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What do you need to know when setting up a business?

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What do you need to know when setting up a business?

Karen Edwards is a Commercial Associate and is recognised as a ‘Rising Star’ in the Legal 500, the leading independent guide to law firms and lawyers in the UK.

Here, in the first article since the launch of our new website, she details some key points to consider when starting up a business, including legal requirements and some practical pointers too.

How do I start up a new business?

Setting up a new business can be a daunting, as well as exciting, time. Figuring out what needs to be put in place in legal and practical terms can feel like a bit of a minefield.

This article sets out a quick guide to the common issues every business start-up should consider before they begin to trade, whether this is as a sole trader, through a partnership (or LLP), or as a limited company. Following these steps will help to ensure that the correct building blocks are in place.

Setting up a business - Quick Links

Below we've bullet pointed some quick links, to help you navigate this article easier and find what you need to know quickly.

What legal requirements are needed to start a business?

Whilst there are limited requirements actually imposed by law when setting up a business,, here are some of the  incredibly important ways that you can protect yourself and your business:

  • Get internal agreements in place
  • Prepare and issue employment contracts
  • Get some terms and conditions drawn up
  • Make sure your business has obtained all the necessary licences, consents etc.
  • If operating from rented premises, ensure that there is a formal lease in place
  • Protect intellectual property rights

What agreements do I need to start my business?

A shareholders agreement and a partnership agreement are commonly used when starting a new business, but; are they really necessary?

Is it necessary to have a shareholders agreement?

If you choose to operate under a limited company which has multiple shareholders, put a shareholders agreement in place. This governs the relationship between the shareholders by setting out their rights and obligations and in turn, reducing the risk of any disputes in the future.

My colleague Wayne Spolander has written a full guide to shareholders agreements, which can be read here.

What is a partnership agreement and do you need one?

If you intend to operate as a partnership, a partnership agreement should be entered into, which sets out terms such as how profits and losses will be shared, the decision making process, and what happens should someone want to leave the partnership.

Wayne Spolander sets out what should be included in a partnership agreement in this article.

Is it a legal requirement to have a contract of employment?

Employers must, by law, have employment contracts (or at least a statement of terms and conditions of employment) in place regardless of the number of employees it engages.

In the same way, ensure that any relevant policies are in place (these are often presented within an employee handbook), such as those relating to sickness, parental leave, GDPR and working from home.

At Frettens, we can help you draft a contract of employment. If you would like to speak to one of our bright employment lawyers, click here.

How can I ensure that my employees don’t become my competitors?

Protect the goodwill you are likely to build up in the future by ensuring that those working in the business agree to adhere to a duty of confidentiality and to restrictions preventing them from competing with the business during their employment with, and (for a certain time) after they leave, the business.

However, always remember that any restrictions must be reasonable to protect the legitimate interests of the business.

Our employment team can advise you on the inclusion of confidentiality clauses and restrictive covenants within contracts of employment. Whether you are an employer assessing your options or an employee questioning how reasonable and enforceable a covenant is, click here to get in touch.

Does a new business need to have some terms and conditions?

The short answer is that this is always advisable. It is crucial to make customers (whether these are businesses or consumers) aware of the terms on which your business trades. This can avoid costly and time-consuming disputes arising in the future.

In her first article, my colleague Zoe Watson wrote about terms and conditions; detailing what you need to include in them. You can read the article here.

What licences and permissions does a new business need?

Ensure that you have obtained all of the necessary licences, consents, permissions, accreditations etc. required for the type of business being operated. For example, planning permission may be required for the specific use of a premises, certain accreditations might be required before services can be provided and licences may need to be acquired before certain goods can be sold.

What do you need to consider as a business operating from rented premises?

If operating from rented premises, ensure that there is a formal lease in place so that you have the comfort of knowing there is security of tenure. The goodwill that you build up may become associated with the location of your business, so this is another reason to make sure occupation is secured.

Our Commercial Property Team can help you with any commercial lease related queries.

How can intellectual property be useful to new businesses?

Your business trademark could hold significant value, so it is crucial that this is registered with the Intellectual Property Office (IPO) to prevent others from using it, or worse still, registering it before you do.

In the same way, make sure that any trading name you wish to use does not infringe any third-party intellectual property rights. The IPO website has a useful tool for checking what trademarks are already registered.

What other things do start up businesses need to consider?

There are as many practical issues as there are legal ones when starting out in business. Here are some other areas that you should consider:

Funding a new business

Ensure that you have necessary funding in place to allow the business to have a sufficient capital to get started with. Speak to your bank manager to see what facilities are available and if there is access to any grants for the type of business you are intending to run. If you are required to provide security for any lending, make sure you take legal advice.

Insuring a new business

Get the right insurance cover. This is certainly worth a mention for the obvious reason that things can go wrong, so it is fundamental that for you and your business there is some level of protection. We would always recommend that you speak to an insurance provider before starting to trade.

IT considerations

Ensure you have sufficient IT systems in place. You may require a range of hardware and software for your business to run effectively and efficiently. If a supplier asks you to enter into a formal contract (which is more than often the case), take legal advice to ensure that you are not signing up to unfavourable terms.

Protection against cyber crime

It is also worth noting the risks of cybercrime, which can cause businesses significant loss, so we would always recommend that you get sufficient protection in place and educate yourself and your staff on what to look out for.

Monetary considerations

Speak to your accountant to take advice on areas such as registering with HMRC, who will be responsible for preparing accounts and how payroll with will administered.

Karen Edwards, Commercial Associate at Frettens, concludes: “In short, get your ducks in a row. The initial outlay incurred in taking the appropriate advice at the start will undoubtedly give you and your business the protection you need going forward and will prove a very worthy investment.”

Who can help me set up a business?

At Frettens we can advise you on the legal aspects for setting up your new business, whichever route you decide to take. We can also offer some practical advice based on the knowledge that we have built up over years of advising our business clients.

If you have any queries related to this article, please get in touch here. We offer a free initial appointment for all new clients.

The content of this article, blog or video is not intended as specific legal advice. For tailored assistance, please contact a member of our team.