Legal advice for setting up a new business

Question: I am thinking about setting up a new business.  What legal issues should I be looking out for?

Answer:  In the midst of all the current doom and gloom one of the more encouraging signs is the number of people who are setting up their own business.  While I appreciate that everyone is anxious to keep the costs of setting up to a minimum, nonetheless if you get set up correctly it may save you a lot more in the long run.

Most people who start up a business tend to be on their own initially and therefore will operate as a sole trader.  If you are going into business with another person you are effectively in a partnership and I would always recommend that you would have a partnership agreement which would set out the duties and obligations of each partner.  It is also important to have a mechanism for resolving any disputes between partners and to make provision for what should happen in the event that one partner does not want to continue.

Depending on your business it may also be worth considering whether you should form a limited liability company.  The main reason for forming a company as your trading vehicle is to obtain the protection of limited liability.  In a time when business people are being confronted with the prospect of personal bankruptcy, one should not underestimate the value of a company to protect your personal assets.  It would also be important to assess the taxation implications of trading as a company rather than as a partnership or sole trader.

I would then tend to focus on the type of business that you propose to carry out.  Virtually every kind of business is now regulated in some shape or form and you should familiarise yourself with the various laws and statutory instruments or European regulations which affect your business.  You should also consider what written documentation you will require when dealing with your customers.  Typically you would have conditions of sale printed on the reverse side of your order form or invoice but you should check that these are really suitable for your business.  For example the terms in which you grant credit are critical to your business and you should include a right to charge interest on late payments and it may also be appropriate in some cases to provide for retention of title over your goods if you have not been paid.

If you are intending to take on any employees it is essential that you issue written terms and conditions of employment.  A dispute with a key employee can be very costly and can also affect your business and you can minimise the risk of this happening if you set out proper procedures from day one.  You will also need to consider the Health & Safety legislation particularly if you are engaged in any manufacturing activity.

Finally while you may initially start from home, at some stage you are likely to move to a premises which will probably be rented.  Taking on a lease is a potentially onerous commitment and again any agreement should always be in writing and should be checked before it is signed.

There are many other issues which may also need to be considered for example registering a trade mark, agreements with suppliers, banking arrangements etc and again I would advise that getting these right from day one will save you a lot of trouble in the long run.  As I like to say to my clients it is better to put up a fence at the top of a cliff than to be calling an ambulance at the bottom of the cliff.

The information contained in this article is for general information purposes only and does not constitute legal or other professional advice.  Specific legal advice should be sought on any particular matter.

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