4. Employee share schemes
At some stage most start-ups will want or need to issue shares or options to their staff. Whilst employee share schemes in this country currently have some unattractive tax ramifications (that we hope the new government review will rectify), they are still an important tool for cash-strapped start-ups to motivate, reward and retain key employees.
Make sure your structure and supporting investor and shareholder agreements will allow for employee equity to be issued in the right entity. A corporate structure is generally required for employee share schemes.
5. Commercial acceptance and operations
It’s important to have a structure that is commercially acceptable and easy to deal with. This is not so important if you’re dealing with individual consumers, but if your customers are other businesses or government departments in particular, they can have strong opinions about the type of business structures they will engage with. Most government departments, for example, will only deal with corporate structures. Banks, insurers, landlords and other third parties important to the operation of your business can also treat businesses differently based on their structure.
You also need a structure that is scalable and can grow with your business and its changing needs. Once again, this comes back to planning for the future and choosing a structure with flexibility to accommodate different opportunities the business might face as it evolves through various stages of growth and maturity.
6. Internationalisation
Many tech businesses are now doing business overseas. They either establish operations in overseas countries or relocate their head office and entire business overseas, in order to expand and raise capital. If this is a likely outcome for your business, then you need to put in place a structure that allows for this at the outset.
Where you’re considering relocating your head office or setting up a holding company overseas, then this is usually best achieved by implementing what is referred to as a “corporate flip up” structure.
7. Exit
A successful exit is what most aspiring tech start-ups strive for. Having a structure that provides choice and flexibility as to how you might sell the business is important.
In the case of a company structure, you have a choice to sell the shares in the company or the business separate from the structure. Each option has different commercial and tax implications and both are important to your investment in the business, and that point in time when you eventually want to realise and extract some or all of it.
Marc Peskett is a director of MPR Group, a business advisory service to technology start-ups.
This article first appeared on StartupSmart.
