Future 50: Structure is the key to success
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No matter how large the business, long-term success relies on selecting and maintaining an appropriate corporate structure. The Future 50 partners share their insights.
Is your business set up in the best way to optimise growth? That was the subject discussed when members of Future 50 gathered for the first webinar of the high-growth business programme. Delivered by lawyers Birketts and accountancy firm Lovewell Blake, the webinar began with advice for early-stage businesses – both the start-ups in this year’s Future 50 and companies reading this that might look to join the next cohort.
One of the most important questions facing start-ups is when to incorporate: to make the jump from operating as a sole-trader or partnership to being a limited company. There are costs to this, but they're set against the protection offered by separating personal assets from business risks. There can also be financial advantages, both in terms of tax paid and when setting up the limited company.
“There is an opportunity to effectively sell your own unincorporated business to your limited company, triggering a capital gain at relatively low rates,” explained Lovewell Blake’s James Shipp, stressing the importance of getting professional advice at this stage.
An alternative to the limited company is the limited liability partnership. This offers similar limited liability protection but may offer greater flexibility principally when it comes to remuneration for the partners. Again, business advisors can help identify the best structure for individual companies.
Another important consideration for younger businesses is when to register for VAT, as some may gain cashflow advantages by registering voluntarily before reaching the £85,000-turnover threshold where it becomes compulsory. Equally important is knowing how to use appropriate R&D and Investment Tax allowances.
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All businesses need to protect their IP and branding, but Mark Gipson of law firm Birketts added a note of caution. “It’s important to make sure you’re not investing time and money promoting a brand that you subsequently find is breaching the IP rights of a third-party,” he said. “Not every brand is registerable as a trademark, so just because another company hasn’t registered a trademark it doesn’t mean you’re free to use it.”
As well as establishing a safe brand identity at an early stage, it’s important to secure any associated domain names. These should always be registered to the business – not to individual partners or to any third-parties who may have built a website on the company’s behalf.
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Some firms may want to protect their IP with a patent, though the process may seem too expensive for smaller start-up companies. However, if the IP is exploited before a patent is granted, there is a risk that it may then not be deemed to be patentable. It's best to seek advice from a specialist patent attorney.
Where a website or piece of bespoke software has been developed for a company by a third party, it’s important to clarify where the IP and copyright rest – as unless the contract specifically states it, that may rest with the developer. It can be hard to transfer that after the fact but it should be possible to put “a robust licence” in place to make sure continued use is never a problem.
An equally important point of housekeeping is to keep contracts or terms and conditions up to date. Especially when relationships with key suppliers, contractors or customers evolve, these should be reviewed to make sure there’s an appropriate agreement in place, in writing – and this may allow the business to secure more-favourable terms.
From a compliance point of view, it’s also vital to keep company information on websites and stationery up to date, with the company name, registered office and company number – even if trading under a different name. Company and director registers also need to be maintained.
Often, problems with corporate structures emerge only when an entrepreneur is selling the business – which may be the last thing on their minds when setting it up. However, in the longer-term it pays to have an exit strategy in mind. Running the company as if it is ready for sale not only avoids issues when that day does come, but also makes it easy to take advantage of any earlier opportunities, while also keeping the business running cleanly and efficiently.