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Top legal tips for UK Startups

Estimated reading time: 7 mins

Starting up your own business can be an exciting time in your life. There are so many considerations taking up your time, ranging from sourcing funding to hiring your staff team and finding the right business location. You may be rushing around trying to complete hundreds of different jobs in the shortest possible amount of time, however, it’s also vital that you give proper consideration to all the legal aspects of your startup business.

Things to think about before starting any new business

It’s not always a great idea to launch your new business as a sole trader structure, as you’ll discover setting up a legal limited company can offer far greater protection in the event of any future calamity. Limited company structures can be far more suitable for startups planning to provide services or products to consumers and also if you are taking on teams of workers.

You’ll also need to think about issuing official employment contracts if you plan to take on new hires, as well as work out all your legal obligations for insuring your business and protecting employees and consumers.

Legal issues can impact on the operational success of your new business, and the following top ten legal tips for startups may help you avoid some of the most common problems that occur down the line.

Top 10 legal tips for UK startups

Our list of 10 legal tips for startups is not in any particular order: all of them are important in their own way. So, it’s a good idea to take the time to read through them to plan out the correct timings for setting your business up on a legal footing.

1. Opting for the best business structure

The legal structure of your new business will have lots of ramifications for the future. Considering whether you should launch a limited company (insert link https://www.gov.uk/limited-company-formation) or simply set up as a sole trader could be critical for success. Many startups begin trading as a sole proprietorship, however, this may not be the best decision.

If you register your startup as a limited company, you will have protection for your personal assets and you also have far greater levels of legal protection in the event of disputes with suppliers or consumers.

2. Intellectual property rights

The intellectual property rights of your business impact on its value. For example, if you need additional funding or want to sell a part of your business, ownership of intellectual property rights can be critical. The intellectual property of your business can relate to things like the key technologies, ideas, or manufacturing methods used during normal operations.

Ownership of the intellectual property rights of your business can be called into question if they were created by the business founders prior to the launch of the startup or by consultants or contractors who were not correctly engaged by the business. It can be far easier to establish the ownership of your intellectual property rights if they were developed by your employees in the course of their work.

If the intellectual property rights of your business have been developed by others, you can arrange a legal deed of assignment to transfer ownership to the business. This is particularly important for things like patents, copyrights or trademarks.

As noted, there may come a time when you seek additional funding for your business, so putting the right framework in place for protecting your intellectual property is essential. Many startups plateau when they reach a certain size; this often means they need to sell on a proportion of the business to equity providers. Don’t jeopardise the future growth of your business by neglecting vital issues like your intellectual property rights.

3. Ensure contracts are in written form

You will need to set up a variety of contracts during the normal course of business operations. These can include employee contracts, external supplier contracts, and investor contracts. In legal terms there really isn’t any such thing as a “Gentleman’s Agreement”, so ensuring all contractual arrangements are clearly recorded is essential for the success of your business.

Ensuring formal contracts are in place means you have the ability to pursue legal action whenever necessary. What’s more, employment law can be particularly complex. Simply downloading a proforma employment agreement from the internet probably won’t offer your business or your workers the clear cut and tailored terms and conditions you require. Once you set up employees on one form of contract, it can be very difficult to move them on to a new contractual agreement, if required.

4. Insurance

Business insurance will also be essential for your startup. You will need to research the types of insurances you need. Some of these are legal insurance requirements, so it’s important to look into insuring your business at the earliest opportunity.

Some of the essential business insurances to consider include:

– Employers’ liability, if you have any employees or contractors
– Public liability
– Buildings insurance and motor insurances
– Product liability insurances can offer protection in the event of consumer claims but are not legal essentials
– Cyber insurance can help protect in the event of computer incidents, but is not a legal requirement
– Specialist insurances to protect your business more fully, such as money cover if you take cash for goods or services provided

Speaking with a good insurance broker can help you work out which insurance is best for your startup and you may be able to negotiate a better deal if you take a variety of insurances at the same time.

5. Tax issues

No matter whether you plan to launch as a sole trader or limited company, your business will be required to pay tax. If you employ your own workers, you will need to operate a legal payroll system and deduct income tax, national insurance and any required pension contributions from employees. These taxes need paying to the relevant authorities on due dates.

You may also need to register for VAT, if your business is likely to turn over more than £85,000 in sales or purchases that are liable for VAT. The new Making Tax Digital legislation comes into place in April 2019, which means that VAT returns will need to be made via the HMRC online platform in digital format.

Limited companies will also be liable for corporation tax.

All these issues mean it’s important to have a lot of knowledge on relevant legislation or use an adviser to guide you on all tax ramifications you are likely to encounter.

6. Essential legal documents

Contracts aren’t the only written documents you need. Your business may require a number of legal documents, such as partnership agreements, confidentiality agreements or agreements for payments. All these documents offer you the essential assurances and protections that provide peace of mind throughout the operation of your new business and well into the future.

7. Think about the benefits of a buy-sell arrangement

If your new business will be a partnership of any kind you should consider the benefits of putting a buy-sell agreement in place. This type of agreement is also important for any joint ventures you may enter into during the course of business operations.

This type of agreement outlines all the steps that will be taken if one of the owners or business partners decides to quit the business in the future.

8. Legal disclaimers

Any products or services you offer to other businesses or members of the public should be covered by legal disclaimers of some kind. This provides your business with protection and provides consumers with information about their responsibilities when using your services or products. A quick glance at any product currently on the market will give you some idea of the kind of terminology used, however, your disclaimers need to be customised to suit your business offering.

If you plan to launch a website it will also be important to include your legal disclaimers and terms on service clearly for people to see.

9. Check out your business operations are legal

If you need any form of operating licence for your startup, you should put this in place prior to commencing trading. For example, if you plan to sell alcohol from a new hospitality business it’s important to have a licence in place (insert link https://startups.co.uk/restaurant-regulations/). Restaurants and food outlets will need to obtain a number of operating licences.

10. Consider taking expert legal advice

Taking expert legal advice can be one way to cover all the essential legal aspects needed to effectively start up your new business. Good legal advice can go a long way towards smoothing the startup process and ensuring your new business starts trading on the right footing.

There you have it: 10 vital tips to consider prior to starting up your own business in the UK. There are lots more things you will need to think about in the course of launching your startup. However, the legal tips noted above will prove a great starting point and could help you avoid tricky legal issues some way down the line.

 

About the author /


Simon is a creative and passionate business leader dedicated to having fun in the pursuit of high performance and personal development. He is co-founder of Applied Change, a Business Change consultancy based in the UK. Simon is also an Ambassador for Gloucestershire business. Simon is an Associate Member of the Chartered Institute of Professional Development.

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