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Top Legal Tips for Startup Businesses

When starting out in business there are many decisions to be made, some of which can have a significant impact on the success of the new venture. Legal issues are particularly important, and entrepreneurs should spend some time considering this aspect. In this post, we will examine some of the legal decisions facing new businesses and provide a few legal tips for startups.

Choose The Correct Business Type

One of the first steps of setting up a business is deciding on its legal operating structure. The vast majority of businesses in the UK fall under one of the following models:

1. Sole trader

If an individual starts carrying out business activities on their own, without setting up a formal business structure such as a limited company, they will automatically be classed as a sole trader. In this case, there is no legal distinction between the individual and their business. Sole traders are therefore entirely responsible for the legal aspects of their business, notably any debts incurred.

2. Limited company

Anyone starting a business on their own or jointly with other entrepreneurs can choose to set up a limited company. This puts the business on a more formal footing and requires registration with Companies House along with a range of annual filings. Crucially, a limited company is considered to be a legal entity in its own right and essentially protects the business owners from debts built up by the company (beyond their initial capital investment). The business owners of a limited company will hold shares and will often also be company directors.

3. Partnership

If two or more people set up a business together without registering it as a limited company or LLP (see below), they will automatically be classed as an ordinary partnership. Partners are considered to be jointly and severally liable for any debts and obligations of their business; each and every partner is responsible for the acts, omissions, and debts of the partnership. There is therefore no protection from liability, as would be the case with a limited company.

4. Limited liability partnership (LLP)

A relatively new type of business structure which has become increasingly popular, especially amongst professional services providers such as lawyers and accountants, is the Limited Liability Partnership (LLP). An LLP needs to be registered with Companies House and combines the benefits of limited liability for business owners with the flexibility of ordinary partnerships.

Simply-Docs has a range of documents which can help with starting a business and company formation.

Distinguish Your Employee Types

When a business requires extra resources, it will need to decide whether to subcontract out the work, bring in temps or agency workers, or take the step of employing new members of staff. It is vital to determine the status of each individual who carries out work for the business, namely whether they are:

  • a contractor;
  • a worker; or
  • an employee.

In the case of employees and, to some extent, workers, the business will have extensive legal responsibilities including:

  • national minimum wage;
  • sick pay and annual leave;
  • maternity and paternity rights;
  • protection from discrimination; and
  • health and safety duties.

Employees are entitled to receive a “written statement of employment particulars” on the first day that they start work. It’s best practice to include this as part of a more comprehensive employment contract, which outlines the various rights and responsibilities of both the employee and employer.

Simply-Docs has a variety of employment contract templates and related documentation.

Ensure The Right Agreements Are in Place

Where two or more people start a business together, they should consider putting in place relevant agreements to set out the basis of their business relationship, such as a:

Although these agreements are not mandatory, they help to ensure that each party knows where they stand and can avoid potential disputes arising further down the line.

Protect Your Intellectual Property

Although intellectual property (IP) is typically associated with creative industries, most businesses have IP of one form or another, such as:

  • copyright – this covers literary, dramatic, musical, and artistic works, as well as computer software and databases;
  • design rights – IP can include both registered and unregistered designs;
  • patents – this is a highly specialised form of IP which covers inventions;
  • trade marks – these include logos, slogans, and symbols which help to build a business’s brand and distinguish their products and services from those of competitors; and
  • trade secrets – although it’s not possible to register a trade secret as a form of IP, non-disclosure agreements (NDAs) can help provide protection.

It’s vital that a business understands its IP and protects it where possible to ensure that competitors don’t capitalise on, or misappropriate its work. Although some forms of IP such as copyright do not require registration, it may become necessary to enforce such IP rights using infringement notices or a cease and desist letter.

Ensure You Have the Correct Legal Support

Depending on the nature of the business, different levels of legal support may be required. Heavily regulated sectors will often need substantial advice from a law firm, particularly when starting out, and larger organisations may even have an in-house legal team. Most SMEs, however, will be able to prevent many legal headaches by putting in place suitable documentation.

Simply-Docs has a wide range of legal document templates which can help many different types of business get on top of key legal issues and avoid disputes.

FAQs

What Legal Documents Are Needed to Start a Business?

This entirely depends on the legal framework of the business, whether it has any employees or valuable IP, and the sector in which it operates. It’s worth perusing the range of legal documents available from Simply-Docs to find out if any are suitable for your particular business.

What Are Legal Issues in Business?

Legal issues in business generally involve rules and regulations set out by a range of government legislation, as well as a number of important aspects involving contracts and terms & conditions. We stay on top of the latest regulatory updates so you can rest assured that our legal documents will have you covered.

What Legal Issues Do Small Businesses Face?

Although larger companies tend to face more regulatory hurdles, SMEs are also exposed to the full gamut of business legislation, from the Companies Act 2006 to the Equality Act 2010.

What Legal Services Do Businesses Need?

The legal support requirements of each organisation are unique, depending on their size, sector, and nature of their business. Although most SMEs will require advice from a solicitor at some point, many will be able to avoid legal issues from arising, particularly if they put the right documentation in place.

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