2 min min read - July 7, 2014

How to deal with limited company IT contractors when you are a start-up?

As setting up business in the UK is far easier than in eastern countries and business ethics seems still to be more solid, many people put equality mark in between being “limited” as LTD and with being “trustworthy”. If you cooperate with an LTD or a joint stock company you know they are “a big player” and are secured by capital. For instance, if you take a look at Polish company stats (to help you with the task, in Polish: “Sp. z o.o.” stands for LTD and “S.A.” for joint stock) you could believe that they are even more reliable, as their initial budget is much higher than in the UK at about 1000 GBP in Poland compared to few quid in the UK.

However, this faith is a potential issue for start-ups.

If you are a start-up you should be very careful with the security of your plans and your data. You are not a big player who can always call the best lawyers available, and sometimes small leaks can kill the fragile structure you’re building. Therefore, you always ask your partners (and quite likely they are freelance developers as well) to sign NDAs. Everything seems fine. The box has been ticked. You can begin.

Sometimes in spite of that precaution you can still run into trouble, for example when your foreign freelance contractor isn't delivering, steals your ideas or employs black PR against your brand in revenge. It may happen in any country and culture. This can be avoided with proper understanding of the contract – or more precisely – who has signed it. If you sign an agreement with Jan Nowak who runs a company under the brand Jan Nowak LTD you don’t have any legal links to Mr Nowak directly. Of course as long as he’s a director he is responsible for the LTD’s activity. But as per the name – his responsibility is limited. He can act against your operation when performing as a person and without a skilled lawyer you will have a problem to challenge them.

What should you do to secure yourself?

The most secure way to cooperate with remote freelancers is to have them undersign all contracts personally. In case of eastern European countries the best form that allows VAT free invoicing for services (reverse charge) is self employment/sole trader. As with an LTD, you set up a total budget and make an order. With that approach you have to be careful not to build visible dependencies between freelancers, as that may force you to setup a branch in the sourcing country. In case of working with capital companies (LTD and joint stock) always demand a full list of resources involved and individual/personal NDA agreements.

Some people may think that asking for such level of security is way over head and it may be offensive to the partner. But, having all rules set up in a clear and transparent way shouldn't be an insult to any serious business.

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