Business Innovation

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• Publisher: Legend Business
• Year: 2019
• eBook ISBN: 9781787197916
• Topic: Business
• Subtopic: Business Development
• Index: Business

Innovation generally refers to changing processes or creating more effective processes, products and ideas. For businesses, this could mean implementing new ideas, creating dynamic products or improving your existing services. Innovation can increase the likelihood of your business succeeding.

Bringing innovation into your business can help you save time and money, and give you the competitive advantage to grow and adapt your business in the marketplace. This book will give you the insight from industry professionals that have been there and sold the t-shirt. They will help define your objectives, create, market and monetise your IP.

Part One

PREPARING FOR INNOVATION

1.1
BUSINESS STRUCTURES

Gary McGonagle, Howman Solicitors

INNOVATION

With the advent of artificial intelligence, the world is currently on the brink of a new industrial revolution. This will further bring to the foreground intellectual property law and the ability of business entities to develop, exploit and protect their intellectual property. In order to accomplish their aims, business entities must choose the correct business structure to allow their innovation to flourish and be protected.

CHOOSING THE RIGHT STRUCTURE

In order to help you identify the correct structure you should consult with your accountant and lawyer to look at the various options that are available to you. The correct option for you will depend on a number of variables, for example:

• the size of your business;

• your tax structure;

• whether you wish to seek external investment;

• whether you wish to form a joint venture with another person; and

• your appetite for risk.

Tax

The tax benefits/pitfalls of each business structure are outside the scope of this chapter; however, taking tax advice should be one of the pre-cursors for launching your products, setting up your business structure or analysing how best to exploit your innovative intellectual property.

HOW TO DECIDE WHICH STRUCTURE IS CORRECT

Currently, there are a great variety of business structures to choose from. They provide flexibility in management and budget, although some options may be immediately discounted as it would be unlikely that you would choose to exploit intellectual property through some of those structures. For example, Charitable Incorporated Organisations (available for charities or charitable groups) or Community Interest Companies (intended for social enterprises that want to use their profits and assets for the public good) are unlikely to be utilised for exploitation of intellectual property unless, it was specifically for a charitable purpose or the public good.

In this chapter we will therefore concentrate on the more familiar business structures and consider the benefits or drawbacks of each. In order to be able to draw a fair comparison between the various business structures we need to utilise the same comparables. In my experience, the following comparables are the main driving factors behind deciding which business structure to choose:

• Speed & Costs

How quickly can you get up and running? Will there be large set-up costs and ongoing costs?

• Liability

If the business structure is sued or gets into financial difficulty, who will be potentially liable for the losses?

• Finance

Can the business structure easily raise finance? In the intellectual property sector research and development is a necessity and can be very costly. Therefore, the more options you have to finance, the better.

• Confidentiality

Under this heading we will consider what filings and disclosures are required in relation to each business structure. This should not be confused with the disclosures that you will be required to make in relation to the intellectual property that you are seeking to exploit. For example, if you are exploiting a patent then you will be required to have disclosed details of the invention when you made your application for a patent.

• Potential for investment

If third parties can invest into your business structure then you can use the money that they invest to research, grow and develop. If you need a lot of research and development then this will be a key factor for you to consider.

• Business perception

Under this comparable we will identify how your competitors, suppliers and clients will perceive your business structure.

TYPES OF BUSINESS STRUCTURE

Sole trader

This is trading on your account (i.e. as an individual although, you may adopt a trading name).

Speed

Very quick, there are no legal formalities to comply with.

Costs

To start, there are no costs involved and ongoing costs will be basic accountancy charges.

Liability

You are fully liable personally, so this is a big negative.

Finance

You can borrow but you cannot offer security above your personal liability (i.e. you cannot create charges over your business structure to enable borrowing).

Confidentiality

No disclosures are required outside your basic tax return.

Potential for Investment

No potential.

Business perception

Other businesses are likely to view you as a young/basic business.

General Partnerships

The Partnership Act 1890 defines a partnership as, ‘the relation which exists between persons carrying on a business in common with a view to profit’.

Speed

You can start a partnership without a partnership agreement and be governed by the Partnership Act 1890. However, this out-dated piece of legislation should be avoided unless you want business uncertainty. Therefore, it is advisable that you put in place a partnership agreement before you set up. This may lead to a delay in getting started.

Costs

Start-up costs are limited and ongoing costs will be basic accountancy charges although that can vary depending upon what sector you are operating in. That said, you should engage a lawyer to draft a partnership agreement to avoid uncertainty.

Liability

Partners are fully liable personally, so this is a big negative.

Finance

You can borrow but you cannot offer security above your personal liability (i.e. you cannot create charges over your business structure).

Confidentiality

No disclosures are required outside your basic tax return.

Potential for Investment

No potential.

Business perception

With the advent of Limited Liability Partnerships the general partnership was seen to have had its day. It seems that in recent years this viewpoint has now been rejected as people still consider that the confidentiality benefits offered by a general partnership can be attractive, if they wish to keep their success, or otherwise, under the radar.

Limited Liability Partnerships (LLP)

Members of an LLP have limited liability, which is very attractive. The LLP is a separate legal entity but is taxed as a partnership and it has the organisational flexibility of a partnership.

Speed

You will need to incorporate the LLP at Companies House and put in place a limited liability partnership agreement, which can lead to a delay in set-up.

Costs

Initial costs will be a registration fee with Companies House and a limited liability partnership agreement. Ongoing costs will be preparation of accounts and making basic filings of a confirmation statement at Companies House.

Liability

Members’ liability is limited to their capital share, therefore they are not personally liable above that sum (except in limited circumstances).

Finance

You can borrow and can create floating charges rather than be restricted to having to offer personal liability as per a sole trader or a general partnership.

Confidentiality

You must file with Companies House your accounts, registered office details, members’ and designated members’ information. Any limited liability partnership agreement between members is a private document that is confidential to the members and does not need to be registered at Companies House.

Potential for Investment

You cannot raise money by issuing shares, although there is the potential that an investor could invest capital and become a member/designated member. That said, this is a pretty inflexible investment route.

Business perception

Although LLP’s have been very popular with the professional services sector, for example, solicitors, they have not had the same popularity with intellectual property rich companies. Therefore, business perception may be neutral.

Limited Company

A limited company is probably the most commonly used and flexible business structure. A limited company has its own separate legal personality and has shareholders and also directors, the latter who direct the company’s day-to-day activities.

Speed

You will need to incorporate the limited company at Companies House. This can be done on the same day, for an additional fee. Additionally, you may wish to have tailored articles and a shareholders’ agreement, although this is not a legal requirement.

Costs

Initial costs will be a registration fee with Companies House and, ideally, tailored articles of association and a shareholders’ agreement (i.e. regulating how the shareholders conduct themselves). However, if you are setting up a company on your own you can rely on the model articles and would not need a shareholders’ agreement. Ongoing costs will be preparation of accounts and making filings at Companies House.

Liability

Shareholders’ liability is limited to any sums unpaid on their shares. The share capital should also be available on a winding up. Therefore, it is always better to ensure that a limited company’s overall share capital is fully paid up and that the total share capital is not an excessively high figure (for example, you can...

Table of contents

• Cover
• Title
• Copyright
• Business Innovation
• Foreword
• Introduction
• Part One: Preparing for Innovation
• Part Two: Focus on Intellectual Property
• Part Three: AIDS to Innovation
• Part Four: Extended Thinking
• Contributors