Top three tips when setting up a tech company
We love working with tech companies, particularly in the early stages when they are working out what they need. If this is you, read on to hear our top tips.
1. Get your company structure right…
Like all businesses, you can choose to operate as a sole-trader, a partnership, a company, or a trust.
If your tech company is just a hobby and you are not expecting to be making big profits or losses anytime soon, setting up as a sole trader may be advisable. It is simple to set up, you maintain control over the business, and it is easy to change from this business structure as your startup grows.
This may not be the best structure in the long term as it is risky – you are personally liable for any debts, and also you will likely be taxed at a high rate.
Partnership is suitable if shared management suits your business, and you want something that is easy and inexpensive to establish. First, you should set out the rights and obligations of each partners in a partnership deed, and seek professional advice about structuring for tax purposes.
Again, you and your partner/s are personally liable for debts of the partnership; which may be a deal-breaker for some when considering this structure.
You will require a trust deed that outlines how the trust is to operate, and there are some legal obligations (possibly requiring ongoing advice). However trust arrangements do have tax benefits that may be worthwhile for your business, and personal liability is not an issue for beneficiaries of the trust. The trustee is personally liable however, so you may want to consider setting up a company to act as trustee.
Setting up a company is initially more complex and expensive, there are costs both to incorporate and ongoing compliance costs. There are also reporting obligations and requirements that you need to be aware of, and you must understand that your business will be controlled by the directors and owned by the shareholders.
However a company structure offers many benefits:
- Startup tech companies may be able to apply for certain government grants, and may be entitled to favourable tax incentives or the company tax rate of 30% (which is lower than the higher marginal tax rates that would apply to the sole-trader).
- Limited liability.
- Able to own its own assets and enter contracts directly with third parties.
- Appeals to investors – which may be necessary for your tech business.
- You can set up trust arrangements within your company structure to assist with liability of directors and tax issues.
2. Have client agreements in place:
As you will be selling your tech services you need a client agreement in place setting out exactly what services you will be providing, and on what terms. Your obligations and the clients’ obligations, clauses that limit your liability, and protection for your intellectual property should be included in this agreement.
If you are planning to sell or licence your tech product (perhaps even before you have fully invented it), ensure the other party has signed your client agreement before sharing your business idea. You do not want to risk others stealing your intellectual property.
3. Hire your workers:
After finding the right people to employ, engage them in your company with a good employment contract. Tech companies need to be careful to protect any patents, copyright, and trade secrets, and have valid non-competition clauses in place. You can integrate confidentiality and/or non-disclosure agreements into the employment contracts. Make your employees aware your company owns the intellectual property used and created by employees at work, and that this information is not to be shared or used to create a competing business.
You could also seek to protect your companies confidential information through non-competition clauses, to prevent an employee with access to confidential proprietary information from competing with or working in the same kind of business as you within a certain geographic area for a reasonable amount of time, however these clauses are sometimes more difficult to enforce.
Ensure your employment contract transfers the rights of all works by the employee to the company. This should include all work performed by employee during work hours, including lunch, on your premises, or using company facilities or funds.
Have a chat with us if you would like help with:
Choosing the right business structure for your tech company;
- Client agreements; and/or
- Your employment contracts.
- Having the right legal advice at the beginning could save your business a lot of hassle moving forwards and prevent your great idea from being exploited by others.
If you have any concerns or would like clarification as to what regulations apply to your particular online food business, book a free 15 minute chat with us.
This is general advice only. Liability limited by a scheme approved under Professional Standards Legislation.
Published May 3, 2018Go back