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Get the right legal set-up for your small business

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By Paul Hennity, solicitor at Percy Hughes & Roberts Solicitors

Starting a business is an exciting and exhilarating time, and inevitably a busy one. Often the less exciting and very time-consuming legal aspects can all too easily take a back seat. But in our experience neglecting the legal considerations at the beginning of a new business will often come back to haunt you at great expense, both in time and money. It pays to get it right at the beginning. You need not worry about runaway legal costs. You will find many specialist solicitors who will advise “start-ups” for a fixed or capped fee. You can budget for this at the outset.

Choose your legal status

Thinking about the legal structure of your business is a vital first step. Not only will it determine how your business is run day-to-day, it will have a lasting impact when thinking about issues such as liability and tax implications. 



There are several options open to someone looking to create a start-up:

• Sole trader: The best option for someone wanting to start their business quickly without too much investment. If your business is dependent on your own skills and not too many other factors, this may be the right option for you.

• Partnership: A partnership consists of two or more people who share all risks, costs and profits related to the business. Each partner is self-employed, with day-to-day management responsibilities being shared depending on your agreement. While there is no legal requirement for a written partnership agreement, an agreement setting out basic principles, such as share of profits and individual roles is important to clarify roles and responsibilities.

• Limited company: This is a company that is a separate entity from its owners. A major advantage is that the company’s finances are separate from the personal finances of the owners, with limited liability for debts. Limited companies, generally speaking, are seen as more professional than sole traders, with directors controlling the business. It is, however, also a costlier option, with regard to setting up and administering the limited status. 
 
• Limited liability partnership (LLP): The main difference between a limited company and an LLP is the level of financial accountability of the partners. There are no shares or directors in an LLP, and they are more flexible in terms of internal structure. The limit of each LLP member’s liability is agreed between the members. Generally, the LLP is a good option if the company’s activities involve high-risk services or there is a likelihood that claims for damages could be brought against the company. 



Business premises


Check that the premises you are working from have planning permission for your type of business.

If you are leasing or renting a property, make sure before you sign the lease or tenancy agreement that it gives you the protection you need to run your business.  

Are there hidden terms that will come back to bite you later? All too often an onerous repairing obligation to your landlord when you are about to move to bigger and better new premises as your business grows can undermine the profitability of the business and scupper the planned expansion. 

 

If the lease is for more than seven years you must register it at the Land Registry to protect your interests. Remember that this is the tenant’s responsibility, not the landlord’s.

Protecting intellectual property


Your company, its name, logo and services are all aspects of its intellectual property (IP). Protecting this means that the company is protected from possible imitations and avoids ownership issues.

Ensuring you own the intellectual property can distinguish you from your competition, allow you to cement your brand, ensure there are no infringements, and allow you to get patent protection for your company. In addition, IP is often the basis of a company’s valuation. Having all the legal IP requirements in place greatly enhances a company’s chance to secure funding. 

Employment contracts


Very often, the desire to begin a new business and start trading means administrative tasks are overlooked, including the vital job of drafting employment contracts. 

With an array of downloadable templates online, it can be tempting to use a contract that turns out to be unsuitable. This can prove to be a false economy as sorting out inappropriate employment contracts can be difficult and expensive. 



Employees’ morale is a key factor when drafting contracts. Ensuring your employees understand and are happy with their holiday entitlement, sick pay rules, rules regarding notice periods, and issues around confidentiality contributes to everyone feeling committed to the business as it develops.

A company with sound employment contracts and a settled workforce is more attractive to potential investors. Employment contracts that are water-tight can protect the value of the company. 

Health and safety

 
Health and safety is often derided as too much red tape. In our experience it plays an important part in the wellbeing of your business. An injury to you or a key worker, customer or member of the public can be an expensive mistake to make.

Insurance

Employer liability insurance is compulsory for employers if you employ anyone other than close family members. It is prudent though to get both public and employer liability to cover to maximise protection from claims. Those providing advice or services should consider professional indemnity insurance in case mistakes are made. It is always a good idea to consult with a reputable broker when looking for insurance.