Starting out in business is daunting and most start ups will want to focus on building the business and bringing in money. However, it is important to take the right legal steps at the beginning to avoid time consuming and expensive issues later. This short checklist is designed to help businesses mitigate the legal risks and achieve commercial success.
1. Legal structure - You need to choose the right legal structure to suit your circumstances and ambition. You can set up as a sole trader, partnership or company. This is one of the most important decisions you will make from the outset:-
Sole trader - runs his/her own business as an individual, is self-employed and personally responsible for any losses the business makes.
Partnership - there are different types of partnership but this can be a relatively simple way for two or more people to run a business. You will need a partnership agreement to set out how decisions will be reached, how equity is divided and assets split up at dissolution.
Company - gives certain protection over personal assets and greater legal protection in case of disputes. You must choose the type of company, an available company name and register with Companies House. For shareholders you will need legal advice to draft a shareholders’ agreement to govern the relationship between the shareholders and the company e.g. process for share transfers or sale of business.
2. Protect your brand - You will need to seek specialist advice on IPR protection as the brand is another important asset of the business. This could mean trademarking, copyright protection, design registration or patents.
3. GDPR - You need to understand how GDPR affects your business and what procedures need to be put in place. You should seek legal advice in this area to ensure compliance.
4. Insurance - This is essential to protect any business. Check whether your insurance covers legal expenses insurance and shop around to get the best package.
5. Contracts - The importance of contracts is commonly ignored by start ups but can cost the most in terms of expensive litigation. Problems occur when a customer/client won’t pay for a product/service. If you have a contract you are in a stronger position to take legal action and many disputes can be mitigated or even avoided by good communication upfront.
6. Employees - Make sure every employee has a contract and a staff handbook with the right policies in place. A contract will minimise the impact of any disputes and protect the business e.g. sharing of confidential information and restrictions on departing employees. Remember to check out your responsibilities in relation to the workplace pension.
7. Lease - Negotiating a new lease with a landlord can be difficult but is important to seek experienced legal advice. Many new businesses will need an early break clause in the first 12-18 months and mitigation against expensive dilapidations costs by agreeing a condition report so that there is no dispute upon termination.
9. Registration & Records - It is important to remember to register the new business with HMRC and retain accurate financial records.
10. Common mistakes - The most common pitfalls is choosing the wrong legal structure or failure to put contracts in place.
This checklist emphasises the importance of getting the right legal advice from the outset so that your business is efficiently structured to grow and succeed.
Catherine Cooney, Partner in Corporate, Commercial & Charity law with Worthingtons Solicitors advises businesses and charities on a daily basis. She regularly advises on setting up new businesses, mergers & acquisitions, restructuring, drafting shareholder agreements, drafting and negotiating of contracts, advising on governance and commercial leases. For advice please telephone 02890279500 or email firstname.lastname@example.org