There is a habit when starting out, to think that as it’s only you and perhaps a co-founder, why bother with governance? You don’t have the time or you are under pressure to sell, produce and market your business.
The serious bit…
However, the longer you put it off, the more it can cost you, through fines, penalties and if severe enough, prison. That’s right, being a company director comes with some mighty consequences under company law. Also, there are EU directives and other regulations depending on where you trade, that you have to be mindful of.
Therefore make the time, it might mean missing a few social events but set a few hours aside a month to keep up to date with your responsibilities.
When you create a company and become a director you have what is called Fiduciary duties. Basically having ultimate responsibility. Therefore you should be a trusted figure and expected to hold yourself to the highest standard of care to protect the assets of the business.
Spending too much time on the fun flashy stuff might cost you a lot more in the future and it will put off investors. You will have to start questioning your decisions far more. Giving favours to friends and family when not in the best interest of the company, are not acceptable.
Once a company is registered the bulk of this foundation work happens in the first month of a formation. After this, due diligence and record keeping becomes more familiar and require less of your time, as they become the habit. So to get started:
- Set up a schedule/calendar and make sure you record important dates and milestones for the year. E.g. first annual report date, year-end for accounts and tax filing dates.
- If your companies registered address is not at your home, make sure you pick up your post regularly. Insist on invoices coming via email.
- If there is more than one founder set out roles and responsibilities. Appoint a chair and company secretary.
- Agree formally who is responsible for what in the business, by written agreement, include items like:
- Number of shares each
- Voting rights
- Any directors fees
- What happens if someone wants to leave or increase their stake?
- What if you decide to go for funding, do you want to create a separate share class with fewer rights?
- Conflict management process.
- What happens in the case of a tied vote for company decisions
- How board meetings are structured, i.e. frequency, min number of attendees etc
- Keep minutes of major meetings. These don’t have to be fancy, bullet point and clear outlines are fine. Basic details:
- Location can be via phone/Skype etc
- Who attended – was the minimum attendance number achieved?
- Who gave their apologies
- Prior meeting minutes for the group to approve
- Agenda points
- Key decisions
- Any other business
The company secretary usually looks after minutes. The Chair supervises and can have a deciding vote. Minutes can either be kept in a book or online/electronically. There are plenty of cloud/app solutions out there or hire a virtual PA to minute your meetings.
- As you engage in business transactions with people and companies perform due diligence. Perform background checks, get references, and check on companies’ house to ensure they have not been struck off as a director. You want to make sure you do not end up in a position of non-payment, or a supplier who provides a poor service/product.
- Keep good files. Seems obvious, but store invoices, contracts and other correspondence (including emails) in a secure place. Rule of thumb is to store files for 6 years and up to 7 years for tax purposes. You can go paperless by scanning and digitally secure.
- Have you set up a separate business bank account? Long term, by keeping your business spending separate, it will be easier to track your companies’ money. Also, with more than 1 founder, protect the business by setting withdrawal limited and dual signatures.
- If you start to employ people or use freelancers make sure you use contracts. Get your terms of work in writing to protect your business. For new employees make sure you honour national minimum holidays, sick leave, health and safety requirements, pensions and other statutory rights for employees. Also, do not ignore PAYE and national insurance contributions.
- Don’t ignore insurance requirements.
- Make sure you have IP, trademarks and patents in place and make sure you are not infringing on someone else’s ideas. This goes for trading names, domain names and branding.
- Set up a suitable accounting system. You can do this yourself for a while and then transition to an external accountant.
- If it is not documented, hearsay will not work. Follow up a conversation with an email summarising your understanding and stating ‘if you do not agree with any of the above please respond within 5 days, otherwise, I will assume your agreement’.
The above list is a starting point, depending on your sector there may be further legal requirements such as licensing, permissions to import/export certain materials, local laws, financial regulators, ISO certifications etc.
Speak to industry experts and research your sector.