8 legal considerations when setting up a business

By Stephen Newman on Small Business UK - Advice and Ideas for UK Small Businesses and SMEs

If you are setting up a business for the first time, there are many legal matters to contend with. Some might be obvious, like learning business tax regulations. Others you may not have considered, such as registering your logo as a trademark.

Thankfully, there are many resources available that can make the process simpler. Take things step by step, and make sure you get everything right before you start.

#1 – Choose your structure

One of the first steps from a legal perspective will be to register your business. You must decide whether you want to do so as a sole trader, a limited company or a partnership. Each of these structures will have different advantages, disadvantages and considerations which you will need to take into account.

How you structure your business will determine how you pay taxes and secure funding, and the options which are available to you will depend on the type of work you do, so it is important to research which option is best for you.

Where you register will also depend on this structure. You may need to register with Companies House if you are setting up a limited company or limited liability partnership (LLP) or only with HMRC if you are setting up a business partnership.

>See also: How to become a sole trader

#2 – Identify who has control

If you are registering a limited company, you will need to appoint a director or directors, and identify the people with significant control over the business, as details of such persons must be included as part of the registration. You can find guidance on the UK government website about registering with Companies House, and about how your legal responsibilities differ depending on the type of business you are setting up.

#3 – Trademark your logos

You will also need to choose a name and ensure this is not already in use or infringe on any existing trademarks. You can search existing UK trademarks on the Intellectual Property Office website, but this can be a labour-intensive process and without expertise in this area, it can be hard to decide whether a similar name represents trademark infringement. It is useful to obtain the views of an experienced solicitor, who can help you to create and, if necessary, register your unique business name.

An important consideration in the early stage is the scale of your business and whether you intend for your business to trade overseas. You may not be ready for that at this early stage, but if it’s part of your planning for the future, you should research trademarks in those countries to make sure your business name is not already registered there.

Finally, you may wish to register any logos, slogans, jingles or other branding as trademarks or service marks. A solicitor can also help you determine the cost of protecting your intellectual property assets in this way. It may not be cost-effective to seek registration, because copyright may provide you with adequate protection.

>See also: Small business logos we really love

#4 – Keep accurate records

One aspect that applies to all businesses is you must keep accurate financial records of your transactions, income and expenses.

As a sole trader, you can usually decide whether to record income and expenses on the day they are invoiced or billed or record them on the day the money is transferred. As well as all income and expenses, you will need to keep VAT records and PAYE records where relevant, and records about your personal income, to enable you to calculate your tax return at the end of the financial year.

You will need to keep more records when operating a limited company. Like a sole trader, you must record all income and expenses (keeping receipts, invoices, bank statements and a cash book if necessary). You must also record all assets owned and debts owed by the company and keep records that will enable you to calculate the value of stocks owned by the company at the end of each financial year.

Beyond financial records, a limited company must keep details of its directors, shareholders, company secretaries, results of any shareholder votes and resolutions and information about people with significant control; that is, anyone with more than a 25 per cent share or voting rights in the business, or who can influence or control the company in another way. If your records are kept elsewhere than your registered office, you must make Companies House aware of this.

#5 – Get a members’ agreement (for LLPs)

If you intend to establish an LLP, you will need a members’ agreement that will determine how the LLP will operate. You can prepare one yourself, but it is better to have a solicitor do this for you to ensure that it is legally binding and covers the most important details. This is also the case for many business contracts, which should be reviewed by a solicitor before you begin hiring employees or conducting business with other companies.

#6 – Know your data obligations

You should also be aware of your data protection obligations. While you have a responsibility to keep information on businesses and people whom you buy and sell from, this is only lawful under current data protection regulations if the person has consented to the collection of their personal data, the collection of the data is necessary for the fulfilment of a contract, or compliance with a legal obligation. While many businesses like to collect data on customers for purposes such as market research or targeted advertising, you must approach this carefully to ensure your data collection and processing comply with the law. You must also be confident that the data you are collecting about customers and suppliers is only as much as you need to meet the purpose for which it is being collected.

#7 – Get employers’ liability insurance

If you are employing members of staff, you will need employers’ liability insurance that covers your business for at least £5m. You can face significant fines if you do not comply. While this is the only type of business insurance that is compulsory, there are other types of insurance that may help to protect your business and it is worthwhile to discuss the available options with an insurance broker to see what might be relevant for the type of business you want to start.

#8 – Get a solicitor on board

Ultimately, while many of the processes described above can now be done online without assistance, you should consider taking professional advice when setting up your business. Even if you are an experienced entrepreneur, regulations constantly change, and it can be hard to keep up with your legal responsibilities unless you have professional support to help you get it right.

Stephen Newman is head of corporate at Ramsdens Solicitors

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