RE: FN-FORUM: Setting up a joint ownership company

date posted 1st October 2007 18:02

Hello James

> I'm currently looking into setting up a joint company with another=20
> freelance developer, providing several online applications for public=20
> use. The current idea is that we setup a public limited company for=20
> each application (each application will be very different) and have a=20
> 50% share in the company each.

I take it by "public limited company" you mean a Private Limited =
Company,
i.e., Ltd not PLC. PLCs require significantly more paperwork, =
accountancy
fees, pricey annual audit (~=A3600+), etc. I should know: Neogic =
switched from
PLC to Ltd about a year ago after we got fed up with the extra burdens!

> My main worry is that if everything goes tits up i could be left=20
> liable and end up with a hefty debt, does anyone know if this is=20
> correct?

IANAE and IANAL, but my understanding is that - without company assets - =
you
will be required to personally guarantee any loan/overdraft that the =
company
takes out.=20

If there is more than one of you guaranteeing the loan, you should =
probably
lean toward "individual loans" rather than "joint and several", as the
latter means the bank can chase you for 100% of any debt if the other =
party
can't pay. My personal experience has been that business borrowing can =
be
quite expensive; e.g., annual O/D "arrangement" fee, plus an interest =
rate
slightly above the BoE base rate.

It might be that you could set up and run the company without requiring =
a
loan/overdraft, e.g., by loaning funds to the company yourself. Bear in =
mind
though that this money would be at risk if the business failed.

As for personal liability in the event that the company fails owing =
money,
my understanding is that shareholders can't be held liable for debts, =
but
directors of the company CAN be held liable if they act negligently.
Others/Google can advise on the full definition of "negligent", but you =
must
be particularly careful about taking money/credit from creditors if you =
have
reason to believe the company will not be able to pay the money back.

Regarding setting up several companies, the more normal (read: cheaper,
simpler to administrate) approach is to use several "trading names" for =
your
company, depending on the product/target customer. You can use any =
trading
name you like (no need for registration or similar), so long as you =
disclose
in the small print "Bishbashbosh is a trading name of Bish Ltd".

I'd be interested to hear more about your plans - you have my details. I
could potentially take care of the application hosting, introduce =
customers,
etc.

Cheers, Ben

--
Ben Johnson, Neogic Web Solutions
// design =95 development =95 managed hosting

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