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Start-up Advice

How To Create Founding Documents

If you don’t put the right structures in place early on, you just might find that everything comes tumbling down…

Andrew Taylor

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Launching your own start-up is no easy feat, and, is likely to be one of the most daunting steps that you — and those on the roller-coaster with you — will ever take.

The value of tapping into the advice and experience of professionals with expertise in your area of need cannot be underestimated.

First off, it’s important to realise that there are huge benefits to having a firm grasp of the basics of the legal questions surrounding your venture, because these obligations apply — whether you know they do or not. Once you’ve registered a company, the first thing you ought to do is to procure customised founding documents.

Related: Start A Business They Said… It’ll Be Easy, They Said…

The founding documents of your company are just that — the foundation of your company.

A customised Memorandum of Incorporation (usually referred to as an MOI) seeks to govern several relationships, including: 

  • Those between the individual shareholders of the company;
  • Those between the shareholders as a group and their obligations to the company; and
  • Those between the company and the outside world.

Your MOI is a public document which is lodged with the Companies and Intellectual Property Commission (the CIPC). The CIPC also provides a standardised MOI which operates unless your company adopts a new, custom MOI.

In most cases, the adoption of a custom MOI will suffice, but, in limited circumstances, your company may warrant a custom shareholders’ agreement. In this event, your legal expert will ensure that the agreement is consistent with both the company’s MOI and the Companies Act 71 of 2008. A shareholders’ agreement is, in essence, a private contract between the parties to the agreement.

Specifically, the Companies Act provides that if a shareholders’ agreement is not consistent with the company’s MOI or the Companies Act, the shareholders’ agreement is void to the extent of its inconsistency. What follows, serves as a starting point when constructing the brief to be presented to your legal professional.

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Directors

A company’s board of directors governs the day-to-day operations of the company and the title carries significant responsibilities, both in terms of legislation and the common law.

Their management of your company regulates, among others, the agreements it enters into, its ability to loan money and the ability to encumber the assets of the business.

Further, it’s important to clearly delineate the voting powers of the board and, as a shareholder, you may wish to limit the powers of the board in certain circumstances — such as entering into an agreement for the disposal of a majority of the assets of the company or, at least, require special authorisation prior to taking actions with such significant impact on the business.

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Shareholders Meetings

Although the distinction is sometimes ambiguous, especially where shareholders and directors are the same people, your founding documents need to define the roles of shareholders — both as between their fellow shareholders and as between the shareholders and the company.

Your agreement ought to regulate when, how and where shareholders meetings occur and how many shareholders are required in order for the meeting to be considered a valid meeting between shareholders of the company.

This is an area where a minority shareholder may be left out in the cold, unless particular safeguards are carved out for the shareholder.

Voting at a shareholder level also needs to be regulated, and requirements for ordinary resolutions (usually 50% plus one) and special resolutions (usually 75%) need to be provided for. Where the agreement between shareholders is not achieved, mechanisms need to be inserted to cater for such deadlock — whether by arbitration, mediation or otherwise.

Related: The Basics Of Registering A New Company

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Dividends and Repayments to Shareholders

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This is one of the primary drivers behind getting involved in a business, so, where the payment of dividends to shareholders is concerned, special attention needs to be paid to ensure that everyone understands where they stand — before the chips are down, so to speak.

You need to carefully consider the circumstances under which a company will repay loans advanced to it by shareholder’s needs. This will also operate as a way to manage perceptions and ensure expectations are kept in check.

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Share Capital

This fundamental provision caters for the maximum number of shares a company can issue to its shareholders and provides clarity to all shareholders about the extent of their ownership of the company. It ought to cater for the distinctions between any different classes of shares, where relevant.

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Restricting the Transfer of Shares

Pre-emptive rights, or rights of first refusal, are characteristic of private companies and one of the obligations owed to your co-shareholders. In essence, once you form an intention to sell your shares, you are required to first offer them to your co-shareholders.

Where an offer is received from a third party, that shareholder is required to first offer the shares to the other shareholders on the same terms. In other words, he/she may not sell his shares to an outside third party on terms that are more favourable to the outsider.

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Deemed Offer

A deemed offer — which arises in limited, pre-agreed circumstances — forces a shareholder to offer up his shares for purchase by the other shareholders, upon the occurence of a trigger event.

It’s important to ensure that you agree on the manner in which the purchase price of the shares in such a situation will be determined. A legal expert is able to cater for these circumstances within the specific framework of your business needs.

Related: Tax Basics For Business Owners

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Come-Along & Tag-Along Provisions

Tag-along provisions cater for the event of a majority shareholder selling their shares to a third party and, rather than leave a dissatisfied minority shareholder behind, the sale of the majority shareholding is subject to the offer being extended to the minority shareholder on the same terms.

Closely related to these provisions are come-along provisions, which prevent a minority shareholder from blocking a sale of the majority shareholder’s interest in the company.

In essence, where one or more majority shareholders wish to sell their shares to a third party, the majority shareholders can force the minority shareholders to sell their shares on the same terms.

The above can, at best, only be regarded as a guideline, and if anything, serves to illustrate how template founding documents cannot be relied upon as a one-size-fits-all approach to fitting the unique needs of a company and its shareholders. Specifically, the contents of this article ought not to be relied upon as legal advice.

Andrew Taylor is the co-founder of Legal Legends, a company that aims to revolutionise the legal industry by being Africa’s first eCommerce website for quality legal services aimed specifically at start-ups and entrepreneurs

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Start-up Advice

Entrepreneurship: How To Develop Your ‘Great Idea’

There is one or more critical elements that a significant proportion of start-up entrepreneurs overlook when evaluating their own idea/s.

Dirk Coetsee

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Empty pockets never held anyone back. Only empty heads and empty hearts can do that. – Norman Vincent Peale 

Volumes of start-up entrepreneurs claim to have wonderful ideas that will serve as a catalyst to attaining riches. Often once internally convinced of their own great idea they march into the offices of bank managers, venture capitalists, or angel investors and ‘blurt out’ their earth-shaking idea with a staggering amount of confidence only to regularly hear loud and repetitive echoes of that unpalatable word ‘NO’ .

Totally devastated and mesmerised by the behaviour of investors, self-pity often sets in and the prospective investors are blamed for their lack of vision and understanding. Holding oneself accountable and doing honest self-reflection often only comes with a great deal of experience and wisdom therefore inexperienced entrepreneurs often falter at the first serious hurdle that they face and go back to a day job blaming others for their failure.

There is one or more critical elements that a significant proportion of start-up entrepreneurs overlook when evaluating their own idea/s:

Within the grand scheme of things it really does not matter if you think you have a great idea that will transform into a ‘money maker’ in reality it only matters if the market believes your idea is great and am willing to pay for it. An untested idea can never be great an idea has to be actualised and proven to be great or not.

Wise investors are more interested in investing in you as opposed to investing in ‘your great idea’ because the idea will only have traction and sustainability if the person that conceived it is willing to overcome any and every obstacle in his/or her way and move towards success with urgency and a sense of unwavering commitment.

Related: 20 Quick Money-Making Business Ideas

Carefully considering the above it is a smart move to create a ‘minimum viable product’ , to test your product in the marketplace and to adjust according to the findings of your research until you have moulded your ‘great idea’ into and actualised ‘great product’.

Do not attempt to entice investors armed with only a ‘great idea’ instead announce a market tested product with a proven demand when you pitch. Speak to industry experts, hear what entrepreneurial peers have to say about your products or services, create focus groups and have a number of consumers test your product. Carefully listen to the cues prompting improvements within their feedback and adjust where and if appropriate.

Engaging consumers, peers, friends and family with a minimum viable product is taking great strides towards not only refining and improving your product or service but also at the same time assists in formulating your sales and marketing strategy.

The attempt to take an untested product or service to a marketplace where the ‘lukewarm’ are often gulped up can cause a great deal of pain to the start-up entrepreneur and can be a very costly exercise. It can be both emotionally and financially draining to such an extent that the entrepreneur gives up on his or her dream relatively quickly.

To what degree you factor in the testing of your product considering both your start-up budget and project timeline can have a great amount of positive impact on your success.

As a business coach I have never underestimated the value of having a wise mentor whom can give sound advice and support especially during the start-up phase of your venture. Consult with your mentor on how to thoroughly test your product or service and structure the testing phase of your project in such a way that it saves you money and a lot of pain in the future.

Read next: The Ultimate 101 List Of Business Ideas To Start Your Own Business In South Africa

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Start-up Advice

How To Turn Your Side Hustle Into A Full-Time Gig

It will be scary, but also incredibly rewarding.

Nicolette Amarillas

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Few people are lucky enough love their 9-to-5s, and more and more people are finding themselves doing something else on the side, either to add to their income or to feed their passion. Sometimes, those “side hustles” start to feel more and more like “the real thing,” and suddenly these people are dreaming about running a business of their own. Sound familiar? If you’re one of the thousands of people dreaming about turning your side hustle into a true business, you’re not alone.

Moving away from a steady, full-time position to being on your own is the scariest, yet most invigorating feeling in the world. I’ve found most people consider entrepreneurship either unattainable or, honesty, highly romanticised. The reality is that neither is correct. Being an entrepreneur is a ton of work, but it’s also completely possible.

1. Be clear and honest with yourself about when it’s time to make the jump

Giving up the benefits and security that come with a full-time job is scary, and sometimes unrealistic, but it’s also dangerous to keep waiting until the time “feels right.” Ask yourself exactly what you need to have before you can make your side gig your new reality. A good rule of thumb is to have enough savings to live for about six months without income, and/or with the income you already have from your side clients.You should also have a clear idea of who your potential clients might be and how to connect with them.

Related: 20 South African Side-Hustles You Can Start This Weekend

After taking care of the logistical considerations, try to avoid dragging your feet. According to the British Psychological Society, you’re 91 percent more likely to accomplish something if you give yourself a deadline. So do it! Hold yourself accountable. Maybe you’re not willing to stay at your current job beyond a certain date, or maybe there will be other indicators that will make you certain that it’s time to go.

If your current role isn’t fulfilling and the passion is gone, it may be the perfect catalyst for making the jump.

Both of my businesses came to fruition because of my own realisation that I wasn’t flourishing in my current roles. I wasn’t the best, I wasn’t seeing the success I wanted and instead of feeling defeated, I changed directions. For me, the clearest signal that it was time to leave was that I didn’t believe in the goals I was supposed to be working toward.

2. Before you quit, put the processes in place to help your side gig scale

Early on, business organization and strategizing is a huge component of success. You’ll need to limit stress and create as much efficiency and ease as possible in your daily systems. This could mean scheduling things carefully, or using free software to make your work more effective. I try to divide the week into days assigned to different businesses tasks. Try as best you can to not switch back and forth between your different focus areas within the same day. Going back and forth between tasks that are not related is inefficient and breaks focus. Give your brain a break and keep yourself on one straight road each day.

Digitising your work can help, too. According to Accenture, companies that use cloud collaboration tools with their teams improve productivity, have greater clarity about what’s going on in their business and save money. When you first start out, it can feel silly to keep documents in a shareable cloud space (like Google Drive, DropBox or whatever option you like best), but you need to have the structures in place so that you’re organised and ready for the time if/when you hire a team to support you. This is a good thing to play around with before you quit your main gig. Having the tools and processes you know work well for you ready to go when you make the switch can make ramp up time easier.

It’s long hours, it’s always being “on,” its wearing too many hats, but it’s also incredibly rewarding. So, how do you successfully turn your side project or passion into a prosperous business? What are the steps? We all want the “1, 2, 3 and voila, here it is, a company of our own,” but realistically, how can we make it happen? I can only speak to my own experience, failures or what I like to call “directional pivots” and successes. There have been a few true catalysts that have helped me turn my two side gigs into full-time gigs.

3. Work hard, and be humble

Your time is valuable, but as new entrepreneur you can’t treat it like currency. What I mean is, be prepared to put in lots of hours with minimal return. Initially, time may not correlate with financial success; this is an incredibly important mindset to remember. Your time isn’t money, yet. It’s groundwork. Building a side gig up from the ground requires wearing a lot of different hats. If you want your business to succeed, you have to be ready to play customer service rep, salesperson, individual contributor and HR.

Related: 50 Jobs, Gigs And Side Hustles You Can Do From Home

If you’re feeling overwhelmed, break the work down further. Spend more time working on the day to day tasks, checking things off the to-do list. These are all working toward your big vision, but in small doable pieces rather than hefty overwhelming ones. Try not to consider any task “beneath you” and take some time to truly understand what goes into each part of your business.

You won’t have a boss telling you what’s right or wrong, so you’ll need to build a sense of self-accountability – one of the toughest parts of being an entrepreneur. Take notes about the challenges you face in each aspect of your business so that you’ll know what anyone you might hire will have to cope with. It’s your best chance to uncover important considerations and think about what resources might need to go where, down the line.

4. Surround yourself with smart people – even if you never plan to work with them

As much as entrepreneurship can be a solitary job, especially in the beginning, it’s vital to your success to remember how others can help you thrive. Invest your time in like-minded people. Take time to get to know others and their stories and create valuable relationships. So much of success is built from opportunities or inspiration from people we know.

Find people you connect with to talk about your ideas, write about your ideas online and build a community that empowers you. Take advantage of those around you who want to see you succeed. You’ll be surprised at how much people want to help!

Related: 3 Ways To Set Your Side Hustle Up For Success

The number of new startups and small businesses has dropped dramatically in recent years, nearing a 40-year low in 2016. The landscape has gotten tougher, which makes being an entrepreneur scarier. Turning a side hustle into the real thing is not easy, and I’d be lying if I said I loved every minute of it. But, just as with most other big decisions in life, there are always lessons to be learned no matter what happens. Be thoughtful, take smart risks and see where your “side hustle” can go.

This article was originally posted here on Entrepreneur.com.

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Company Posts

How To Keep Big Ideas From Being Big Failures

Simple, Yet Effective Business Advice from Clients on Demand Founder, Russ Ruffino.

Jeff Broth

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As an entrepreneur, it’s not uncommon to have big ideas. Ideas that, if worked properly, can take your business to higher levels.

Maybe you’ve came up with a way to enhance your products or services that would advance your company lightyears ahead of your competitors. Or perhaps you’ve thought up a new gadget or tool that, once developed and released, could potentially change the world as it exists today.

The problem with having these big ideas is that sometimes they fail. And they can fail hard.

Big Ideas Can Equal Big Failures

Take Coca-Cola, for instance. On April 23, 1985, this well-known company announced that it was changing its formula and releasing the “new Coke.” While its goal was to update a soft drink that had been 99 years in the making, it actually had the opposite effect. Consumers were mad. Real mad.

People had grown to know and love the taste of Coke, so the thought of it changing didn’t sit right with their taste buds. Many protested the company’s actions, creating such a stir that, in addition to being picked up by news sources everywhere on that day, it is still being talked about today.

Ultimately, Coke recovered and is still loved by many. However, it easily could have went the other way, potentially causing a revolt big enough to force them to close their doors.

So, what can you do to take your big ideas and turn them into wins versus risking them becoming huge failures capable of sinking your business? According to one entrepreneur, you simply do a numbers test.

Related: 3 Companies With Memorable Slogans, And How To Create Your Own

The Numbers Test

In a People Stack Podcast, Russ Ruffino shares that his company, Clients on Demand, is on track to earn $20 million this year. This number is up from $4.5 million in 2016, just two short years ago, and Ruffino says that one thing has helped him reach this level of success is that he and his team use data to help them decide what to do. “We always run the numbers,” says Ruffino.

For instance, if your big idea is to recreate one of your current products, how much will it cost your company to make and test a prototype? What about manufacturing costs on a larger scale?

Think also about expenses related to marketing the updated product line and costs associated with creating enough buzz to get it to really sell. Put them all together and see what the numbers are telling you.

Sometimes New Isn’t Better

You may just find that newer isn’t always better. In fact, Ruffino says this is typically the case as, usually what he finds at Clients on Demand is they can typically “get to our income goals faster by just getting a little bit better at what we’re already doing.”

Benjamin P. Hardy, a former top writer for Medium.com in the self-improvement and entrepreneurship space, agrees and adds, “It doesn’t matter how good your strategy is, if you’re not skilled at what you do, that strategy won’t take you very far.”

That’s why Hardy recommends that you put yourself in challenging situations. “This is how you evolve,” he says. And be sure to follow your own path and keep your why’s in front of you along the way to remind you of what is driving you forward. Let these motivate you when times get tough.

It’s only natural to come up with big ideas in business. That’s what being an entrepreneur is about. Just make sure you follow your numbers and those big ideas can potentially become big successes.

Read next: 10 Business Ideas Ready To Launch!

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