Setting up a new business – Top 10 Tips
The UK has often prided itself on its entrepreneurial spirit. Almost 600,000 new businesses were set up in 2015 alone. New businesses emerging on the market play a huge part in boosting our economy however it is important to consider the legal position of a new business start up to ensure that you have the chance to make your dream a reality.
Here is a summary of the most common business formats along with points to consider ahead of setting up your business.
1. Limited Companies
Setting up a limited company can provide your business with a great deal of credibility however it also requires a great deal of administration. Should you choose this option, you will need to register the business at Companies House and will subsequently be responsible for presenting your year end accounts. A key advantage is that you will be treated as a separate entity to the business thus limiting your financial risk if the company was wound up.
2. Sole Traders
This is often described as the hassle-free format as there are no due requirements or fees to register. It tends to be an attractive option if you do not intend to employ additional members of staff and you stand to reap the benefits of all business profits exclusively. Another advantage of this method is that the lack of shareholders means you can implement decisions instantaneously. A major point to be aware of is that should the business encounter financial difficulties, you can be held liable to repay business debt.
This is the format of choice if you intend to set up a business with a friend, acquaintance or family member. It follows a similar model to the sole trader format in terms of set up costs however you have the benefit of a second opinion in relation to key business decisions. You should take careful consideration as to who you go into business with as you can be held liable for business debt incurred by your partners.
4. Limited Liability Partnerships
This is often seen as a combination of the Limited Company structure and a partnership. This is because LLP members are not held liable for business debt however they are afforded a similar tax structure to sole traders/partnership business owners. There is no limit as to the number of partners an LLP can have. There must be two designated members who are responsible for filing accounts.
Under the limited company format, the business benefits from paying corporation tax (20% on profits <£300k & 21% on profits >£300k) on its profits and its directors pay income tax. Under Sole trader and partnership formats, profits are subject to income tax. Expenses for premises and travel expenses will be tax deductible. Each partner will need to submit a separate tax return under a partnership. Partnerships are also liable to pay National Insurance Contribution rates (£2.75/week). Under a LLP directors pay income tax.
Financing your business is often one of the biggest challenges associated with setting up a business. A common mechanism of financing a business is through a start-up bank loan. It may be easier to secure funding for your business if you are operating as a limited company. Another common option is asset finance. In this scenario, you would borrow money against collateral such as property. A failure to repay the debt could result in the asset being repossessed. Crowdfunding is becoming a popular method of funding for new businesses. This occurs where are a group of private investors donate nominal fees to facilitate your venture.
7. Terms & Conditions
When setting up a new business it is important to ensure that you set appropriate terms and conditions for your business relationships. An example of this would be putting in place provisions for distribution agreements with 3rd parties.
For certain businesses, it is worth ensuring that you have the correct licence to carry out your course of business. An example of this is often seen in the pub / retail trade where you need to have a valid licence to trade.
Depending on your line of business, you may need to factor in the costs of taking out insurance. An example of this would be professional indemnity insurance for the provision of medical care or public liability insurance for a retail space.
10. Health & Safety
It is important to ensure that you have an adequate health & safety policy in place especially if your business will require members of the public accessing your property on a regular basis. This is essential for businesses operating in the retail space for example.
It is advisable to seek professional legal advice when setting up a business in order to clearly understand your legal responsibilities and protect your business from the possible liabilities that might arise.
Come and see on of our expert commercial solicitors during our Small Business Advice Clinic held every Tuesday between 9 am and 10 am in our Manchester office – booking details can be accessed form our events page.
Should you need urgent advise on setting up a business or commercial contracts contact our specialist corporate solicitors or commercial contracts solicitors solicitors in Manchester on 0161 820 8888 and solicitors in London on 0208 889 8888 for immediate assistance.
We specialise in commercial and business law and are dedicated to ensuring that our clients are well informed. We will advise you of the law, your duties and rights and how it applies to you practically in a straightforward and professional manner.
Don’t wait until it is too late.