What documents do I need to start a company?
If you want to start up a company and attract an investor, then you'll need to get your legal house in order.
Here's a check list of the actions you'll need to take to get your show on the road:
1. Set up your companies
Investors almost always prefer that you have two separate companies: (1) a trading company to run the business and (2) a holding company to hold it's intellectual property assets.
Trading companies incur debts. If those debts are paid on time, then a debtor could issue a statutory demand to have the company wound up for trading while insolvent. ASIC will own the assets of a company if it is wound up and this includes the intellectual property if it is in the name of the trading company. By contrast, the holding company doesn't incur debts and so doesn't face the same risks as the trading company.
If you already have all your assets in the trading company, then you can assign your assets to a holding company. However, you should seek advice from your accountant before doing so because there may be tax implications. In short, unless the holding company and the trading company are in the same consolidated tax group, then Capital Gains Tax may be payable.
2. Intellectual Property
Investors want to see that you have taken steps to secure your company's intellectual property. Accordingly, you will need to:
register your inventions in the form of patent applications or registered designs
register your business name with ASIC
register your trade mark with the Trade Marks Office (not ASIC);
record the assignment of your copyright from its author to the company (this includes copyright in the logo and all copyright in any computer code); and
keep a register of your trade secrets.
By the way, if you try prepare and file your patent application yourself, it won't be worth the paper it's written on. Badly written patents can be incredibly easy to avoid. A court doesn't award compensation for infringement because the patent owner is a nice guy. They award damages if every single integer of the independent claims has been deemed novel and inventive by an Examiner and have been adopted in the product of a competitor (ideally a competitor who was already on notice of a claim to patent rights). Almost all patent cases boil down to the interpretation of a single word in a single claim. Patents need to be written by expert patent attorneys.
3. Shareholders Agreement
Investors will want to review your current shareholder's agreement.
If you have multiple shareholders but no agreement, then your investor could think you're not a sophisticated business person, or not commercially savvy. An unscrupulous investor could seek to take advantage of you for this reason.
The shareholder's agreement sets out rules of the relationship between the shareholders in the holding company.
An investor will probably require a new shareholders agreement containing terms that will protect him/her. The first draft of those agreements will usually be designed to allow the investor to take over control of the company.
4. Information Memorandum
An information memorandum is your pitch document.
It should contain all the information an investor needs to know about your startup before investing.
All the information needs to be true, otherwise you could be accused of engaging in misleading and deceptive conduct.
It will need to contain disclaimers (in case things don't work out quite as planned) to legally protect you.
5. Next Steps
We can help you to get your legal house in order.
If you have any questions, please call Steve Davey on +61 402 519 010.