Launching a start-up? 5 Legal considerations you should know about
Despite the COVID-19 pandemic, 2020 was a bumper year for new business formation in the UK. Using data from Companies House and the Office for National Statistics, figures released by Inform Direct reveal a record 780,000 start-ups launched last year.
2021 looks like it will be another impressive year – according to recent research from instantprint, 18% of UK adults have firm plans to start a business this year, with a further 29% considering it. It seems clear that many people are seeing the disruption and economic shock as a window of opportunity to work their way out of the crisis. If you’re looking to launch your own company, you’ll have many plates to spin and a huge amount to learn. In all the excitement of securing your funding, building your customer base and starting to sell and plan the marketing for your product or service, it is easy to overlook your many legal obligations. But not having the necessary legal formalities in place can seriously damage the prospects and value of your business in the long term.
Here are 5 legal considerations every new entrepreneur should be aware of.
Choosing your structure
One of the first and most important decisions you will need to make is in what legal form your business will operate. The 3 most common registration options in the UK are sole trader, partnership and limited company, and all three have advantages and disadvantages. Starting up as a sole trader is often simplest and gives you the ability to withdraw money from the business as you see fit. But there’s no distinction between you as an individual and your business, and you could be left personally exposed to liability should any issues arise. If you choose the limited company route your liability will be limited to your business assets, but you’ll likely have heavier costs and administration to contend with. Also consider that different business structures have different tax requirements. Whatever you choose, your legal responsibilities will be different as will the degree of protection you have if you are sued, so make sure you choose the one that fits your business and your goals best.
If you plan to go into business with another person, no matter who they are, you will need a founder’s agreement. Differences over business have destroyed many friendships and familial relationships. These agreements will clearly set the authority of each partner, what their responsibilities are, how matters of equity are handled and how disputes should be dealt with. It should also cover what happens should a partner exit the business. If things go badly wrong then you’ll probably have to hire a lawyer but cementing your legal business partnership at the outset is invaluable and protects all partners.
If you are going to be employing someone, you need to get an understanding of employment law. In the digital era, it is tempting to download basic employment contracts from the internet; but avoid this at all costs. Employment law can be a minefield. There are all manner of hurdles to navigate – to name but a few, parental leave, disciplinary issues, staff renumeration and health and safety. You also need comprehensive terms of employment to provide essential protections covering confidential information and the safeguarding of your client base. Many businesses have been wrecked by ex-employees mining their old company for customers and clients. Always remember, when it comes to staff, they must be treated fairly and equally in the eyes of the law. You risk long and costly tribunals and court cases otherwise!
You need to be certain that your company owns what it needs for its operations. At the outset you will need to be sure that your company name, domain address, logos, product names and any promotional materials don’t create issues with another company’s intellectual property. You should look to trademark logos and names to protect your brand, and if your product or service is unique or involves technology you have invented, then you should look at patents before you go to market. Non-disclosure agreements with suppliers, clients, customers and staff are also a must when handling confidential information to ensure your intellectual property is safeguarded.
Many businesses these days need to contend with a multitude of digital laws and regulations, and if your business will operate online, you will too. Getting a handle on the Privacy and Electronic Communications Regulations is a must if you plan to send marketing emails, texts and even faxes to your customers. If handling customer data is part of your business, you’ll need to comply with the General Data Protection Regulations, or as you probably know it – GDPR. You need to make sure you stay on the right side of the law at all times – organisations that ignore their obligations will have action taken against them by the relevant authorities.
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