Starting a new business is an endeavour of considerable effort; this much I doubt is news to any readers here. What may be news to the newer, younger entrepreneur, though, is the sheer variety of manners in which effort can be required of a new business owner. Running a start-up can be likened to running an under-crewed sailboat, with the many different tasks and challenges vying for a new business owner’s attention.
This is what makes business so competitive, and so cut-throat; a fifth of start-ups are expected to fail within Year 1, for instance. There are various reasons for such failure, but when the buck stops with the founder, there’s one thing for it – knowing everything you need to know as a founder. Here, we will be examining the legal side of new business, and the crucial importance of understanding your legal standing as a business.
1. Choosing the Right Business Structure
Right from the off, you need to be shrewd about the formal structure of your new business. This is because selecting an appropriate legal structure is crucial for defining everything from your business’s liabilities to your rights as someone in an executive position – to say nothing of the massive tax implications inherent to certain business structures.
For instance, you might choose to register as a limited company – a structure which enables you to limit your own financial entanglement with the business, as well as to benefit from the payment of employees via the HMRC’s PAYE system. However, this can come with increased setup costs, and also requires you to go public with your finances.
2. Registering Your Business and Complying with Legal Requirements
Whatever formal structure you do choose, it is necessary for you to formally register yourself with the government as such a business. Sole traders must register for self-assessment with HMRC, in order to make HMRC aware of your tax obligations as an individual; limited companies, meanwhile, need to register themselves with Companies House.
Outside of registration and tax liability, businesses must also contend with compliance with various industry-specific legal obligations, from the obtainment of necessary licenses to adherence to key regulations. A simple example would be a food truck business, which must adhere to food safety laws and register with the local council. Understanding your obligations here is fundamental, to say the least.
3. Essential Legal Documents for Startups
Several legal documents are fundamental for protecting your business interests and ensuring clear agreements with stakeholders. Some, like employment contracts, are necessities; others are not necessarily requirements, but conducting business without understanding when to deploy them can leave you vulnerable – particularly with intellectual property and Non-Disclosure Agreements (NDAs). Whatever documents you need, it is unwise to utilise them without the engagement of solicitors to ensure everything is air-tight and above-board.
4. Ongoing Legal Obligations and Risk Management
Beyond initial setup, businesses must manage ongoing legal obligations to mitigate risks. Your responsibility to follow industry regulation does not diminish, nor does your responsibility to maintain accurate financial records. Startups are not for the complacent; stay engaged, and you will fare better than the 20%.
