Becoming your own boss will no doubt feel rewarding at times. However, to get it off the ground is not always easy. There are many things a new business will need to consider and plan before launching. As a business owner and lawyer, I’ll reflect on those issues.
There are many different ways to set up the business, including being a sole trader, partnership, limited liability partnership or limited liability company. There are pros and cons of each structure, however, from a legal perspective, the most significant advantage of a limited company is the limited liability it affords the owners.
A company has its own legal personality meaning it can sue and be sued. As such protecting you and your assets, should things not go to plan, must be a priority.
A suitable name is likely to be one of the first things you think about when launching a business. It is likely to be an important aspect of the business, not only from a commercial perspective but also from a legal perspective.
Commercially you are likely to be thinking about whether there is a domain name available, how catchy your name is, how much of an impact it may make, whether it is memorable to consumers or even whether it is easy to pronounce.
However, you also need to think about whether there may be scope for it to be registered as a protective mark or whether they could be any confusion between your name and other similar businesses, as this may open up potential intellectual property claims.
Intellectual property checks…
You should run intellectual property checks on the name to mitigate the risk of infringement proceedings being brought against you and to ensure you can register the name yourself as a trademark, in the UK or overseas. This should be done early on so you are not forced to re-brand or lose any goodwill if it’s later challenged and you can’t use the name.
Once you have selected a suitable name you should seek to protect this with suitable trademark registrations, as so for any logo or slogan you use. This will give you greater protection if someone else tries to utilise or infringe your name.
Most businesses require funding. There are a number of things you should consider in respect of funding or investment. Firstly, how much funding you actually need to raise. Should this be debt or equity; for how long; are there alternatives such as grants available?
Any funding will require a well thought out valuation and forecast. You should have a clear strategy so that it allows you to budget your future plans for the business. Borrowing too little may cause an issue if you return to the investor, borrow too much you give more control away than you need to.
What are you using it for?
Secondly, consider what you intend to do with the investment. Will you use it to grow and scale up your business? Will you put this towards research and development? Perhaps you would like to employ more people? Think about how feasible these options are as investors would like to see how their money is being used and where it is going to, as well as the exit strategy.
Finally, consider what kind of investor you would like to have on-board and the level of involvement you would like them to have. Would you like to raise a friends and family round or perhaps look to raise via an angel investor or VC?
Who has control?
This is about control, how much you need, do you need an active or passive investor and understanding the exit plan for their money and you at the onset. It would be a good idea to have a think about how involved your investors will be; is it important for you that they have experience in your industry and that you should benefit from their expertise or would you prefer an investor with limited involvement in the business?
Once you have secured investment, it is key to ensure that the terms are carefully recorded. These should be set out in a carefully drafted subscription agreement, such that all parties are clear from the outset on what is being promised and the conditions. You can have a mix if tax-efficient investment EIS; grants; R & D tax credits and equity investment.
3. Shareholders and Directors
It should be a top priority to ensure that all shareholders subscribe to terms on how they will interact with each other in respect of the business.
This agreement should ensure that all shareholders have the same vision for the business and will document fundamental governance and key aspects of the running of the business, such as what happens to a shareholders shares if they pass away, if and when shares may be lost, dividend policies, confidentiality and what will happen on the sale or transfer of company shares.
Who will the directors be?
On the same note, consider who the directors will be. The role of a director differs from that of a shareholder in that directors manage the day to day running of the company, whereas shareholders have control of the company and have the power to make decisions.
Directors should all have a director’s service agreement, which will set out the terms of their service and what they have to do for the business. This contract can ensure that, if they leave, any shares are returned to the company; it prevents them from setting up in competition and limits their authorities as you see fit.
4. Employees, Consultants and Third-Parties
As your business grows you may require assistance, this may take the form of an employee, independent contractor, freelancer or consultant. It is very important that agreements are put in place to document the relationship.
Such agreements should set out the terms on which they will be working for you and how they will leave. It is important that these are all GDPR/ data protection compliant, have restrictive covenants to protect your goodwill and carefully cover any IR35 tax concerns.
If your business is part of a supply chain, it is important to have contracts in place to protect your position should anything go wrong. For highly confidential matters it may be necessary to also have a non-disclosure agreement (NDA) in place.
Having an eye-catching website is a great way to showcase what your business is all about and to garner recognition for your business. You do however need to ensure that you have the necessary policies and notices displayed on your website if applicable, these include:
• Website terms and conditions (governing the terms on which the website is used)
• Privacy policies (setting out how you intend to collect, store and use data)
• Cookie policies (detailing how you would store and retrieve cookies)
• Disclaimers (which will limit your liability as a website owner)
Finally, it is important that you carry out all relevant administrative tasks incorporating and running your company. Ensure that all forms are correctly completed and sent to Companies House and that all records are updated accordingly.
Also Ensure you have a workable GDPR policy for client data, web data, staff and customers. Be clear on your processes and reasons behind what you process as well as how and how long you retain this data.
When setting up a business it is important that you consider everything not only from a commercial perspective but also from a legal and financial one.
When setting up a new business you should surround yourself with knowledgeable professionals like good lawyers, tax advisors and accountants who are able to guide you on areas which may be outside of your comfort zone, so you can focus on driving the business forward.
Sign up to our newsletter to get the latest from Business Advice.