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There is little doubt that launching a new business is going to take up a good amount of your time in the following years. 

Although you may be incredibly busy and there are numerous exciting things to focus on, it is imperative to put time aside to ensure all the legal obligations for setting up a business are met. To help you we have explained the main requirements below.

Why not also take our Legal Health Check for Startups (it’s free!) - get started.

Legally starting a business

Every year, over 400,000 new businesses are started in the UK. The widespread belief is that following the Covid outbreak and people losing their current jobs, this may motivate an aspiring entrepreneur to start a new business.
 
Some would argue that in a downturn, organisations need to become more agile and those who drive success tend to be more focussed on delivering a business plan that improves customer experiences. A start-up with a new business idea can be well positioned to lead the way, creating new and efficient ways of doing business. Many of the today's biggest brands were started in times of recession.
 
If you aspire to become a small business owner and wondering about the best approach for starting a new venture, there are several legal aspects that need to be considered in the business planning process and the best structure of your business start-up;

  • funding for your business and issuing shares
  • intellectual property (IP) rights and protection
  • commercial property to run your new business

Naming your business

Your new business must have a name and this name must be unique. If it is too similar to the name of an existing business, you may find yourself facing allegations that you are trying to ‘pass off’ your business as that of another.

To check whether your business name is already taken, you can run a search through the free company name check tool provided by the UK government.

Choose the best legal structure

There are four main types of business structures in the UK:

  • Sole trader
  • Partnership
  • Limited liability partnership
  • Limited liability company

One of our commercial law solicitors can discuss the advantages and disadvantages of each of the above options and advise you on which one is best for your business long term.

We have asked our strategic partner Tide, the leading provider of digital business banking services in the UK, about the best new business structure. Victoria Gregory, Tide Head of Product, explained: 
 
'The simplest way to register your business when first starting out is as a sole trader. However, as you grow, your needs will change. Reasons to turn your sole proprietorship into a limited company can include greater borrowing potential, sharing liability for your business, a more efficient tax structure, as well as gaining greater credibility with your customers.'

Keep reading this article to find out what the best legal structure is for your new small business.

Sole Trader

Setting up as a sole trader is the simplest form of legal structure for a start-up. If you plan to freelance in the service industry, for example bookkeeping, consultancy, web design, etc, becoming a sole trader may be perfect for you.
 
To set up as a sole trader, you must notify HMRC of the fact, register for self-assessment, and file a yearly tax return. You will be taxed on your profits at the same rate as someone who is employed.
 
The biggest downside of being a sole trader is that you are personably liable for any business debt and/or contracts. It can also be challenging to enter into commercial agreements and attract investment as a sole trader.

Traditional Partnership / Limited Liability Partnership

If you are combining capital and expertise with one or more people, you may wish to form a partnership. A traditional partnership is governed by the Partnership Act 1890, which doesn’t completely cover the modern alliance, so it is important to have a detailed Partnership Agreement drawn up which sets out matters such as;

  • the division of profits
  • duties, and responsibilities of each partner
  • what happens if one partner resigns or retires
  • dispute resolution

Limited Liability Partnership (LLP) is a business structure often used by professionals such as lawyers, accountants, architects, engineers etc. The main difference between a traditional partnership and an LLP is that each partners’ liability is limited. Every LLP must file accounts with Companies House, and these will be publicly available.
 
LLPs are governed by the Limited Liability Partnership Act 2000; however, partners can draw up an agreement which covers aspects of the partnership such as profit sharing, management of the business, and the appointment of new partners.

Limited Liability Company

Creating a Limited Liability Company (company) is a straightforward way to start a new business. You need to choose a company name and file a series of documents with Companies House, including;

  • Form IN01 (which provides information as to the company name, the names of the initial directors and company secretary, and the identities of the shareholders)
  • Memorandum of Association
  • Articles of Association

The advantages of setting up a limited company include:

  • you may pay less tax than a sole trader
  • a limited company is a separate legal entity which can enter into contracts and loan agreements which limits your personal liability
  • as your business grows, further shareholders can invest, and different types of share classes can be created, limiting the rights attached to shares – this is important if you are seeking private investment

As with an LLP, with a Limited Company will need to file annual accounts with Companies House and these will be available to the public.

For more information on choosing the right structure for your venture, read our article on structuring your new business.

Safeguard your intellectual property

In today’s digital world intellectual property is a valuable asset. Protect aspects of your brand such as your business name and logo by registering them as a trademark. If your business is based on a unique invention, it may be advisable to apply for a patent. If you have created a new app, you may be able to rely on copyright law if someone uses the software code without your permission.

If you need help protecting your IP, find out more about our intellectual property services.

Get legal assistance from LawBite

There are several other legal requirements you must consider when launching your start- up, for example, business insurance, tax obligations and applying for funding. 

By building a relationship with one of our commercial law solicitors you can be confident that when you need legal advice, you have someone on your side who understands your business and wants to celebrate your success.

 

Book a free 15 minute consultation

 

Additional resources

In closing

Nothing in this article constitutes legal advice on which you should rely. The article is provided for general information purposes only. Professional legal advice should always be sought before taking any action relating to or relying on the content of this article. Our Platform Terms of Use apply to this article.