© M. Scheurer, 2002CT218 Professional Issues1 Professional Issues – Lect.3 1. Running your own business 2. Contractual issues in Employment and Self Employment

© M. Scheurer, 2002Professional Issues / Lecture2 Running your own Business The Alternatives: Sole Trader Cooperative Partnership Limited Company

© M. Scheurer, 2002Professional Issues / Lecture3 Sole Trader (1) Characteristics Individual operating his/her own business No legal formalities Tax status Register with Inland Revenue May have to register with Customs & Excise for VAT

© M. Scheurer, 2002Professional Issues / Lecture4 Sole Trader (2) Advantages Easy to start Little or no formalities Flexible / simple Disadvantages May lack credibility Unlimited liability (insurance)

© M. Scheurer, 2002Professional Issues / Lecture5 Co-operative Support and “companionship” “All in it together” No hierarchy Complementary skills Limited interdependency

© M. Scheurer, 2002Professional Issues / Lecture6 Partnership (1) “The relationship which subsists between persons carrying on a business in common with a view to profit” [the Partnership Act 1890] Required structure for some professions: e.g. Solicitors, General Practitioners Can have partnership without formal agreement

© M. Scheurer, 2002Professional Issues / Lecture7 Partnership (2) Advantages High personal commitment Stability Disadvantages Unlimited liability for the debts of the partnership High level of Interdependency More difficult to move into and out of Partnership

© M. Scheurer, 2002Professional Issues / Lecture8 Company (1) Characteristics: The Company has an independent existence as a legal person (entity) It can participate in any legal process in its own right ( e.g. Buy and sell, sue and be sued) Regulated by the Companies Act ( )

© M. Scheurer, 2002Professional Issues / Lecture9 Company (2) Two types: Public Company (PLC or plc) May offer their shares to the public Minimum capital required Formal (heavy) structure Private Company (Ltd) 2 types: Limited by guarantee Limited by shares

© M. Scheurer, 2002Professional Issues / Lecture10 Private Company Limited by Guarantee Characteristics Each member undertakes to pay a fixed sum towards the company’s debts in the event of the company being wound up Members have no other liability for the debts of the company Used by professional bodies and charities Not used by commercial organisations

© M. Scheurer, 2002Professional Issues / Lecture11 Private company Limited by shares (1) Characteristics Ownership of the company is divided into shares Minimum capital Shareholders are people or organisations who own a number of shares in the company Shares can be traded (within limits)

© M. Scheurer, 2002Professional Issues / Lecture12 Private company Limited by shares (2) Advantages Liability of each shareholder (Member) is limited to the shares he/she owns If the company is wound up, all its debts must be met (if possible) out of the assets of the company Anything left over is distributed amongst the shareholders Cannot lose more that the value of the shares they own

© M. Scheurer, 2002Professional Issues / Lecture13 Private company Limited by shares (3) Disadvantages Structure is quite formal But the Companies Act [1989] provides for a lighter structure for SMEs Small company Turnover up to £2m Up to 50 employees Balance sheet total up to £975,000

© M. Scheurer, 2002Professional Issues / Lecture14 Private company Limited by shares (4) Memorandum and Articles of Association regulate: The authorised share capital The number and nominal value of shares Who are the initial shareholders How many shares each holds How many shares are issued Whether the shares are fully or partly paid Voting rights Etc.

© M. Scheurer, 2002Professional Issues / Lecture15 Memorandum of Association Controls external relations of the company Name of the company Country of registration (E&W / W / Scotland) Objects of the company (type of business) Liability Authorised share capital Declaration of association “We, … are desirous of being formed into a company in pursuance of this Memorandum of Association and we respectively agree to take the number of shares in the capital of the company set out opposite our respective names”

© M. Scheurer, 2002Professional Issues / Lecture16 Articles of Association Internal Rules of the Company (Table A) Rules to apply to allotment of new shares Rules governing the transfer of shares Meetings of members (General Meetings) Annual General Meeting (AGM) - required Extraordinary General Meetings – optional Appointment / removal of Directors Powers of Directors Dividends and reserves

© M. Scheurer, 2002Professional Issues / Lecture17 Company Directors Elected by the shareholders to run the company on their behalf Have considerable powers Have obligations: Act in good faith and in the interest of the company Exercise skill and care (= negligence) Duty to disclose conflicts of interest Special obligations if company is insolvent

© M. Scheurer, 2002Professional Issues / Lecture18 Company Secretary May be a Director Often an outside professional advisor (e.g. Solicitor, Accountant) Statutory duty to keep the records of the company Provide annual return and Accounts to Companies House

© M. Scheurer, 2002Professional Issues / Lecture19 Organisational Structure

© M. Scheurer, 2002Professional Issues / Lecture20 Employee Share Ownership Used to give employees a stake in the company The company can provide financial assistance to employees to acquire shares in the company Sometimes done by issuing new share capital Common in HiTech companies Employee Share Options Gives employee the right to acquire shares in the company at an agreed price (which may be lower than actual value of shares) Tax incentives

© M. Scheurer, 2002Professional Issues / Lecture21 Virtual Organisation Portal to promote your work and to interact with other professionals Become more visible on the www Online support (discussion group) More resources Opportunities for joint tenders, etc. Networking opportunities without travel Part of a “one stop shop ”

© M. Scheurer, 2002Professional Issues / Lecture22 Professional Organisations / Informal Groups Membership may increase credibility (Code of Conduct / qualifications for membership) Provide training and guidance Provide support Common resources Opportunity to meet others in similar circumstances Opportunities to network

© M. Scheurer, 2002CT218 Professional Issues23 Contractual Issues in Employment and Self-Employment CT218

© M. Scheurer, 2002Professional Issues / Lecture24 General Contractual Issues Pre-Contractual obligations Confidentiality agreements (see example) Invitation to Tender Offer and Acceptance Consideration Unfair Contracts Terms European legislation Law applicable Forum

© M. Scheurer, 2002Professional Issues / Lecture25 Contractual Issues - Employment Enquire about opportunities: to learn from others to learn new skills (training) to work on a variety of projects Conditions of work Privacy Technical support Hours of work/travel/Overseas secondment Career prospects and rewards (e.g. shares / share options)

© M. Scheurer, 2002Professional Issues / Lecture26 Contractual Issues – Employment (2) Who owns the software you develop (IPR) What rewards will you get if you develop a product which is a market winner? Your reward for introducing clients What happens if the company is taken over? Benefits (bonus / health plan / pension) What happens when you leave the company Restrictions to who you can work for Restrictions as to what you can do Restrictions as to the use of your software

© M. Scheurer, 2002Professional Issues / Lecture27 Contractual Issues – Employment (3) Unethical or illegal behaviour by Employer or Fellow Employees Software Piracy IPR violations Infringement of legal obligations (e.g DPA) Invasion of Privacy (legal or illegal snooping)

© M. Scheurer, 2002Professional Issues / Lecture28 Contractual Issues – Self Employment (1) Working for an Agency Work specification (realistic deadlines) Terms and conditions of payment Your liability Professional Insurance Agency’s Membership of professional body Your Membership of professional body The Agency’s reputation with Contractors

© M. Scheurer, 2002Professional Issues / Lecture29 Contractual Issues – Self Employment (2) Working for Direct Clients Terms and conditions (whose?) Who owns the IPR Detailed specifications / milestones Scheduled payment linked to milestones Compensation for late delivery Availability of resources from the Client Procedure to resolve conflicts (arbitration) Will be dealt with in greater depth in Lecture on “Software Contracts”

© M. Scheurer, 2002Professional Issues / Lecture30 Contractual Issues – Self Employment (3) What happens if the client does not want the product any more? Realistic expectations of benefit of the product for the company Realistic expectations of market prospects Other issues: Staff training (on use of software) Data population Additional / changed requirements Change of hardware / platform Data Protection Act

© M. Scheurer, 2002CT218 Professional Issues31 CT218 Next Lecture Software Contracts