Thinking about starting a "business"

dangerstat · 11 Dec 2008 at 13:09

Hi all,

A couple of questions for you to mull over about starting a business. It's a while since I've done my degree so I'm not sure on some of the detail.

Basically I want to sell (A) a piece of software which is similar to a existing product but at roughly 30% of the cost, and is built out of GNU components (B) "properly" make some web apps available that I've been developing for a while. I want to stay working full time and sell the software with "ad-hoc" support only.

Now I could go down the route of "sole trader" right, but then I'd be liable, say if the software I sold infringed on some copyright (which I don't think it does). So I was thinking Ltd company would be the best way. What kind of costs are associated with (A) with setting up a company in this form and (B) annual costs for maintaining it (In terms of do I need to produce accounts, how much would that cost?).

Thanks

Dangerstat

semi-pro waster · 11 Dec 2008 at 13:15

If you create a limited company then you do need to create accounts yearly and you'll need to register with Companies House (website here). The cost of accounts will vary in part according to the size of your business. Have you got any sort of a business plan? It isn't a great plan normally to just throw yourself into a business without a plan, banks are unlikely to lend you money for a start. Have you considered visiting your local small business/entrepreneurial centre?

dangerstat · 11 Dec 2008 at 13:22

semi-pro waster said:
If you create a limited company then you do need to create accounts yearly and you'll need to register with Companies House (website here). The cost of accounts will vary in part according to the size of your business. Have you got any sort of a business plan? It isn't a great plan normally to just throw yourself into a business without a plan, banks are unlikely to lend you money for a start. Have you considered visiting your local small business/entrepreneurial centre?

Thanks Semi-pro. Yes I do have a plan, but I actually don't need to loan any funds for this I think. On the web side my "plan" is quite simply to send the software off to relevant magazines / publications to see if they will review it and just sell it online via download. On the web side I'm not actually looking to make money from it in the need to medium future, and the "only" associated costs would be getting a managed server (which should only come to about £100 PCM so I can afford that).

I have considered going to my local business center here, but to be honest I'm just about to move. In the past I've chatted to people at those KMPG (or some accountancy company) young entrepreneur events so I've got a rough idea of how to proceed. My biggest concerns are over data retention (if my web server got hacked and someone half inched all my users details) and the copyright stuff, really need to figure out if someone sued, it'd be the company and not me if that makes sense.

Participant · 11 Dec 2008 at 13:27

£20 to incorporate for the standard service and further costs to obtain articles and memorandum. However I *think* you can just put something like "retailer of software" and use the standard articles.

Regarding whether it's worth becoming a limited company, the reporting requirements for a very small business are so minimal that anyone with a limited knowledge of accountancy and business could easily do it themselves. You probably only need to file a balance sheet every year for very low turnovers.

Edit:

3. What does a small or medium-sized company have to deliver to the Registrar?

The company can deliver the accounts which were prepared for its members under the special provisions of part VII of the Companies Act 1985, or it can deliver an abbreviated version of these accounts.

Abbreviated accounts of a small company must include:
the abbreviated balance sheet and notes; and
a special auditor's report (unless the company is also claiming audit exemption - see chapters 4 and 5).
You can now file small abbreviated audit exempt accounts using our Software Filing or WebFiling services. Please refer to our website www.companieshouse.gov.uk for more information.

http://www.companieshouse.gov.uk/about/gbhtml/gba3.shtml#three

Cosimo · 11 Dec 2008 at 13:30

The intellectual property rights could be a can of worms, how are you seeking advice on the area?

Don’t know whether this can help: http://www.ipo.gov.uk/

semi-pro waster · 11 Dec 2008 at 13:32

If you don't need funding then that makes it simpler. Have you thought about asserting your copyright to the work and how you will do that or does that even apply with GNU derived products? i.e. if you're working from GNU products then is it then a problem to create a copyrighted product, against the ethos so to speak.

LordSplodge · 11 Dec 2008 at 13:32

I assume in your "plan" to start a "business" you have checked against the GPL for the code you wish to "borrow" to make your "fortune?"

I doubt you will need to go Limited unless you think your idea will be prone to people filing lawsuits against you and if it is then maybe you shouldn't bother.

dangerstat · 11 Dec 2008 at 13:35

simulatorman said:
The intellectual property rights could be a can of worms, how are you seeking advice on the area?

Don’t know whether this can help: http://www.ipo.gov.uk/

No not at all what do you mean? I don't think it's possible that they could have copyrighted their software in terms of generic type, just like you couldn't copy right the idea of an operating system or a word processor. I think they only issue (looking at the lisence of the freebie software it uses) is that I must quote their lisence in my code too?

dangerstat · 11 Dec 2008 at 13:37

LordSplodge said:
I assume in your "plan" to start a "business" you have checked against the GPL for the code you wish to "borrow" to make your "fortune?"

I doubt you will need to go Limited unless you think your idea will be prone to people filing lawsuits against you and if it is then maybe you shouldn't bother.

Yes just posted on this actually their the software is fine to be included in a commercial application, in reality I could code all but one of the elements myself but it'd just take another couple of months to do. I think the company which would be my main rival would consider filing against me if I got a decent (2000+ plus I recon) sales, as it'd be targeting their main flagship product

EDIT on Freebie software bits. Essentially the main component that I can't "do with out" is he h2 database engine, it's right at the core of my application before I chose it, I did check the license and it appears fine for me to include it in a commerical application, if someone could prove otherwise it'd be very very very much appreciated
http://www.h2database.com/html/license.html

dangerstat · 11 Dec 2008 at 13:51

Robbie G said:
£20 to incorporate for the standard service and further costs to obtain articles and memorandum. However I *think* you can just put something like "retailer of software" and use the standard articles.

Regarding whether it's worth becoming a limited company, the reporting requirements for a very small business are so minimal that anyone with a limited knowledge of accountancy and business could easily do it themselves. You probably only need to file a balance sheet every year for very low turnovers.

Edit:

3. What does a small or medium-sized company have to deliver to the Registrar?

The company can deliver the accounts which were prepared for its members under the special provisions of part VII of the Companies Act 1985, or it can deliver an abbreviated version of these accounts.

Abbreviated accounts of a small company must include:
the abbreviated balance sheet and notes; and
a special auditor's report (unless the company is also claiming audit exemption - see chapters 4 and 5).
You can now file small abbreviated audit exempt accounts using our Software Filing or WebFiling services. Please refer to our website www.companieshouse.gov.uk for more information.

http://www.companieshouse.gov.uk/about/gbhtml/gba3.shtml#three

Cheers for that edit, so a simple case of balance sheet and it's done online too! Can't see me needing to be audited as I'm not exactly going to be having a 5.6 Million turnover - would be nice if I did though

semi-pro waster · 11 Dec 2008 at 13:56

dangerstat said:
EDIT on Freebie software bits. Essentially the main component that I can't "do with out" is he h2 database engine, it's right at the core of my application before I chose it, I did check the license and it appears fine for me to include it in a commerical application, if someone could prove otherwise it'd be very very very much appreciated
http://www.h2database.com/html/license.html

I've had a quick look and it seems like you can make commercial applications with it which is great for your purposes, however you've got to acknowledge the H2 source and where/if you change the source code you've got to supply the source code with changes for anything that is covered (i.e. the H2 source and the modifications you make to it, the other parts of your software you do not have to reveal it would appear).

TheBigCheese · 11 Dec 2008 at 13:58

dangerstat said:
Now I could go down the route of "sole trader" right, but then I'd be liable, say if the software I sold infringed on some copyright (which I don't think it does).

Stop right there...you need to know that it doesn't infringe on copyright before you proceed any further - research research research!

To try and create a business, potentially a brand (if it's successful) and a reputation based on something that could cause you to be sued for all you are worth is madness.

Get that sorted before you do anything else, then you can proceed without having to worry about losing it all.

dangerstat · 11 Dec 2008 at 14:06

TheBigCheese said:
Stop right there...you need to know that it doesn't infringe on copyright before you proceed any further - research research research!

To try and create a business, potentially a brand (if it's successful) and a reputation based on something that could cause you to be sued for all you are worth is madness.

Get that sorted before you do anything else, then you can proceed without having to worry about losing it all.

I'm not really concerned about loosing anything I put into the company, I'd be surprised if it was successful. My *best* one year forecast would be to sell 200 copies of the software at £415, which is would be selling at under 20% of the cost of my would be rival so it's there's nothing really for me to lose. If my company was limited they could only sue it and not me.

semi-pro waster said:
I've had a quick look and it seems like you can make commercial applications with it which is great for your purposes, however you've got to acknowledge the H2 source and where/if you change the source code you've got to supply the source code with changes for anything that is covered (i.e. the H2 source and the modifications you make to it, the other parts of your software you do not have to reveal it would appear).

I've not altered any of their code in anyway what so ever, I'm essentially using it as a free alternative to a more professional piece of kit like Oracle.

Ross1234 · 11 Dec 2008 at 14:09

So your basically selling someone else's product without adding anything at all to it yourself?

dangerstat · 11 Dec 2008 at 14:13

Ross1234 said:
So your basically selling someone else's product without adding anything at all to it yourself?

H2 is just a component that handles storing / sorting / retrieving the data that my application works with. The rival's product is slower, more memory intensive and not cross platform that's just a few of it's perks, in pretty much every way (bar support) my product is far better. It's a case of they've been really lazy and not made any real improvements to their software for years, so they're ripe for a bit of commercial butt loving

mikester · 11 Dec 2008 at 14:41

First, you can't start a company by yourself. You need at least two people. In addition, you should consider hiring a legal firm to handle your administrative duties and to store records. Many firms these days act as secretarial services to keep your books in order, and to advise you on changes in share ownership and title. Any firm with the acronym LLP following their name should help you out.

Second, and I cannot stress this enough, you need to be sure you're not violating any copyright laws by selling a reduced version of what is essentially the same software that belongs to your competitor. And I mean 100% certain. Go over their legal policy on the website and purchase their software if you can and read their end user license agreement.

Software and its source code typically fall within one of two licensing categories: free software and proprietary software. Generally speaking, software is free if the source code is free to use, distribute, modify and study, and proprietary if the source code is kept secret, or is privately owned and restricted. You'll need to know under which category the source code for your competitor's software package falls in order to mitigate any outstanding liabilities in the present and for the future. Even if your competitor has a Public License, courts have ruled that free software licences definitely do set legally binding conditions on the use of copyrighted work, and they are therefore enforceable under existing copyright law.

Keep in mind, however, that licensing needs to be specific to the country in which it is enforced. This means that even if the competitor holds a copyright license in the UK, you'd be legally permitted to sell your product in any other jurisdiction outside the UK. That might be something to think about if you can translate your software into other languages - or at the very least open up your business model to include every other English-speaking nation on the planet.

As for patents, current case law in the UK holds that an invention will only be actually regarded as an invention if it provides a contribution that is not excluded and which is also technical. A computer program implementing a business process will not be seen as an invention; but a computer program implementing an industrial process may well be. See here for further information.

As well, you'll need to read over the new Companies Act 2006 which has since replaced the 1985 Act. There have been significant changes, most important are the codified range of equitable duties and obligations for Directors with greater emphasis on corporate social responsibility. There are also relevant provisions affecting your liability (including breach of duty, negligence, default or breach of trust), as well as the liability of shareholders.

Don't let all this get you down. It's just the preliminaries, which any legal firm and business centre can help you hash out within a few weeks. The trick is to be careful by expecting what can go wrong and having contingency plans in place if and when they occur.

Hope that helps, and good luck!

TheBigCheese · 11 Dec 2008 at 14:48

dangerstat said:
I'm not really concerned about loosing anything I put into the company, I'd be surprised if it was successful. My *best* one year forecast would be to sell 200 copies of the software at £415, which is would be selling at under 20% of the cost of my would be rival so it's there's nothing really for me to lose. If my company was limited they could only sue it and not me.

Right...I really don't think you've thought this through...maybe you know the programming side but I think your business accumen is letting you down a bit.

How much do you think it costs to setup and run a Ltd?

How much paperwork do you think is involved in managing an Ltd?

An Ltd may be a separate entity and you are an employee of it but you are still the MD and sole employee - you can't hide behind the company, it's not the company that would infringe copyright - it's YOU.

If you are only going to make small potatoes from it...what's the point?

Have you considered marketing and advertising? How are you going to let people know what you do?

How are you going to get the time for all the form filling etc. that is involved if you are trying to develop, market and sell the product as well as holding down full time employment or studies at the same time?

*edit* sorry to sound harsh but these are the questions you need to be asking yourself before you start out in business, I should know, I am going to be moving my business into a Ltd and register for VAT very shortly...it can be a bit of a nightmare and my accountant will be handling most of it.

*double edit* Companies are always looking for something that will make their business more productive, more efficient and keep costs down. If you can provide a solution then that's brilliant, but it has to be watertight...if you create something, rake in the cash, then you get sued, fold the company and run where does that leave the people who have bought your product? They have no support, no updates and nowhere to turn - that is seriously bad business practice and a poor reputation travels faster than any other news in business.

dangerstat · 11 Dec 2008 at 14:56

TheBigCheese said:
Right...I really don't think you've thought this through...maybe you know the programming side but I think your business accumen is letting you down a bit.

How much do you think it costs to setup and run a Ltd?

How much paperwork do you think is involved in managing an Ltd?

An Ltd may be a separate entity and you are an employee of it but you are still the MD and sole employee - you can't hide behind the company, it's not the company that would infringe copyright - it's YOU.

If you are only going to make small potatoes from it...what's the point?

Have you considered marketing and advertising? How are you going to let people know what you do?

I'm sorry but this seems a little harsh. To set up the Ltd company I'd expect it to cost less than £250, and reading through the content on the on the companies house website there seems no reason I could not do the majority it myself with the help of my brother-on-law who runs his own business too.
In terms of paper work, as Robbie G's post points out all that seems necessary for a small company like this would be balance sheet with suitable notes.

If I did achieve sales of 200 copies (which I don't think is a massively high predication) that'd be £83,000 which is not small potatos to me at least.

In terms of marketing, like I say, there are several niece publications that review software of this type, that'd would be my starting point. If that generated some decent sales I'd consider running adverts in those publications regularly.

I think if this was a traditional type of business I'd never even contemplate doing it whilst working full time. With this, maybe I am being naieve, but the "bulk of the work" (I've been developing this for about 2 years) has been done

I do not understand your comments on it would be "ME" violating the copyright, in fact I think you can indeed "hide behind a company" in this way. In all honestly I don't believe I would be violating any copyright. But it's a risk I'd rather hedge against.

Edit because of your edit lol In terms of would considerations from the customers PoV. Personally I think (no in fact I know some are) they are annoyed at this particularly company for a complete lack of innovation of their product, and the fact that the cost of it bares absolutely no correlation to either it's quality or associated development cost. I'm 100% convinced it's better, cheaper and more useful that the rival's product, and I guess in the current climate businesses should welcome it with open arms. The only area it would be let down is in support which I could only do by email and out of working hours, but you never know if it took off then I'd look at different options.

TheBigCheese · 11 Dec 2008 at 15:24

My apologies for the small potatoes comment, £83,000 is in no way a tiddily amount of moolah, I read the figures on your initial post wrong :rolleyes:

Don't get me wrong, I'm not trying to be harsh, what I'm trying to say to you is, if you want to do it then go for it!
But go for it in the right way, you could be onto something big (who knows?), it could make you a really decent income, and could continue to for some years if done correctly.

It would be a real shame if a year or two down the line you had been run out of Dodge because you hadn't covered all your bases to start with.

Hiding behind the company isn't good business practice should anything go wrong, and I'm also not sure that you can...what I mean is, the company is a legal entity in it's own right but someone has to be pulling the strings - you.

For example, it is my understanding that if a company (for example) copies a wedding photograph for a customer that is clearly labelled as copyrighted by the photographer, and the photographer sues the company, the the company is liable to pay the photographer up to £25,000, but the employee who scanned the image in the first place is also personally liable for £5,000 for breaching copyright.

This is what I was told when working in imaging a few years ago - that's what I mean by not hiding behind the company.

Also you name becomes a matter of public record at Companies House if you are a director of an Ltd...so hiding behind it or not...you will still be known.

Mr Jack · 11 Dec 2008 at 15:35

Setting up a limited is cheap and easy. The on-going requirements are a bit annoying, but not too onerous providing you do the sensible thing and get an accountant.

Also, as above, seek legal advice.