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Alex J.
Alex J., Solicitor
Category: Law
Satisfied Customers: 3557
Experience:  Solicitors 2 years plus PQE
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I currently work with a small, independently owned company

Resolved Question:

I currently work with a small, independently owned company on a freelance basis. It has a strong brand and the owner (who is ageing) would like it's very small high-end range of stationary developed to become more commercially viable. She does not want to pay for the work but in exchange will offer part share/ownership in the newly developed range/company.
There is myself and one other who have now reached a stage where we have invested a considerable amount of time to develop the designs/colours etc etc and have had a few samples made-up.
The next stage for us will involve us spending money and we obviously need some professional advice as to what we need to do next to protect our interests.
Any advice will be greatly appreciated.
Kind Regards
T Savin
Submitted: 2 years ago.
Category: Law
Expert:  Alex J. replied 2 years ago.
Alex J. :

Hi, Thank you for your question and welcome. My name is ***** ***** I will assist you. Is this company a limited company? Is she the only shareholder?

Alex J. :

Does the company own all the designs and branding?

Customer:

It is not a limited company.

Customer:

She is the only shareholder.

Customer:

Yes the company does own all the designs and branding.

Alex J. :

Hi, Thank you. If it is not a limited company is she a sole trader or is it a partnership?

Customer:

She is a sole trader.

Alex J. :

Hi, Thank you. I will prepare an answer tonight with your options and switch this to Q and A mode. It may take me a while so please do not be concerned if you do not hear from me until tomorrow morning at the latest.

Expert:  Alex J. replied 2 years ago.
Hi,
Thank you.
The first thing you need to consider is what structure you want to adopt:
(i) If you do not form a company you will be considered to be in a legal partnership - the effect of this is you will be able to share in the profits and losses and trade under one name. The disadvantage is you are all personally liable for the partnerships debts so you will need to carefully reign in and decide who can bind the partnership to contracts by agreeing a partnership deed. You will also need this lady to assign her designs and brand to the partnership if they are fundamental to its business;
(ii) Form a limited company. Everyone takes shares and becomes a director. Your liability will be limited to you paid up share capital.The main disadvantage of this is a limited company requires more administration and formal process for example director meetings and shareholder meetings and you have to keep a record of these meetings. The relationship between the parties will be governed by shareholders agreement. You can draw money from the business by paying yourself a salary and declaring dividends.
- Another alternative is an LLP but I believe a limited company maybe best as it provides you with the most autonomy and you can raise investment or introduce new business partners by issuing more shares or issuing loans and granting debentures (i,e a charge) over the assets of the company.
Next steps:
- You should all go an take independent advice from an accountant and work out which structure will be best for you - and it what percentage you will own the company;
- You then need to agree with this lady that she will assign her brand and designs to the new structure (lets assume its a limited company);
- Once the company is formed you should all agree a shareholder agreement - this will detail policies on dividends, meetings, directorships, company borrowing, issuing of shares and an agreed mechanism for exiting if anyone wants to leave (ie they must first offer their shares to existing shareholders) - drafting this agreement is very straight forward and can be done by any local solicitor;
- Finally you should consider applying for a trade mark of the brand once the company is formed.
In terms of investing money into a limited company you can do so either by lending it money and taking shares or buying shares at a premium. Lending the company money is a more secure way of dealing with your investment because if the company went bust you would be a creditor of your own company.
This is an overview so is their anything you wish to discuss further?
Kind regards
AJ
Alex J., Solicitor
Category: Law
Satisfied Customers: 3557
Experience: Solicitors 2 years plus PQE
Alex J. and other Law Specialists are ready to help you
Customer: replied 2 years ago.

Is there any easier/less formal way of approaching this?

Expert:  Alex J. replied 2 years ago.
Hi,
Thank you.
You could just go into business together and write a one page document agreeing that the partnership owns her brands and designs, but if you did this you obviously have the risks of being in a partnership (Personal liability for its debts) and you would have a much harder time enforcing your rights if there was a dispute. Essentially if you enter business with people with a common view to making a profit you will be assumed to be in a partnership under the Partnership Act 1890.
A written agreement between the business partners is the safest way to go, whether it be using a limited company or a partnership. A partnership will have a partnership deed and a limited company will have a shareholders agreement. Without a proper written agreement it will be more difficult for you to enforce your rights and the obligation of this lady to assign her brand to the business.
Kind regards
AJ

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