Further points


The company will need various professional advisers to assist it in its business such as:

  • lawyers

  • accountants

  • banks

  • public relations firms

  • human resource advisers

  • business support networks

We 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 also 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 you have agreed who is going to pay.

We have deliberately not expressed preferences or recommendations and have refrained from even general comments. The University and Oxford University Innovation will always use their own lawyers.


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

  • product liability insurance


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


Value Added Tax
Corporation Tax
National Insurance
R&D Tax credits


Capital Gains Tax
Income Tax
Enterprise Investment Scheme
Seed Enterprise Investment Scheme
Enterprise Management Incentives
Inheritance Tax

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

Company constitution

The spin-out company will be a limited liability company incorporated under English law. A limited liability company protects the owners from creditors – it will be a separate legal person that can sue and be sued in its own right. It will consist of the following:

  • Shareholders

These will include the researchers, the University and the investors. Liability for each shareholder 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. There is no formal requirement for a private company in the UK to have a company secretary unless the company’s articles of association state otherwise. If a private company does not have a company secretary then the duties that would otherwise have belonged to the company secretary will fall on the directors of the company.

The rules of the company will be set out in the memorandum and articles of association.

These include:

  • number and type of shares which the company can issue

  • rights of shareholders

  • powers of directors – the directors must manage the company in accordance with the articles and the law

Directors responsibilities

The legal responsibilities placed on each director protect creditors from the owners. The key points are that:

  • limited company must have directors

  • directors must not continue trading when the company is insolvent

  • directors must keep accounts which accurately reflect the company’s financial condition

  • directors are like trustees of the company, and must not benefit personally at the company’s expense

  • directors are personally liable for the activities of the spin-out

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.

Table: Illustration of share dilution

 Stage 1

Stage 2

 Stage 3





























 Shares (total)




 % (total)




NB This table is for illustration only; allocation of equity at formation is determined according to the University’s spinout equity policy (updated September 2021).

Sources of finance

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

  • bank loans

  • business angels

  • seed capital

  • venture capital

  • institutional capital

  • corporate venturing

  • governmental schemes eg Technology Strategy Board grants

All of these sources want something in return (eg interest, assets, equity) and have different skills and expertise to offer your spin-out.

The best source of funding will vary and we can advise you on the advantages and disadvantages of each source.


Further Information

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

Companies House (for downloadable booklets)

Institute of Directors

British Venture Capital Association

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