Five legal considerations for new businesses

Starting your own business is confusing, especially from a legal standpoint. There’s so much to consider and, as a start-up, it’s not always possible to obtain professional advice. Here are five legal considerations you must not ignore when starting a new business:

1. Business structure

The decision about the structure of your business is one of the most important you will ever make. There are a number of options for you to choose from in the UK, and the most common include:

  • Sole trader
  • Partnership
  • Limited company

Each of these business structures comes with a different set of rules and regulations. If you decide to start as a sole trader, there’s no legal distinction between you as an individual and your business. This has some benefits. for example, you’ll be able to withdraw money from the business whenever you like. However, it also has some drawbacks. As you and your business are considered to be the same entity, from a legal standpoint, you’ll also be personally liable for any issues that arise.

This can be avoided if you start your business as a limited company. This ensures you, as an individual, can be separated from your business. The financial liability will be limited to your business’ assets, and will never impact personal assets (such as your home). Whilst this seems appealing, there are also many more regulations involved with this business structure, so you may need to enlist professional help to ensure you’re fully compliant.

If you’re unsure which type of business structure is best for you, it’s a good idea to consult with an accountant or a legal professionally, who will be better qualified to help you with this important decision.

2. Tax and National Insurance

Different business structures have different tax requirements. As a sole trader, you will pay tax and National Insurance on all earnings, taking into account any business expenses. With a limited company, it gets a little more complicated. It’s likely you’ll pay yourself a salary, which is subject to tax and National Insurance, with the remainder taken out as dividends or reinvested back into the business. If you set up a limited company, your profits will also be subject to corporation tax.

The rules and regulations surrounding business expenses are complicated. It can be confusing and time-consuming, particularly if you have little accounting experience. It’s important that you get this right, to ensure you’re as tax efficient as possible whilst meeting the necessary legal requirements, avoiding any fines.

3. Employment law

If you intend to employ staff in your business, you’ll need to familiarise yourself with employment law, and consider consulting with an experienced solicitor to draft up your contract and terms of employment.

When dealing with staff, you must always treat them fairly and legally, otherwise your business may be subject to a long and costly court case.

4. Health and safety

Over recent years, health and safety legislation has been refined and tightened. Therefore, it’s more important than ever to ensure you have this covered within your business strategy.

Make sure your premises are safe, and have been through any necessary testing and certification. For example, all electrical appliances must be tested to ensure they’re safe to use. If you fail to certify an item and a member of staff injures themselves whilst using it, they have basis to make a claim against you and your business.

5. Industry-specific legislation

You should also ensure you comply with any industry-specific legislation. As well as ensuring you’re personally aware of laws that relate to your business, you must also educate your staff and keep them up to date with any changes.

There’s lots of information available online to help you with this. For example, Greene King have a lengthy guide to running your own pub, which contains information about the Licensing Act. This defines the legal requirements of any venues that serve alcohol, so must be understood by anyone who owns a pub or restaurant. Other sectors which have specific legislation include childcare – 4Children has advice –  and recruitment.

*Anne Bridges is a writer who specialises in small businesses and start-ups.

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