The most recent TiE Group Mentoring session (facilitated by Brian Dorricott of Meteorical) was all about “Structuring a New Business”. In the two hour session we worked through the generic business structure highlighted above. In this diagram Shareholders own the company and appoint a Board to direct the Company. The Board will take advice from Advisors to act in the best interests of the Shareholders in giving long term strategic direction to the company. The company itself is managed and run by full time employees who take goods from suppliers, apply some change to them and sell them to customers adding enough value to pay their salaries and provide a return to the Shareholders which is greater than their other investments.
During the evening, the key points that were covered were:
- Legal entity. A company is a separate legal entity from everyone involved. This means that it has to file its own tax return and can take on debit. The company also holds all the Intellectual Property and Knowhow within the documentation, procedures and heads of its employees that is used to convert raw supplies into something that customers wish to purchase. Being a legal entity, a company can be purchased and sold just like any other product and should make decisions in the best interest of the Shareholders.
- Costs. It is more complicated and expensive to operate as a company than a sole trader typically costing around $2,000 in accountants fees each year to create and submit the appropriate reports.
- Start-up CEO is everything. When a start-up company is formed, the CEO and his colleagues generally are the company, shareholders and board as indicated by the shaded pink area above. As the company grows and expands with time, these roles become separated. It is important for the CEO to appreciate and understand these changes as the company grows.
- Advisors v. Directors. In the first instance start ups should try to build a range of (paid) Advisors (e.g. legal, financial, marketing, product delivery, tax planning, etc.) to help the company move forward. Investors will expect Directors to have their interests aligned with the company which can be demonstrated by them buying shares (rather than receiving fees like advisors).
Many other topics and nuances of company formation were covered during the session – including some basic tax saving ideas, trusts and IP protection strategies. At the end of the group mentoring session, Sebastian reported that he found it “Very informative. We were able to address some specific scenarios likely to come up for me in a great deal of detail which was extremely valuable.” And Steve said that he would have needed to pay several hundreds of dollars for similar advice from his partner who a practicing accountant.
We look forward to the next session on the 19th May 2015 where the topic is “Preparing to pitch: Discussion of pitch content, the target audience and their expectations, prepare a pitch and receive feedback.”