Starting a business can be an exciting step, but it can also feel daunting, especially with the number of decisions to make. While practical considerations and financials often come first, it is just as important to understand the legal aspects from the outset. Putting the right legal foundations in place can help the process run smoothly and prevent complications further down the line.
Charles Danjoux, outlines the key legal points new business owners should think about when getting started.
One of the earliest and most important decisions is selecting the legal structure of your business—often called the business vehicle. The most common options are:
1. Sole Traders
A sole trader is an individual who runs the business personally. There is no separate legal identity, and the individual owns all assets and is personally responsible for any debts or claims.
2. Partnerships/LLPs
Partnerships involve two or more parties working together with the aim of generating profit. These may be general partnerships or limited liability partnerships (LLPs); the latter offering partners limited liability.
3. Private Limited Companies (Ltd)
A private limited company has a separate legal identity from its owners (shareholders), with liability limited to their investment and any unpaid amount on their shares.
Proceeding with a company as your chosen business vehicle can offer a number of advantages including:
Choosing a company, however, might not be right for everyone and disadvantages can include:
When setting up a new business in the UK it is important to ensure you have key business contracts in place. These can include:
Shareholders’ agreements
When running a company, it can be important to make sure that there is a written agreement that documents how key decisions are made. A shareholders' agreement is a contract between all or some of the shareholders and can deal with many aspects of the relationship between the parties if required.
Terms and conditions
Whilst a shareholders’ agreement governs internal rules and relationships, terms and conditions are used externally and can be key in setting out the rules by which your clients or customers purchase your goods and services.
Employment contracts
As your business expands, you may wish to begin taking on employees. English law provides employees with a number of protections and rights including the right to be provided with a written statement of particulars of employment. Employment contracts are particularly important to set out the key provisions of the employment relationship and ensure the business is protected in terms of appropriate notice periods, confidentiality, restrictive covenants, and intellectual property.
There are never any guarantees when setting up your business but taking a proactive approach and instructing advisers early on to assist with the legal aspects can pre‑empt common pitfalls and help your business flourish.
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