Ask the Lawyer with Anderson Strathern
There’s no escaping the fact that COVID-19 had a detrimental effect on so many businesses throughout the UK, sparking widespread economic misery that touched almost every industry. Yet, lockdown also did something hugely positive for entrepreneurship, sparking a creativity jolt in many of us who re-evaluated careers, work life balance and passions.
Whether it was to regain control, enjoy more flexibility or pursue passion projects, the number of new start-ups soared in the second half of 2020, according to the Office for National Statistics. And it seems this year more and more of us aren’t afraid to start our own business.
We’ve seen so many inspiring start-up stories on EGG and so many positive comments from others about their desire to go it alone, and so in our second article with our legal partners, leading Scottish solicitors Anderson Strathern, we speak to their expert Kimberley MacNeil who reveals the key things to consider when starting a business!
TAKE CARE CHOOSING A NAME
It’s undeniably fun coming up with a name for your new venture, however it is important to take care with name choice. It can be quite disheartening (not to mention expensive down the line!) to come up with a name for your business, perhaps having invented a ‘new’ word altogether, only to find that it means something offensive in another language or has rude connotations you didn’t know about. We find that even a quick Google search can be really useful to check there is nothing negative associated with the name which could potentially damage your reputation.
From a legal perspective, you will also want to check that the proposed name is not trademarked or being used by another company. If you are thinking of incorporating a company, you can check whether your preferred name is already being used by visiting the Companies House company name availability checker. This will not give you information about whether the name is trademarked, but you can check for trademarks on the Intellectual Property Office website. It is really important to do this before you set up your business to avoid any costly mistakes.
CONSIDER THE BEST ‘VEHICLE’ FOR YOUR NEW BUSINESS
Many people opt to start their business as a sole trader and, for those who have a business partner, they will have created a partnership. Whilst the minimal administration costs and legal formalities may suit you initially, as your business grows there are some downsides to these vehicles – the key one being that you are personally liable (or, in the case of a partnership jointly liable) for all debts and liabilities of the business.
Once your start-up is actively trading and generating money you may wish to consider other options. Incorporating a private limited company is perhaps the most common option. As the name might suggest, a limited company benefits from limited liability. The company is seen as a separate ‘legal person’ from its owners (known as the shareholders). This means that assets and liabilities are held in the company’s name with individual shareholders only required to contribute any unpaid portion on their shares towards the company’s debts. Limited companies are however subject to more stringent admin and record-keeping obligations with various filings to be made with Companies House each year. It’s also worth noting that Companies House is a public register so information about the company is available for anyone to search and see.
And then there’s the cost element to consider. Different company structures feature different tax arrangements so you may also wish to seek tax advice when making this decision.
SET OUT YOUR BUSINESS ARRANGEMENTS CLEARLY FROM THE START
Setting out the roles and responsibilities of all those involved in your business from day one will help manage expectations and hopefully avoid disputes down the line.
If you decide to incorporate a company, you can enter into a shareholders’ agreement. Or, if you’ve established a partnership, you can enter into a partnership agreement. These agreements tend to cover things such as how the business will be run and the basis of the shareholders or partners relationship. It may mean having some uncomfortable conversations such as what will happen if one of the business partners die or what authorities each business partner will have in respect of finances, but these are conversations that have to happen. And sooner rather than later.
Generally businesses always begin with strong relationships, however we come across instances where relationships have soured. Therefore, setting out expectations and parameters at the outset is strongly recommended.
ENTER INTO WRITTEN CONTRACTS
Where possible, you should ensure that you document all contracts in writing. This crosses all aspects of your business, including contracts with suppliers, contracts of employment, a lease for your premises and IP licences.
It pays to do your due diligence too. Make sure the name of the entity or person you are contracting with is correct. You can check a company’s details by searching on the Companies House website. Make sure any warranties you are being asked to give are correct and that you can confidently support whatever that statement may be. Check the liability for yourself but also for the other party/parties. And ask yourself important questions such as: is there a maximum limit on your liability or is it unlimited; does the contract accurately reflect the business relationship you had envisaged in terms of price, delivery or turnaround times.
Remember that there may be room for negotiation so always ask and, if you are ever unsure about what you are signing up to, seek advice from a solicitor.
KNOW AND PROTECT YOUR INTELLECTUAL PROPERTY (IP)
As a start-up or new business you should take the time to identify which, if any, parts of your business constitute Intellectual Property (IP) and if so, whether you should consider protecting that IP. In the early stages of a business the costs of protecting any IP may be prohibitive but this should not be a barrier to identifying any IP that you may have and keeping a record of it. There are some key things to think about:
- Is your business based on an invention that could be patented?
- Are you creating any original work where copyright may arise?
- Can your business name or logo be trademarked?
- If you are dealing with third parties, should you put a non-disclosure agreement in place (often known as a confidentiality agreement or NDA) to protect your confidential information or business know-how?
If you have a website up and running, we always advise that you have privacy and cookie policies in place to ensure that you are complying with data protection legislation as well as website terms and conditions.
MAKE SURE YOU HAVE SUFFICIENT INSURANCE POLICIES IN PLACE
It is so important to cover yourself and your business with insurance policies. The specific policies you need will depend entirely on your business but general policies include public liability insurance and business indemnity insurance. If you employ staff, have store stock, have business premises, or come into contact with members of the public then you should be thinking about taking out insurance.
EXPLORE FINANCING OPTIONS
If you decide to take the plunge and grow your business, you will need to consider how to finance your expansion. Up until this point, you may have been relying on your own personal funds or perhaps you have some supportive family members and friends assisting you.
Your bank will be able to assist with overdrafts and other loan agreements, and you may also wish to consider seeking financial assistance from a private investor, often known as an “angel investor.” However, this type of investor will typically expect to receive a percentage of your business in return.
Our Corporate and Commercial team have a wealth of expertise so please get in touch if you are looking for advice or guidance with your start-up. To discuss your business matters in confidence with Kimberley MacNeil contact: email@example.com.
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