private limited company 

Most entrepreneurs choose to incorporate their business as a private limited company due to various advantages it entails compared to the other three options, especially with regards to liability and tax benefits. 

For further information, read Choosing a business structure.

Registering your business 

This requirement differs depending on the type of business structure you’ve picked.

Sole traders and partnerships have to register with the HMRC for self-assessment. Limited liability partnerships and limited liability companies must be registered with Companies House. 

For further information, read How to set up your business.

Tax

Your business structure will dictate the tax requirements your business is subject to and whether you’re eligible for loans and/or grants. 

As a sole trader, partnership or limited liability partnership, you will  have to:

• send a self-assessment tax return to HMRC annually

• pay National Insurance

• register for VAT if you expect your turnover to be above the current threshold. 

• pay Income tax on any profits made

As a limited liability company, you will have to:

• submit a Company Tax Return to HMRC 

• pay any Corporation Tax to HMRC

• register for VAT if you expect your turnover to be more than the current threshold

• file your confirmation statement, annual accounts and Other filings at Companies House

Directors that receive a salary must also submit a self-assessment tax return and pay National Insurance and Income tax through the PAYE system.

Where your limited company undertakes research and development projects in the science or technology field, it may be eligible for research and development tax credits.

Other responsibilities

Depending on what your business does, you may have to apply for a licence or a permit and consider what type of insurance is required for your business. 

There are also specific rules that apply if you:

• sell goods online

• buy goods from abroad or sell goods abroad 

• store or use personal information

For more information on these requirements, read Set up a business. 

It’s also important to have Terms and conditions if your business is concerned with the sale or supply of goods or services to protect your business interests.

How do I choose a name for my business?

An effective business name can be a powerful marketing tool. It’s the initial point of contact between your business and the consumers. 

When choosing a name, you should:

• consider names that stick - it should be unique, memorable, easy to pronounce and simple 

• avoid names with difficult or unusual spellings

• pick a name that’s descriptive and hints at what your business does

• ensure that the name chosen isn’t already taken or too similar to another business’ name

• check that the domain name is available 

• get some feedback on the name you’ve picked 

There are some rules and restrictions on what you can name your company, eg the name must not be obscene, offensive, misleading or the ‘same as’ an existing name. Names of private companies limited by shares must end with ‘limited’ or ‘Ltd’. 

Use the Companies House name availability checker to see whether your company name is available.

For further information, read How to choose a name for your business and Choose a company name.

How should I design my business logo?

A business logo is a visual representation of your business and a vital marketing tool; it’s what the public would associate your business with and how they’d recognise your company. 

When designing a logo, you should consider:

• whether it reflects your business’ mission, objective and brand personality

• your target audience

• the emotions evoked by the use of specific colours and any cultural associations

• whether to use a standalone symbol, to include the business name as part of the logo or a combination of both

• whether it is memorable and adaptable

• the logos used by your competition

It’s important for your logo to be distinct so that your customers can differentiate your business from your competitors. 

Once you have made your business logo, you should consider registering it as a trade mark to prevent others from using it without your permission.

How do I register a new private limited company?

You must register your company with Companies House. Once registered, you’ll receive a ‘certificate of incorporation’ which confirms your company’s legal existence, its company number and date of formation.  

You can register online, by post, using an agent or third-party software. Online registration costs £12 and companies are usually registered within 24 hours of the application.

By registering online, you’ll also be registered for Corporation Tax. If you registered through other means, you must also register for Corporation Tax within 3 months of operating.

What are articles of association and why is it important ?

The Articles of association act as an internal manual for the company and outline the company’s aim and procedures for its day-to-day operation.

It’s a contract between the company and its shareholders and regulates a variety of internal matters such as:

• the issuance of new shares

• the appointment of directors

• the circumstances that allow for a forced sale of shares 

• procedures related to board meetings and shareholders’ decisions and

• directors’ responsibilities and duties 

For further information, read Articles of association and make your Articles of association with Rocket Lawyer.

What is a founders’ agreement and what’s in it?

A Founders’ agreement is a legally binding contract between the founders of a business. 

It usually includes:

• the roles and responsibilities of the founders

• time commitment expected from each founder

• restrictions on founders eg whether they can start or work for a competing business

• equity allocation between the founders and vesting 

For more information, read Founders' agreements.

How do startups typically allocate shares at formation?

Founders have the discretion to determine when and how the shares are to be allocated. Some would do it up-front and others would wait until they know each other better. Ultimately, the most important question is whether the shares should be divided equally amongst the founders or unevenly split based on the differences between each founder. Normally, the company also retains some shares for future use. 

Distributing equity up-front and equally before fully grasping the commitment of each founder and their eventual roles in the company may lead to disagreements and dissatisfaction later on. It’s, therefore, wise for founders to discuss in-depth their expectations and their personal concerns about the business when deciding how the shares ought to be divided amongst themselves.

In determining whether to split equally or unevenly, the following factors should be taken into account:

The value of past experience and the business idea 

Founders experienced in running a business should be given credit for their skills and knowledge. 

Having a good business idea is important but an idea will remain as such unless action is taken to execute it. As such, the person that knows how to gather resources and capital is equally as important as the person that came up with the business idea. 

It’s also crucial to identify the source of the idea - was it a joint effort or did it stem directly from one of the founders? 

Commitment and contribution 

Consider the skillset each founder has as well as the contributions they have made and how each adds value to the company. Depending on the founders and the industry business operates in. Different weights will be attached to the contributions made. 

Another vital factor to consider is the level of commitment of each founder towards the business. A founder who is working full-time for the company may deserve more equity compared to a founder that’s only working part-time as it reflects a full commitment to the business. Since the level of commitment amongst founders may fluctuate over time, it may be worthwhile implementing a flexible equity distribution mechanism that allows the percentage of equity offered to change over time to reflect the level of commitment in each founder. 

Some companies will also have a clawback mechanism in place, which encourages founders to stay committed to the company. Under this mechanism, founders won’t have control over the shares they owe before the reverse vesting period ends.

How is equity calculated?

A company’s equity is used to determine its net worth. It’s the amount of money left for shareholders when the company sells all of its assets and pays off all its debts (liabilities). 

Therefore: equity = total  assets - total  liabilities 

What funding options are there for startups?

There are seven types of funding options available for startups: 

1. Crowdfunding 

2. Business loans

3. Angel investors 

4. Venture capital 

5. Government schemes and loans (eg Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS) and the start up loan)

6. Small business grants 

7. Business incubators 

For further information on financing, read Startup funding.

What are the SEIS and the EIS?

The SEIS and EIS are government incentive schemes that aim to encourage investors to invest in startups by offering tax relief. 

The two schemes differ in that they cater for companies at different stages. The SEIS is for businesses that have just started while the EIS is for established businesses that are trying to grow.

What is an advance subscription agreement and when is it used?

An Advance subscription agreement (ASA) is an agreement under which investors invest in a company. It is a form of equity investment, rather than a debt investment because the money being invested cannot be repaid to the investor as cash.

The ASA constitutes an agreement that while the subscription monies are paid at the outset, the shares relating to the investment will be calculated and issued at some point in the future (eg on a future equity funding round, a sale of the company or an agreed date).

Advance subscription agreements are generally used when a company is looking to raise funds quickly, usually to prove a concept, in anticipation of an equity funding round in the near future. They allow companies to minimise the costs of raising money when budgets are tight. Certain ASAs (including Rocket Lawyer’s) allow investors to be eligible for tax relief under the SEIS and EIS.

How many investors should a startup have?

There is no set number of investors that a startup should have, so it is entirely at your discretion how many investors you wish to engage. Having a lot of investors may be an attractive option since it entails more potential opportunities and more professional advice. It also enhances your business’ image.  

The downside is that with each investor you engage at a funding round, your control over your company lessens as these investors also become shareholders. If your business is already endorsed by many, introducing more investors in the next funding round may cause internal problems due to the issue of dilution.

Nevertheless, there are also pitfalls to having too few investors, eg where your relationship with them breaks down or they don’t have sufficient capital to assist your business in difficult times.

You should exercise your judgment when determining who to engage as an investor and how many investors to engage. Furthermore, it’s advisable for you to conduct a reference check on your potential investors before formally engaging them to ensure that they will be good business partners and will add value to your business in the long run. 

What is a business plan and what are the key elements?

A business plan is vital for securing funding since it provides a roadmap for investors to understand what your business is about including its goals, your business strategy and how their investments will be used to grow your business.

The key elements of a business plan are:

• executive summary: a summary of your mission, goals, the product you’re offering, the target market, the management team, your financial position, the funding sought and your financial projections 

• business overview:  an in-depth explanation of your business concept, the background to your startup, its legal structure and any work that has been done

• marketing plan and strategy: includes an analysis of your target customers and your competition and describes your strategy for making your business grow in terms of pricing, promotion and sale methods.

• management team: a description of the management team, their competence, your professional attributes and where applicable, any existing investors and their skills and experience

• financial information and funding request: includes your financial projections (eg expected revenues, expenses and returns for investments), how much funding you’re seeking and the repayment period

• SWOT analysis (optional): an analysis of the strengths, weaknesses, opportunities and threats of your business and the relevant sector 

Make your Business Plan with Rocket Lawyer.

What is a shareholders' agreement and how is it relevant to the process of raising funds?

A Shareholders’ agreement is a contract between the shareholders of a company that addresses a range of vital matters such as the rights and responsibilities of shareholders and how decisions are made in the company

It is relevant to the financing process because, with each stage of fundraising, some investors become shareholders of the company as a result of their investments eg angel investors and venture capitalists. 

What is the difference between a shareholders’ agreement and a founders’ agreement?

The two agreements are completely different. 

A founders’ agreement tends to be less detailed than a shareholders’ agreement. It is an agreement between founders on their roles and responsibilities, their commitment towards the business, any restrictions on them and equity allocation amongst them. 

A shareholders’ agreement is an agreement between those that own shares in the business (shareholders), which may include the founders. It usually addresses matters such as: 

• how important decisions are made and voting rights

• the issuance of new shares and dilution 

• the transfer of shares

• protection for minority shareholders 

• shareholders’ duties and rights

• requirements for board and shareholders meetings

• the leaving of shareholders including restrictions

Make your Shareholders’ agreement with Rocket Lawyer.

How do I run a business online?

When running a business online, it is vital for you to understand and comply with the legal obligations imposed by online business regulations.

You should use Website terms and conditions to control how your website is used by visitors, limit your potential liability and protect your content. They set out the legal rights and obligations between you and your website users and help fulfil the legal requirement to include certain information on your website (eg full business details as well as demonstrate your effort to discourage any undesirable activities by your users in the case of a legal dispute). Make your Website terms and conditions with Rocket Lawyer.

If your business is concerned with the sale of goods or supply of services to customers, you should use a separate set of e-commerce terms and conditions instead of the website terms and conditions stated above. These deal with the rights and obligations between you and your customers and should be linked on every page of your website. Rocket Lawyers’ Terms and Conditions for the sale of goods to consumers via a website and Terms and Conditions for the supply of services to consumers via website cover a range of matters including pricing, delivery and cancellation rights. They are also compliant with consumer rights legislation.

Where your website processes personal data, you must make sure the information is appropriately protected and used fairly, lawfully and in a transparent manner. For more information, read Data protection. Where cookies are used, express consent should be obtained from your users. You can ensure compliance by making a Website privacy policy (containing an integrated cookie policy) or a separate Cookie policy. 

Lastly, with regards to emails, limited companies and limited liability partnerships are legally required to include specific information in their business emails. This can be resolved by using an Email footer that contains a confidentiality notice and an optional disclaimer. 

What are standard terms and conditions?

Standard Terms and conditions (T&Cs) set out the arrangements, rules, requirements and specifications that apply to every order or transaction you undertake. It covers matters such as the formation of contracts, payment terms, returns and refund policies and your liability.

They are important as they set out the legal position of you and your customer from the outset, therefore allowing you to focus on the specifics of the order. These include the price and description of the goods or services acquired. 

When making your T&Cs, you should make sure that they are appropriate for your business. This will depend on who your customers are (ie business or individual consumers), what you’re selling and the mode of selling (ie online or through a website). Doing business with consumers would mean that your T&Cs must comply with consumer legislation eg the Consumer Rights Act.

What is the GDPR?

GDPR stands for the General Data Protection Regulation and is implemented in the UK by the Data Protection Act. It applies to any business that stores or handles personal data. ‘Personal data’ refers to any information that can be used to identify a specific individual. 

The GDPR enforces the principles of data protection and defines:

• the lawful processing of personal data

• a need to obtain valid consent when processing personal data

• a new set of individuals’ rights to grant people control over their personal data 

• the protocol for high-risk data breaches

There’s also a connection between cookies and GDPR. If your website uses cookies to identify a device or the person using that device, this data is considered as personal data under GDPR and you must obtain their consent before you can lawfully continue to collect and process their data.

Making a clear Privacy policy to explain what personal data you collect, its purpose and how individuals can control their data is an effective way to make sure you comply with data privacy legislation.

For more information on these requirements and how you can ensure compliance with GDPR, read Getting ready for the GDPR.

What is intellectual property?

Intellectual property refers to an intangible category of assets that are creations of the mind eg a logo or an invention. It can include any confidential information which is technical or commercial in character. 

What are the different types of intellectual property?

The four types of intellectual property are copyright, trade marks, patents and design rights.

Copyright

Copyright protects creative work and arises upon the creation of specific works including literary, dramatic, musical and artistic works. It doesn’t need to be registered but would only exist in works that are recorded and original.

It protects the work from any infringing acts such as copying or displaying the work in public without the copyright owner’s permission. 

The duration of copyright varies depending on the type of work. For literary, dramatic, musical and artistic works, it’s 70 years following the end of the year in which the author dies. 

Trade marks

Trade marks refer to a graphic sign (eg logos, words or slogans) that can be used to identify the goods and services of a specific business. 

Unlike copyright, a trade mark must be registered to be protected. A mark’s registrability depends on its distinctiveness and whether there are grounds for refusal. Once registered, it provides the trade mark owner with a monopoly right which can be enforced against anyone that uses the mark without the owner’s consent. 

Trade marks must be renewed every 10 years, otherwise, they become invalid. 

Patents

Patents provide the inventor with the sole right to use an invention (a product or a process) industrially. 

The invention must be registered to receive protection. It protects the invention from being used without the patent owner’s (ie the inventor) consent. This includes making, keeping and importing the product or where it’s a process, this can include offering the process to others for use. 

A patent can last for 20 years maximum. It’s usually granted for a period of 4 years and can be extended annually. 

Design rights

Design rights protect the appearance of a product. It’s relevant to businesses that invested in their product design which gave them a competitive advantage against their competitors. Products refer to any two- or three-dimensional articles.

Any original product designs automatically enjoy (unregistered) design rights. Legal protection is available and upon registration of the design, registered design rights are created. Unregistered design rights prevent others from copying the design while registered design rights prevent others from using the design.

Registered design rights can last for 25 years maximum. It’s usually granted for an initial period of 5 years and can be extended for further periods of 5 years. Unregistered design rights can only last for a maximum of 15 years.  

It’s advisable to register design rights since unregistered design rights are relatively difficult to enforce. 

How can I protect my intellectual property?

Where your intellectual property rights have been infringed, you should send the infringer a Cease and desist letter. This requires them to stop the infringing action by threatening them with legal action. For more information, read Cease and desist letters.

Apart from the protection offered by intellectual property rights, you can protect any sensitive information (eg business secrets) by entering a Non-disclosure agreement with the other party before disclosing any confidential information. This forbids them from using the information disclosed for any other reasons other than the specified permitted purpose. 

Where only one business is disclosing information, you can use a One-way confidentiality agreement. If both businesses are sharing information, then use the standard Non-disclosure agreement.

Lastly, where the nature of your business involves creating works that are protected by intellectual property (ie where your employees’ work may involve creating works that embody intellectual property, you should make sure that those rights are vested in you). This can be achieved by including an intellectual property clause in their Employment contract. For more information, read Employees and intellectual property.

How do I protect my intellectual property internationally? 

Typically, intellectual property rights are territorial (ie only provide protection in the country where the right was granted or registered). This means if your right was registered in the UK, parties from other countries may use your intellectual property without legal repercussions.  Therefore, it would be wise to register your intellectual property rights abroad if you’re thinking about trading abroad. 

Copyright

The UK is a member of several international copyright treaties. As a result, your copyrighted work will likely be protected abroad. 

These treaties include the Berne Convention and the Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organisations.

Trade marks

You can register your trade mark at the trade mark offices of the countries you want to conduct business in. There is also a European Union and international application system.

The Madrid Protocol created a system that enables the registration of a trade mark in multiple jurisdictions. You can only apply for an international trade mark after registering your trade mark in the UK. For more information, read International trade marks.

For trade mark protection throughout the European Union, you should register your trade mark at the European Intellectual Property Office (EUIPO).

Patents 

For the protection of your patent throughout the European Union, you should register your patent with the European Patent Office (EPO). This allows you to make a single application to register your patent in the countries you choose. Alternatively, you can make individual applications to the patent offices of each country. 

For international protection, making a Patent Cooperation Treaty (PCT) application can provide your patent with protection in many countries. 

However, due to the complicity of patent applications, it’s advisable to Ask a lawyer.

Design rights

For registered design rights, you can register your design in other countries by applying to a Registered Community Design (RCD) for protection in the European Union, applying to the relevant national intellectual property offices or making an application through the Hague System. The Hague System allows you to register your design in multiple countries with a single application. 

For unregistered design rights, you can register your design as an Unregistered Community Design in the EU. 

For more information, read Protecting intellectual property overseas.

Can I tell people about my invention before registering it as a patent?

It’s advisable to keep your invention confidential before making your patent registration application. This is because the registrability of your invention partly lies in the novelty of the invention on the date of filing the patent application 

In practice, this means that the invention and any information about it has not been made available to the public before the application. The novelty of an invention can be destroyed by the publication of any kind (eg a description in an academic journal) even if it isn’t widely publicised. 

How do I profit from my intellectual property?

You can profit from your intellectual property by issuing licences, which enables another party (the licensee) to use your intellectual property rights in exchange for a fee or royalties. This allows them to use your intellectual property in a way that would normally constitute an infringement. 

You can issue licences for a range of intellectual property including copyrighted works, trade marks and patents.

For more information, read Intellectual property licensing. You can also make your Trade mark licence agreement with Rocket Lawyer.

What is the Patent Box?

The Patent Box is introduced to encourage companies to commercialise intellectual property. 

It is a tax incentive scheme introduced by the Government in 2013. Under this scheme, companies that profit from its patented inventions can enjoy a lower rate of Corporation tax at 10% instead of the usual 19%. 

For more information, read the Patent Box. 

Can I transfer my intellectual property rights?

You can transfer your intellectual property rights to another through assignments. This can be a partial assignment where you assign some of your rights to another party (the assignee). This can be temporary or permanent. 

Make an Assignment of intellectual property with Rocket Lawyer.

How do I attract talented employees?

Hiring talented individuals at an early stage of the company’s formation is vital for your future success. Nevertheless, employing the right person is a two-way street - for you, they must have the desired skill set; for them, you must be attractive enough for them to want to dive into the uncertain world of startups. 

The company’s values and personality

The startup culture where employees have flexible working hours, take-home laptops and bottomless coffees is now a prevalent feature of all startups. So you have to figure out what differentiates your company from others.

Defining your company's values and making them clear to the public can boost your attractiveness in the eyes of your future employees and help them get to know your business. These values shape the company’s culture and should align with the company’s mission. This, in turn, attracts talent that shares the same values thereby enabling you to ensure that the employee is a good cultural fit for your business. 

Moreover, conveying your company’s personality through the use of social media and online platforms can also assist the hiring process. These tools give prospective employees an insight into what kind of people work at your company and what you’re working on. This can help them determine whether they’d be a good fit.

For more information on company values, read Determining your company values.

Competitive salary or equity

Needless to say, a good salary is always appealing. It’s also reflective of the company’s health. However, at an early stage of your startup where you have limited resources, it’s more likely that your staff would be underpaid. With this in mind, you should always aim to level their salaries with the market rate as soon as practicable. 

To tackle this issue, you can consider implementing an employee share scheme to make up for the lower salary at the early stages. This effectively grants your employees the right to purchase your company’s shares or gifts them with shares thereby making them shareholders. This option can attract talented individuals by enabling them to reap the long-term benefits and create an incentive to contribute to the business as a whole.

Reaching prospective employees

Instead of waiting for talent to approach you, you should be actively scouting for them. This can be done in two ways.

Networking, both digitally and in-person, is an effective way to identify talented individuals. Online platforms such as LinkedIn provide an avenue to reach out to potential candidates. This can also be achieved by attending conventions and talks related to the field your business is in. 

Another way to scout for talent is through you and your employees’ extended network. Identify who you think can be a good applicant and directly approach them.  

How do employee share schemes work?

An employee share scheme offers the opportunity for employees to purchase shares in the company, some offer tax advantages while others don’t. 

The four main types of employee share schemes which offer tax advantages are:

1. Share Incentive Plan (SIP)

2. Save As You Earn (SAYE)

3. Company Share Option Plan

4. Enterprise Management Incentives (EMIs)

Under these schemes, shares are provided to employees via either:

• a trust under which the employees are labelled as beneficiaries or

• the grant of an option to purchase the shares

If you would like to implement a share scheme, read Choosing the right employee share scheme. 

For more information on why you may wish to issue options over shares, read Comparing share options with shares. 

How do I develop a good culture at my startup?

Good work culture is a vital part of business, it impacts everything from recruitment to job satisfaction and work performance. Although there isn’t a specific checklist for developing good work culture, there are several considerations that can contribute to a positive working environment.

In building the company’s culture, you must determine the values your company uphold. Your employees should be involved in this decision since they work within the culture daily. Once the key values have been identified, you must implement actions to realise these values in your workplace.

Equally important as the company's values is the company’s mission. Employees derive job satisfaction from seeing how their work is contributing to the company as a whole. As such, it’s vital to determine the company’s mission and communicate it to your employees.

Furthermore, your culture should focus on employees. In order to foster a positive environment, it’s crucial for employees to feel appreciated and valued for their work. An effective way to achieve this is to set clear goals that everyone can work towards and reward employees upon reaching certain milestones. This bolsters a sense of unity and purpose amongst employees. You should also encourage a supportive workplace and provide employees with opportunities to voice their concerns or ask questions. It’s crucial to demonstrate that your concern for employees goes beyond their work performance but extends to their well-being including their mental health. 

Lastly, you should encourage social events (eg weekly team drinks) amongst employees so that they can get to know each other at a personal level. Encouraging social interactions between employees can help develop a collaborative and vibrant culture. 

Should I hire a consultant or an employee?

This depends on the nature of the work you need to be done and how much control you want over the worker.

Hiring a consultant offers flexibility and is appropriate when you’re seeking on-demand help with a particular project or for work that’s not central to your business. The advantages of using a consultant include:

• lower cost since your business wouldn’t have to pay national insurance contributions 

• less legal responsibilities since consultants aren’t covered by employment law and have to manage their own tax affairs

However, independent consultants can also work for others while working for you and often create their own schedules. For more information, read Using consultants.

Hiring an employee is more appropriate where the work is essential for your business or where the individual is needed on a long-term basis. Hiring an employee gives you complete control over that person’s work and who the individual works for. The downside is that you will be subject to more legal obligations since employees are entitled to a series of benefits including:

• minimum wage

• statutory sick pay

• unfair dismissal rights

As an employer, you’ll also be responsible for organising the tax arrangements for employees paid through PAYE. 

For more information on the two statuses and why it matters, read Consultants workers and employees.

You can also make your Consultancy agreement and Employment contract with Rocket Lawyer.

What is a joint venture?

A joint venture is a business arrangement between two parties where they decide to combine their resources in order to achieve a specific objective.  Parties may create a joint venture for many reasons, such as business expansion or product development. 

Upon its creation, the parties must determine the structure of the joint venture. The most common types of structure adopted are partnerships (both general and limited liability partnerships), limited company and contractual ventures. For more information, read Joint venture.

When entering a joint venture, it’s important to set out the objective and terms of the project by using a Collaboration agreement. 

How can I get my goods distributed?

You can distribute your goods by entering a Distribution agreement with an independent distributor.

Under this agreement, the distributor will purchase the products from you and sell them on your company’s behalf. The agreement will set out the basis of the appointment, the product to be sold and the distributor’s duties and the minimum sales target. 

How to profit from others using your ideas?

You can profit from others using your ideas by issuing licences, which enables another party (the licensee) to use your idea in exchange for a fee or royalties.

For more information, read Intellectual property licensing.

How do I license my software?

Softwares are intellectual property that may be protected by copyright or patent. 

You can allow others to use your software by issuing software licences. Typically, they are installed in the software so when a user first downloads the software, they will see a screen that links them to the terms and conditions of the licence. 

For more information on how software licences can affect businesses, read Software licensing and business.

How to create a contract with new customers?

This will depend on the product your business is offering - whether you’re selling goods or delivering a service.

Where your business involves the sale of goods, you should enter a Sale of goods agreement with the customer. 

Where your business involves supplying services and your customer is a business, the Services agreement should be used. 

Additionally, a service level agreement may also be useful. This sets out the level of service that the customer can expect and makes sure each party knows the quality and standard expected from the service. 

How do I negotiate contracts?

Contract negotiation is a skill that can’t be taught and gets better with practice. Here are a few tips that you should bear in mind when negotiating a contract.

Be prepared

Work out what your main objectives are and assess which goals are critical for you and which ones can be sacrificed if necessary.

You should also find out more about the party you’re negotiating with and their industry. Knowing your customer can be important as it enables you to better understand their perspectives and as such, it can help you tailor your offer to fit their needs or expectations.

Have a good attitude

During the negotiation, maintaining a positive attitude is crucial. This is because ultimately, the end goal is for you to work together so it’s important to form a positive relationship from the outset.

Throughout the negotiation, your focus should be on how both parties can work collaboratively to achieve a desirable outcome, which will benefit both of you. As such, it’s important for you to listen to what the other party wants from this contract.

Don’t rush

Take your time to negotiate the terms of the contract and carefully consider the implications of each term. Ultimately, you don’t want to enter into a contract that will put you at a disadvantage. Contract negotiations can sometimes take several meetings, so if you can’t agree on certain terms, you can always agree on the terms that both parties find agreeable first and then revisit the others

Where the other party isn’t familiar with your business, it may be worth explaining your product and providing any data that can back up your claims. This will give them a better understanding of your company and can render it more attractive. 

Seek professional help

When it comes to drafting the contract, the significance of legal help is undeniable. As a business owner, you’re aware of what you want out of a contract. However, it's always advisable to Ask a lawyer to review the contract in order to ensure that your interests are fully protected and that all aspects of the deal have been considered and are covered by the contract.