Rules of The Patent - Coursework Example

1.0 Urgent need to patent The entrepreneurs here are having a novel and innovative product. It is important that they take immediate action to protect the intellectual property rights (IPR) of this asset by patenting their product. As per laws of patent, if knowledge of the product or idea proposing to be patented becomes known to the public before patenting, then it becomes ineligible to be patented. The promoters therefore should take care not to disclose the details of their product to any source, newspaper, science journal or anyone else before initiating the process of patenting. An initial provisional patenting which is relatively simple and quick will immediately secure the rights. Full patenting can follow this. Any disclosure like getting it published in a technical journal can be done after this. They must do this at an appropriate time to create awareness on the product before launching the product in the market. It is recommended that the services of a professional patent attorney be engaged for filing the patent (Reese, 75). Both the partners do not have experience in writing and filing patent before. The patent will be written better by a patent lawyer and chances of getting it accepted will be much better. It is also better that they bear the costs of the patenting themselves now and not wait to form a company and then raise resources through that for the patent. Funding agencies pay special attention at aspects of value of IP and how well it has been secured by the promoter while considering a loan proposal. 1.2 Patent ownership issues Another important thing that needs to be clarified right away is the ownership of the patent. Will it be owned by one individual or both or by the company that is to be formed? The best would be to for the engineer partner to patent it in his own name and later on transfer the rights of use entirely to the company at some mutually agreed cost after it is formed. It would be fair as it is his efforts that has resulted in the patent and also because the patent filing need not wait for the formalities of forming a company, that is, if the two decide to go ahead and form one. 1.3 To Licence or Manufacture? After the patenting they will have to decide on whether to manufacture and market the product themselves or to transfer the knowhow to a third party for manufacturing under licence. The former means becoming an entrepreneur and deriving the full fruits of benefit s of the invention. An entrepreneur’s skills are entirely different from that of an inventor. The entrepreneur takes full responsibility for doing everything like fund raising, manufacturing and marketing required for setting up and running the enterprise. He also takes all the risks associated with it. He will reap the full benefits only if he has the entrepreneurial capability and is successful in pursuing it. On the other hand if he licenses it to a right company, then he will be assured of a steady income as royalty without further effort. He will be free to pursue his other business interests. In a licensing since the manufacturer takes more risks in terms of manufacturing and marketing and therefore would naturally get a substantial amount of the returns the product generates in the market. Here the enterprise is going to be started by a person with technical background and other with business background. The combined strengths of the two would be an ideal combination for a successful enterprise. The two have shown a strong desire to become entrepreneurs. The decision of the two to join and start a manufacturing enterprise, therefore, seems appropriate. 1.4 Corporate objective and strategies The partners should therefore set up an enterprise with a corporate objective of “setting a profitable enterprise selling equipment related to pollution abatement in the automobile industry and helping the industry to attain high levels of environmental standards. This will be achieved through a process of design and manufacturing products of highest quality at optimum price through a work force that is aligned to the goals of the company” Financial strategy: To design the most appropriate capital structure and sourcing least expensive finance; to follow prudent use of funds to maximize return on capital; to target a rate of return of above 30% for its investors” Marketing Strategy: To appropriately identify target market and reach them through most appropriate channels; to target market share of 30% in the third year; to attain breakeven sales within 3 months of start; to control receivables within 3 weeks. Product design: To design the product that will optimize manufacturing, raw material and labour cost; will consistently work towards improvements on product based on market feedback. Manufacturing strategy: To set up and maintain manufacturing plant that will produce products of expected quality at highest levels of productivity benchmarked against the best in the industry globally. Human resources: To recruit and train workforce that will be tuned to the objectives of the company; remuneration and HRD practices that will be at par with industry standards; strive for a motivated conflict free workforce. 2.1 What sort of legal entity should the company have The promoters of the enterprise have two choices in deciding on the legal entity of the business they would like to start. One is a partnership firm and the other limited liability firm. In a partnership, two or more people share the risks, costs and responsibilities of being in business. “Each partner is self-employed and takes a share of the profits. Usually, each partner shares in the decision-making and is personally responsible for any debts that the business runs up.” (Business Links-Legal structure) A partnership is an easier and simpler way for two or more people to start and run an enterprise. Here the partners will share costs, risks and all the profits made by the firm in the proportionate share of their investment. However in case of failure they are liable to pay individually, all their creditors through attachment of their personal estates and wealth, if necessary. In short they do not enjoy any protection if the business fails. The cost of failure is high The concept of limited liability firms is to separate business risks from personal risks. “Limited liability essentially entails a separation between the assets of the individuals who constitute and manage the incorporated entity, and those of the entity. The debts of the entity are not construed or dealt with as the debts of the individual, and accordingly, the entrepreneur can commence business with limited risk. His or her personal assets are not at risk unless they specifically sign as sureties for the debts of the entity, in favour of the creditors of the entity.”(SBD, Various form of enterprise). It is advisable therefore for these two persons to start an enterprise of limited liability. Normally such enterprises where equity capital requirements can be met by promoters themselves, it is better to start is a private limited company. A public limited company, where the equity funding is raised from public can wait after the company grows to sufficient size. 2.2 Registration of Firm Setting up and registering a private limited company is uncomplicated and can be done easily. Professional help can be taken, though it is not necessary. It will mean formally applying to the registrar of companies in a required format with documents such as Memorandum and articles of association, Form 10 (names and details of directors and secretary of the company) form 12 (Declaration of Compliance with the Requirements of the Companies Act stating that the company meets all the legal requirements of incorporation) It also means selection of name, registered office, name of bankers etc.. It has to be formally registered with the designated registrar of companies. Online help at http://www.businesslink.gov.uk/ is available. 2.3 Planning for funds The firm should budget for the following costs initially 1) Preoperative costs 2) Capital Expenditure. 3) Working capital Preoperative costs will include all expenses needed in the initial phase, a onetime expense before the manufacturing can be started. This will include registration costs, professional legal, statutory and other initial expenses before the setting up of the company. Capital Expenditure are the funds required to acquire assets like purchase of land, construction of office or factory, purchase and installation of machinery, expenditure for utilities like power, water. Working capital funds are that which is required for running the business like wages, rent, and raw material. Preoperative expenses in small business will be very small and usually met by the promoters 2.4 funds from their own resources. 2.4 Sources of funds There are normally 2 methods available to raise funds. One will be what is called as equity. Suppliers of equity will be called shareholders. Share holders will comprise of promoters and in private limited company, friends and relatives from close circle who will contribute for the company. Amount of shareholding will determine the control promoters will have in the company and therefore it is best that they keep it up as much within themselves as possible. The other funding possible is called debt, namely loan fund from a bank or financial institution, at a fixed rate of interest. Financial institutions normally have norms of providing funds in some proportion to the amount of equity brought in by the company. Usually the ration of loans to shareholders funds brought in is in the ratio of, between 2:1 to 3:1. Both cost of capital equipment and working capital can be covered under this. Usually banks require the hypothecation of entire assets created through these to be made out to them. Apart from this they also may require collaterals for the loan. Start ups by young professionals will find difficulty in giving collaterals. To help them in such situations there are schemes like Small Firms Guarantee Scheme available in UK. For a small fee paid by the entrepreneur, the state provides guarantee to the loan to the funder. The promoters in this case seem eligible and fit to get this assistance. Also there is scope for small business to get certain types of grants based on such considerations as to where they are being put up. These things can be applied for but there would be lot of competition for such funds. Various schemes incentives exist like tax exemptions. These are schemes designed to encourage entrepreneurship. These are region and industry specific and this could also be explored by these two. Annexure Draft letter to Company House 17th November 2008 From To The Registrar. Company House Cardiff Dear Sir We wish to register our company as a Private Limited Company under the Company’s Act of 1962 The following documents are enclosed 1) Registration form 2) Memorandum and Articles of Association 3) Form 10 4) Form 12 Also enclosed is a cheque for 20 Pounds as registration fees Thanking you Yours sincerely Company secretary Appendix and Useful Links A legal guide, Small Business development, http://www.law-online.co.za/sbd/legalpersonality.htm Loans and overdrafts, Business Link, http://www.businesslink.gov.uk/ Reese Harvey, 12 Amazing secrets of Millionaire Inventors Start up needs UK http://www.ukstudentlife.com/Work/Entrepreneur.htm#MarketResearch , Read More