Further Points

Advisers

The company will need various professional advisers to assist it in its business.

Lawyers
Accountants
Banks
Public Relations Firms
Human Resource Advisers
Business support networks

Isis can help in identifying appropriate advisers. In terms of documentation, it is important that the company has appropriate legal representation of its own when putting in place the agreements described above. As founding individuals you should seek personal legal representation in your capacity as consultants to the company and as shareholders. When engaging advisers you must always consider who will pay them if the company is not formed. Many may work on a contingency basis whereby if the investment is not made, they will not be paid. Do not sign a letter of engagement with an adviser until it you have agreed who is going to pay. Isis has deliberately not expressed preferences or recommendations and has refrained from even general comments. Advisers will send you sales literature if you ask for it. The large national and local firms are increasingly interested in wining business from spin-outs.

The University and Isis will always use their own lawyers. The spin-out itself and the individual researchers' interests do not exactly coincide although there is considerable overlap.

Insurance

The spin-out will need to obtain a number of insurance policies including: directors and officers insurance; building and contents insurance; employer's liability insurance; public liability insurance and product liability insurance.

Tax

There is a plethora of taxes and tax schemes relevant to the various aspects of the spin-out company.

Company		Individuals
Value Added Tax Corporation Tax National Insurance R&D Tax credits National Insurance		Capital Gains Tax Income Tax Enterprise Investment Scheme Enterprise Management Incentives Inheritance Tax

These change frequently as do the optimal ways of managing the tax liabilities. Current professional advice is essential.

Company Constitution

The spin-out company will be a limited liability company incorporated under English law. It will be a separate legal person that can sue and be sued in its own right. It will consist of

• Shareholders
  These will include the researchers, the University and the investors. Shareholder's liability will be limited to the amount that each shareholder has fully paid up on their shares. The number of shareholders will increase with every round of funding (see Share Dilution below).
  
  
• Board of Directors
  The directors of the company (of which there must be at least one) will be appointed by the shareholders. The directors are responsible for strategic management of the company and will be personally liable for their actions as directors of the company. The Directors elect one of themselves to be the Chairman.
  
  
• Managing Director
  The managing director will be a member of, and will be appointed by, the board of directors. The managing director will generally be given power by the board to run the company on a 'day-to-day' level.
  
  
• Company secretary
  The company secretary reports to the directors and is responsible, along with the directors, for the records of the company, including: notices and minutes of meeting, company house returns etc. The company's lawyers or accountants will quite often be the company secretary. The rules of the company will be set out in the memorandum and articles of association. These include: the number and type of shares which the company can issue; the rights of shareholders; and the powers of directors. The directors must manage the company in accordance with the articles and the law.

Share Dilution

As a company grows it is likely to issue more shares to new shareholders to attract cash investment and people. Each time this happens existing shareholders may find their percentage shareholding reducing unless a shareholder uses previously agreed pre-emption rights to buy more shares and thereby maintain a percentage shareholding.

Illustration of Share Dilution
	Stage 1		Stage 2		Stage 3
	shares	%	shares	%	shares	%
Founders	50	50	50	33.3	50	29.4
University	50	50	50	33.3	50	29.4
Investors			50	33.3	50	29.4
Management					20	11.8
Shares	100		150		170
%		100		100		100

Investment Finance

The spin-out company will need cash in order to operate and grow the business. Cash is available from a number of sources:

Bank Loans
Business Angels
Seed Capital
Venture Capital
Institutional Capital
Corporate Venturing

All of these sources want something in return (e.g. interest, assets, equity) and have different skills and expertise to offer your spin-out. The best source of funding will vary and Isis can advise you on the advantages and disadvantages of each source.

Isis Angels Network

The Isis Angels Network provides a vehicle for the introduction of private investors and companies who are interested in investing in spin-out companies from the University of Oxford. IAN is a not-for-profit company limited by guarantee, established by Isis in 1999. Members of IAN may also be interested in serving as non-executive directors, nominated by the University, on the boards of the new spin-out companies.

Further Information

Further information is available from a wide range of sources, including:

• Companies House (good downloadable booklets)
• Isis Web Site Useful Links Page