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Legal considerations when setting up a new business

Whatever your new business venture, securing the right advice is crucial. In the long-run it can save you time and money.

Company formation

It is important to create the right structure from the start. Commonly used options vary, but include Sole Trader, Limited Company, Partnership and LLP (limited liability partnership). If you’re setting up as a private limited company or LLP you will need to incorporate (ie, create) your company/LLP at Companies House, providing the intended name and registered office address.

When you start a limited company, Companies House will need to know the names of all directors and shareholders, and what shares the shareholders will be holding. For an LLP, Companies House will need to know who the members will be.

Where required, you should give consideration to entering into a shareholders’ agreement or partnership agreement. This ensures there is a clear understanding as to what will happen in the event of a dispute.

Choosing your name

If you’re setting up as a sole trader, you can trade under your own name, or choose a trading name. You won’t need to register this name, but it does need to be included on any official paperwork, such as invoices or letterheads.

Limited company formation and naming operates under stricter rules. You will need to ensure that your chosen company name is not the same as, or trademarked by, one that is already registered with Companies House. If your chosen name is too similar to an existing company, and could cause confusion, it will be rejected.

Commercial property

When you set up your business, you may first find yourself working from home. Therefore, you may want to consider a more formal address that will retain an initial sense of professionalism, such as a virtual office.

When the time does come to move to commercial premises, you will likely end up leasing. Before you sign your first lease, there are a number of implications and conditions to consider:

Landlord permissions

If you’re intending to run a business from premises that were originally something else, you might need to check that planning permission has been changed for the new use. Also, if the landlord has a mortgage or charge against the property with a bank, it is important to make sure they have permission from them to grant you the lease.

Repairs and maintenance

Most commercial property lease agreements include comprehensive repair obligations, so it is important to negotiate with the landlord and try to share responsibility for these. When taking occupancy of the premises, it is advisable to record its condition in detail and attach this record to the lease.

Hidden costs

Ensure you understand where peripheral costs could mount up, such as property insurance and service charges, and make sure the agreement states who will be responsible for these. Prior to signing, see how much you can negotiate on financially.

Personal guarantee

A commercial lease is a major commitment for a business, and the landlord will want to know that a tenant will continue to pay the rent and maintain the premises, even in the event of bankruptcy. 

Most business advisors say you should keep business and personal financial matters separate, but the landlord may require directors to provide personal guarantees. Just because a landlord requires guarantees does not mean there isn't some room for negotiation ­– ask for a time limit on the guarantee or offer a rent deposit instead.

Employment law

As your business grows and your customer base increases, you will naturally start to consider employing staff. Employment law is a complex area and one that is constantly changing, but your legal advisers should be up-to-date on the latest contract changes.

However, it isn’t just contracts; employment law covers internal employee handbooks, business health-checks, as well as the unfortunate aspects such as discipline and grievance, settlement agreements, and potentially redundancy.

Intellectual property

A good, creative or innovative product is only effective if you’ve successfully secured the necessary intellectual property rights. Intellectual property law is complicated, but necessary. Registering the initial idea, or designs, or imagery or written works, is crucial to getting a leg up on the rest of your industry – especially if you’ve broken away from an established business to go it alone.

This advice will also help should you be developing a product or idea that might infringe on another company’s rights. It will help you understand where you stand, and the necessary next steps to avoid potentially unnecessary legal proceedings.

Dispute resolution

In business, you need to plan for all possibilities and that unfortunately means planning for things going wrong.

In a family/friend-run business, these disputes can harm your personal life, with the reverse also true, as family matters can impact on the business. In most cases, lengthy disputes can be avoided by consulting a solicitor at the earliest point possible.

Debt recovery

As the saying goes – ‘cash is king’ and for any new business cash flow is the lifeblood keeping you afloat.

It is vital when starting out that you consider what the terms and conditions of payment are and how any potential late payments will be managed. If you have the right terms in place from the outset, it can reduce the stress of chasing bad debt further down the line and protect the financial stability of your business.

Author: Jason Waghorne, Commercial Solicitor

Rothera Sharp

DISCLAIMER: This article should not be regarded as constituting legal advice in relation to particular circumstances. This article is merely a general comment on the relevant topic. If specific advice is required in connection with any of the matters covered in this article, please speak to Rothera Sharp directly.

Published on 11th April 2017
(Last updated 21st March 2018)

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