Tips for incorporating your own start-up business
The growth in the number of start-ups being incorporated outside of London over the last three years, driven by lower living costs, remote working and regional talent pools, shows no signs of slowing down. Indeed, a recent report by tax and consulting firm RSM UK stated that 2022 saw a 22% increase in the number of tech companies incorporated in the UK compared to 2021, with 46,474 new tech companies created in 2022, up from 38,240 in 2021. Based on data from Companies House, the number of registrations of new firms is almost double that of 2020, when the pandemic slowed numbers to 23,531.
Unsurprisingly, over half of all tech companies incorporated were London based, however, the capital only saw an increase of 21% – one percent below the national average. Whilst eight of the ten UK regions had an increase of 22% or above, regions such as the East Midlands and Yorkshire led the charge, seeing the most significant increases (38% and 30% respectively).
Regional opportunities for entrepreneurs?
Generally, UK regions saw a greater increase in tech company incorporations compared to London. Cities such as Manchester and Bristol have seen a boom in their tech sectors in recent years and factors like greater remote working capabilities and cheaper overheads may partly explain the significant rise in regional tech company incorporations.
This regional rise is certainly good news for early-stage start-ups, who are able to take advantage of lower living costs and tap into regional talent pools while still accessing the same resource and support networks as start-ups based in the capital. Competition for funding and mentorship is also less fierce outside London.
It would also seem that universities outside of London are now acknowledging and focusing on the PR and economic benefits of incubating start-up cohorts, together with commercialising spin-outs. Certainly in our recent discussions with universities this has moved up their agenda and is now identified as an area for growth.
Planning on incorporating your start-up?
If you are thinking of incorporating your own tech company, then we have set out below a few starting points for you to consider.
Most start-ups are incorporated in the UK as private limited companies. Along with filing certain forms at Companies House to declare your directors and shareholders, you’ll also need to adopt articles of association. These will govern the internal running of the company; the vast majority of start-up companies rely on the ‘Model’ articles of association which are the standard default articles a company can use.
However, whilst there is no legal requirement to have a shareholders’ agreement in place, such an agreement can be useful to have drafted at the outset to ensure all shareholders and directors are aligned on how the company will run. In addition, it can also set out the process should there be any shareholder dispute – something which unfortunately happens from time to time.
Anyone who is a director of the company will also need to be mindful of the fiduciary duties placed upon directors when making decisions. The main duties are to avoid a conflict of interest, to act in the best interests of the company, to act within the powers conferred by the company’s articles of association, not to fetter one’s own discretion and not to make unauthorised profit.
You will also need to think about data protection together with the terms of conditions for your customers and / or suppliers. GDPR should be front of mind for every tech company founder, to make sure that you stay on the right side of data protection whilst also ensuring your terms and conditions protect the company and accurately reflect the business you are carrying out.
If you have employees from the start, then you’ll need them to enter into employment contracts; if you wish to give employees equity, you may want to set up an employee share scheme or have bespoke vesting provisions for their equity. These provisions can be linked to time spent with the company or upon hitting certain targets.
You should also ensure that anyone who is not an employee who is creating, or has already created, intellectual property for the company signs a contract to state that the intellectual property is owned by the company and not that individual / service provider. The last thing you want is for the company’s main intellectual property to be technically owned by someone outside of the business.
If you are incorporating a tech company and need help or legal advice on any of the matters covered above, we have a dedicated start-up team on hand at BDB Pitmans ready to assist you.
Please contact Andrew McGlashan for any start-up enquiries.