Starting a business: the legal issues

If you are thinking about starting up a business, there are some legal issues you need to be aware of. 

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More and more people over 50 consider are setting up on their own to use their experience and expertise and have greater freedom over how they work, but what are the things you need to consider before going solo? It’s not just about doing your market research and developing a strong business plan. There are certain legal issues that you need to get your head around. We take a look at some of them.

Sole trader, partnership or limited company?

You can begin to trade as a sole trader or go into business with two or more others as a partnership. A limited liability partnership or setting up a limited company are also viable options.

As a sole trader, you are the business and own the assets. This means that although you have control over business decisions and can keep all the post-tax profits, you’re also personally responsible for the business’ debts and other liabilities.

If you go into business with two or more other people, you may do so as a partnership. Here, in the absence of agreement to the contrary, each of the individual partners owns the partnership assets and shares liabilities.

Some people choose to set up a private limited company or a LLP. Both are separate legal entities and are responsible for their own debts and the payment of tax, though how tax is levied differs between the two. The advantage for the owner of shares in a limited company (or for the members of the LLP) is that their liability for the debts of the company are, as the name implies, usually limited.

To form either a limited company or LLP requires registration at Companies House. There are certain formalities in relation to both. For a limited company, at least one person will need to be appointed to act as a director and certain constitutional documents created. In forming a LLP, there are members who need to be registered at Companies House. It’s advised that the members enter into a LLP agreement, setting out how the LLP is run.

A solicitor can help you decide what structure works best, but it’s also worth speaking to an experienced accountant about the tax implications.

Naming your business

Now it’s time to choose a name for your business. If you’re a sole trader or a partnership you can use your own name(s) or pick something that appeals to customers. Although there’s no legal requirement to register the name, there are rules as to what words can and cannot be used.

Setting up a limited company, on the other hand, requires you to decide on a name and register it with Companies House. There are strict rules about what names can be used, so be careful. You cannot choose one that’s the same or too similar to an existing company or it will be rejected.

Always check the government’s guidelines to find out what names are permitted. Many words relating to healthcare, for example, can only be used if you have recognised qualifications in that field.

Don’t forget to buy a website domain for your chosen name using a service like 123-Reg or Go Daddy, and ensure you have a professional email address. Google’s Gsuite for businesses, for instance, helps avoid the dreaded @gmail address that could put off potential customers.

Trademark and copyright issues

Nobody wants to work hard at making an idea a reality only for someone else to set up a rival business and start trading under its name. A solicitor can help protect your name and logo with trademark registration as well as pursue any claims for copyright infringement.

Commercial property

Not everyone wants to work with someone whose business address is also their home. While few have the funds to invest in a new office from the outset, there are other affordable options available, including flexible co-working or office-sharing spaces.

As well as providing a much-needed distinction between work and home, a shared office can also provide a formal address for your post, a reception area for clients, plus a landline and all the office facilities you can imagine.

As you scale up your business, you may decide to take a lease on a unit, which means thinking about the following:

  • Will you have planning permission: If you want to set up a café in a retail unit, an application for ‘change of use’ will need to be made to the council. Don’t sign a lease until this has been done.
  • Look out for hidden charges: You might have to pay service charges or insurance, so check what costs are involved.
  • Personal guarantee: Even if you have set up a limited company to separate private and business matters, a landlord might ask you to offer a personal guarantee so he/she will be paid, even if the company goes into liquidation.

A solicitor or legal adviser can help navigate commercial property law if you’re unsure what your next steps are.

Employment law and disputes

As you scale up you may eventually employ a team of your own and you’ll need to get clued up on employment law. From contracts to sickness absence, the landscape is constantly shifting, so it’s a good idea to speak to an employment law specialist.

Disputes can arise in any company, and they can be damaging. Worse still, in family-run businesses, a disagreement can soon spill over into home life.  You may need expert advice to ensure you don’t get into difficulties.

Setting up a new business is both challenging and exciting. Lay the groundwork first and you’ll be ready to begin the next chapter of your life.

*Jason Waghorne is a Commercial Solicitor from Nottingham-based specialist business solicitors, Rothera Sharp.

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