New-Start Businesses - Tips from a Lawyer
There are a multitude of considerations that start-up businesses should be looking to address during their inception. We will look at three of the main ones in our tips for new-start businesses.
Type of Structure
It‘s important to determine the most efficient legal structure for your business. Which legal structure is right for you?
A sole trader can start trading immediately and has no formal reporting obligations. The downside to this is that start-ups often require a large amount of capital to begin trading, which is one of the biggest barriers to success and the workload is very intense during the early stages of the business. A sole trader could consider transitioning into a partnership (two or more sole traders working together) so that the decision making, workload and capital of the business is shared. Registering as a partnership is straightforward and only requires the partnership to register with HMRC.
The downside of both a sole trader and a partnership is that any creditors of both these types of businesses can seek recourse against the business owner’s personal assets if the business can’t settle its own debts. The biggest benefit of incorporating for a business is that they gain limited liability. This means that once the business becomes a company, the shareholder’s personal assets become safeguarded against any claims by creditors. If a start up is entering into high value contracts relative to their assets and early turnover then incorporating might be a prudent decision. This might also be a good choice if you’re looking to have investors come in to the business. However, the drawback of incorporating a company is the increased financial reporting obligations that all limited companies must adhere to. This could create additional cost if the completion of the accounts is outsourced.
Another option would be a limited liability partnership or ‘LLP’. The LLP combines some of the benefits of a partnership but also enjoys ‘limited liability’. There are, however, more reporting obligations with an LLP than with a partnership.
Terms & Conditions
Many companies fall into the trap of not having agreements in writing. Drafting a set of terms and conditions should be one of the first thoughts of any new business. These should address among other things, what goods or services you’ll be providing, the obligations of each party to the contract (including payment), how liability is to be addressed, how the contract will and can be terminated, whether the contract can be assigned and which legal system will govern any potential disputes between the parties.
Having a written set of terms and conditions which have been properly drafted helps protect your business’ position and makes dispute less likely to occur. This is because each party has their obligations set out, meaning they’re accountable to the other parties of the agreement if they breach these.
Successful businesses usually have a high level of goodwill, a strong brand and effective marketing. In order to protect these crucial components a business should look to protect its intellectual property rights. Intellectual property rights take different forms, including copyright, trademarks and patents.
Copyright protection is an inherent right that is created automatically and stops others from distributing copies, renting, lending, adapting and generally copying the author’s work. It’s an automatic right which is free, so an individual does not need to do anything to obtain a copyright. Despite this, in order to prove that you have a copyright you should keep an up to date and detailed audit trail of all of your works and creations in order to easily establish your protection if required to do so. Copyright protection is afforded to literary, dramatic, film and television recordings, sound and music, software, web content and databases. A copyright lasts for the lifetime of the ‘author’ + 70 years.
A trademark is another important intellectual property right which is used to protect words, logos, colours or sounds. Unlike copyright, you can formally register for a trademark. Although, trademarks can be both registered and unregistered, a registered trademark application to the Intellectual Property Office requires the applicant to choose ‘trademark classes’ of which there are 45. An application should ensure that all relevant classes are covered but at the same time, not cast the net too wide, as if a trademark class is not utilised it’s open to challenge. A registered trademark right exists for 10 years but can be renewed.
There are many more legal issues that might be applicable to start up businesses. Our Corporate department would be delighted to advise you in more detail on any of the points mentioned above and/or any other questions you might have.
Written by Senior Solicitor, Jennie Elliot and second year Trainee, Fergus Hand.Back to news list