Company Financing

SolarNexus

I've been thinking about starting up a business, selling software I developed online. In particular, I was thinking about starting a single member limited liability company.

I've been looking into the various and sundry ways of finance for such a startup, vc firms, angels, grants, loans etc. but theres something that illudes me, should the company go belly up, who pays the debt?

I'm "only" a student at college at the moment, so the kind of money to start up a business is not only out of the league of my personal finances, its damned impossible with the pennys I've got in the bank. I have some equipment that can be used as collatoral, such as 10K worth of computers, plus another 1-2K worth of audio gear, buts about it.

My question to you folks is this: if I somehow managed to get external financing for the business, and say it wasnt based on company equity, should the company go belly-up, who pays the debt outstanding (if any)?

I expect if I used the gear I mentioned as collatoral for a loan, that it would be reposessed, as should be expected, but beyond that what happens?

EKRIUQ

First off, the gear you have would'ent be acceptable as collatoral for a loan if you have no assets in your company and trading record its going to be nearly impossible to get a loan from a Bank.

Now if you want a loan from the bank go to them with a business plan and your ideas (Online business are very difficult to get fianance), most likely there going to look for someone to go guarantee the loan ie a parent.

As a director of a company you are responsible to conduct your business in a proper manner and if your company goes belly up you could be held responsible.

if your not talking big bucks to start up go to your local credit union and get a loan of €10,000 there more flexible and easier if you default on payments.

SolarNexus

I'm not sure I understand, the gear I specified would be used as part of the company, IE. they would be assets of the company.


RE: As a director of a company you are responsible to conduct your business in a proper manner

This is where it gets muddy, what is considered a proper manner. I expect it would mean that you dont fiddle with the books, try to screw the system etc. but what you have said makes me wonder... When I say it might go belly up, I would mean that it doenst make enough profit to survive.

re: big bucks

I'm currently padding out the cost of what a feasibility study would cost, as it would be much safer that way, and I dont think its 'big bucks' but its certainly more than I would have direct acess to.

an approximation of the costs for a four month period show approx 50,000 to get it up and running, with four staff (incl. myself). Thats before applying any grants that may be appropriate.

antoinolachtnai

Let's think laterally about this.

What do you actually need four staff for?

SolarNexus

Well, heres the four positions I've catered for in my planning:

Researcher
research competition, niche markets etc.
report daily search engine rankings
where possible market the product (forums etc.)

Webmaster
respond to customer support requests
maintain website functionality (fix broken pages, enforce standards compliance etc.)
manage, keep abreast on customer orders etc.
be the essential link between customer and manufacturer

Software developer
research and develop the product
add functionality to the product
document the product, for internal and external purposes

Operations director & project leader
manage the daily operations of the business
research and develop new business ideas and avenues
this role integrates that of Software developer

I think thats a conservative look on the required staff for a business composed primarily with the selling, and developing of software, online. If you have any suggestions, I'm ready and willing to hear any you may have.

The position of Operations director & project leader is to be fulfilled by myself.

Ps.
Merry Christmas.

xha1r

The idea of a limited company is that is that it is a separate legal entity to the people who operate it (the directors), however the directors must, as said above, conduct business in a proper manner.

If the business goes bankrupt with debts, assuming the directors did everything by the book, the debts will be written off as those of the company meaning you don't pay anything.

antoinolachtnai

Do you have any sales or are you close to making sales on this?

If not, you need venture funding of some sort. Basically, that means you have to give away equity, i.e., part of the ownership of your company.

What xha1r says is technically true, but in practice, you would be expected to provide personal guarantees. The following advice is given without knowing anything about your product or your background, and is worth what you are paying for it: do not sign personal guarantees for a company such as this.

My personal recommendation for you in your circumstances, as I understand them, is that you get up and running as simply as possible and start trying to sell your software. Don't employ anybody and don't quit your job. Don't spend any more money than you have.

I am not saying you will make any money this way, but at least you won't lose any and you will learn an awful lot. If the business has legs, you will find out.