Setting up your own business can be exciting and daunting all at the same time. With so many initial considerations, it can all seem a little overwhelming, and that’s before you get to the legal documentation. We’ve set out our top tips which cut out the legal jargon, getting to the heart of the legal issues new start-ups should consider, allowing your business to be built on solid foundations.
1. Structure – How will your business operate?
Will you:
- set up a limited company?
- go into partnership with other people (and, ill that be a limited liability partnership (LLP) or unincorporated partnership)? or
- trade as a sole trader?
By setting up a limited company or limited liability partnership, you are limiting your financial risk and exposure. Any liability you may have either as a shareholder (in the company) or partner (in the partnership) would be limited to the value of your shares. This is not the case if you operate as a sole trader or unincorporated partnership.
Another factor that will inform your decision on structure is how you intend extract income from the business (for example by salary or dividends).
If you choose to set up a company, or limited liability partnership, we can help with registering your company at Companies House and provide you with all necessary documentation (including the company’s articles of association and shareholders or partnership agreements).
Part of your initial considerations in deciding on your business structure should be how your business asset/estate and tax planning. discuss your structure with your accountant to ensure you choose the most appropriate structure for you and your business.
2. Will, Estates and Tax Planning
When starting a new business, the last thing individuals think about is succession planning and what should happen on their death. In reality, a business may be worth very little at the beginning but most build up to become successful and valuable and will make up the majority of the estate itself. What individuals do not consider is the tax saving opportunity. Businesses may qualify for 100% Inheritance Tax relief on death. By doing proper planning at the outset, you could save your family a lot of money and ensure that your business can and will continue if that is your intention. Click here for more information on our wills and trusts services.
Whichever business structure you adopt you will be required to account to HMRC for tax. This may include VAT (on the goods/services you supply), corporation tax (payable by limited companies and LLP’s), or income tax if you are a sole trader. Discussing this with an accountant and taking tax advice before you decide on a structure and start to trade is key. We have a trusted panel of accounts so don’t worry if you’ve not appointed one, we can help you make the right connections.
A point to note is that the new “Making Tax Digital legislation” which came into force in April 2019 means that VAT returns (and income tax if you are a sole trader) will need to be submitted to HMRC via their online portal.
3. Shareholders Agreements
Unless you are setting up as a sole trade or sole shareholder, putting a shareholder’s agreement or partnership agreement in place between yourselves and your fellow business partners is a must. They are private contractual agreements between the members of the company/partnership relating to how they conduct themselves and operate the business.
The terms of this document may include:
- rights of first refusal on shares in the event an individual wishes to sell their shares in the businesses/partnership (referred to as pre-emption rights)
- set out the requirements for approval before certain key actions (for example large purchases, hiring or dismissing key staff members, agreeing to loan facilities etc) can be taken by the business (often referred to as reserved matters);
- director appointments;
- the creation and approval of business plans and issuing further shares or taking on additional partners.
Unlike a company’s articles of association, these agreements are not open for public scrutiny.
4. Website
Every business needs some form of online presence and most achieve this by having a simple website in order to provide relevant information to potential customers about their business (a brochure website). Websites will require certain terms and conditions drafting which explain to users how they are permitted to access and use the content of the site. Websites are also used to provide privacy notices to individuals to cover how and for what purpose an individual’s data will be processed by the business. [insert link to Website Terms and Conditions tile].
However a brochure website may not be sufficient particularly if you are providing goods or services (including interactive services) via you website. Where you use your website to sell goods or services then you will also need to have terms and conditions for the supply of goods and/or services. For further information on the supply of goods and/or services please see our ecommerce section.
5. Contracts
You will no doubt enter into variety of contracts during the normal course of your business operations. These can include contracts for the supply of goods or services, employee contracts, financial agreements with lenders and possibly investor agreements. Whilst a verbal contract can be binding, proving its existence and terms can be very difficult should there be a challenge from the other party to the agreement. Ensuring all contractual arrangements are clearly recorded in writing and legally binding is essential.
Formal written contracts provide clear evidence for the intention of the parties and their responsibilities, including the payment terms, critical for any start-up operating on fine margins.
See here for further information general commercial contracts. See below for further information on employing/engaging with staff.
6. Terms and conditions
Any products or services that you offer should be governed by your terms and conditions. This sets out the basis on which you agree to provide such goods or services. Your terms and conditions need to be customised to suit your business offering, this will require a detailed discussion with as solicitor in order that they can understand your business and how it operate, before they can produce a set of bespoke terms and conditions that provide you with the required protection, mirror the manner in which you trade day to day and also covers the relevant legal and regulatory requirements of your business. Utilising other businesses terms and conditions for your own business will not provide you with the required protection and will likely open you to unnecessary liabilities and disputes.
7. Intellectual property rights
If your business will receive or create intellectual property (IP), for example copyright, patents or trademarks, there will be an inherent value to this which you should ensure is properly protected as this may be where much of your business’ value will be. This is key for example in relation to funding, if you need additional funding or want to sell a part of your business, you will need to be able to demonstrate that the business owns the relevant IP. IP can relate to the name of your business, technology your business develops, ideas or processes, technical drawings and manufacturing methods, amongst others.
Issues can arise in relation to IP if it is created by the founders prior to the creation of the start-up, meaning they are owned personally, or by consultants who were not correctly engaged by the business, meaning they may be owned by the consultants either wholly or partly. However, if IP is created by an employee during the course of their employment this will be deemed to be owned by the business, in most circumstances.
8. Insurance
Business insurance may be legally required for your start-up before you can trade. You will need to research the types of insurances you need and speak with an insurance broker.
Some examples to consider include:
- Employer’s liability, if you have any employees, workers or contractors;
- Public liability, if you deal or interact with members of the public;
- Buildings insurance and motor insurances; and
- Product liability insurances, which offer protection in the event of claims from customers in relation to goods or services supplied to them;
9. Licensing and consents
If you need any form of operating licence for your startup, you should put this in place prior to commencing trading. For example, alcohol licensing, local authority approval and operating licences. If you intend to operate a business in a certain profession, for example surveying, engineering, architecture, accountancy, finance, law etc. each is subject to its own regulatory body and require certain initial (and ongoing) consents and/or licences before you can start to trade. You should consider this in detail and seek legal advice regarding the specific requirements of professions.
10. Employing people
Employment law is a complex area of law and getting it wrong could result in high costs to your business and reputational damage. Utilising pro forma contracts of employment from the internet may not offer your business appropriate protection and will not be tailored to your specific requirements. Therefore it can be difficult to ensure that you are compliant with UK employment law. Once you employ an employee on one form of contract, it can be difficult to migrate them to a new contract of employment. Therefore, commissioning bespoke contracts of employment at the time you are looking to recruit is key. For more information on our employment services click here.
We’re here to help - As Myerson is a full service commercial law firm, our solicitors are able to assist with all your start-up requirements, so please give us a call today to discuss your new business venture.