Setting Up A Business – The Legal Issues Simplified

21st February 2014 | Written by Bruce Hayter

It can be easy to get swept away in the thought of setting up a new business without properly addressing all the issues that come with embarking on a new venture. The process can be a daunting prospect where suddenly you are faced with multiple legal hurdles and uncertainty as to how to overcome them.

The points set out below are issues to consider to help make the journey a smooth and painless experience, ensuring you are on the right road to forming a successful business.

What type of business?

The type of business structure you choose will be paramount to guaranteeing that the business’ objectives and goals are met, and the first important decision that will have to be made. Most businesses are incorporated as limited companies or limited liability partnerships and are best suited to structure businesses involving a lot of individuals, where liability can usually be capped to the amount a person has invested in the business. This allows greater security over each individual’s personal assets, than say a sole trader or partnership between two people where the risk to personal assets can be greater.

Contractual relationships

Whichever business structure you opt for, it is essential that all the agreed terms and relationships between the parties are recorded in writing. Depending on the set up of the business, there are a number of arrangements to accommodate all types; shareholder agreements, partnership agreements and LLP agreements. Each agreement is designed to document key issues such as:

  • Decisions affecting the business and how control of the business is managed
  • Changes in shareholdings – permitting and restricting transfers of shares and options to buy-back
  • Resignation and appointment of directors/members and restrictive covenants post-termination
  • Division of profits and dividends

Complying with the law

Some businesses will need a permit or license to trade, particularly where there is a risk to the health and safety of the general public. Industries employing hazardous substances or providing catering and hospitality services to people will have more stringent guidelines and regulations to abide by. Permits and licenses are needed to ensure dangerous materials are handled correctly and pubs/restaurants have satisfied the necessary criteria to serve food and alcohol, as well as being covered for late opening hours and being authorised to provide entertainment on site.

Insuring protection from risks

A business’ duty of care will not only include the general public, but the employees of the business themselves. It is vital to take out Employers’ Liability Insurance if it is your intention to employ people to work in the business. The law imposes hefty fines for each day the business is uninsured, not to mention making it easier for employees to bring claims. Ensuring your business is adequately protected significantly lessens the chances of being found responsible for negligence. Both Professional Indemnity Insurance and Public Liability Insurance maintain financial security for the business in the event of an unforeseen circumstance during the course of work. Taking a risk and not insuring your business can have severe detrimental effects in the long-run to not only the wealth of the business, but also its reputation.

Tax and VAT requirements

Operating a business of any sort will result in tax requirements. The legal formalities will differ depending on the way your business is structured, but companies and limited liability partnerships will have to file Annual Returns and Annual Accounts with Companies House. In addition to tax, some businesses will also have to be registered for VAT purposes. It is also possible to voluntarily register for VAT, any business if you feel future projections of annual income could exceed the current VAT thresholds.

Next steps

Whilst the process of setting up a new business should be an exciting one, the issues outlined can pose real dangers if not addressed. Talking through a possible business venture with one of our solicitors in our Company Commercial department will ensure help is at hand every step of the way. Our solicitors have assisted in the start up of many new businesses, varying in structure and complexity, and will ensure that all legal agreements and advice are tailored to meet the needs and requirements of your business, as well as being legally compliant.

For further information please contact Bruce Hayter, Managing Partner and head of our Company Commercial team at our Uckfield office on 01825 744420 or email brucehayter@rixandkay.co.uk