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What's involved in setting up a new business?
Setting up a new venture is exciting and challenging – but it takes more than a good idea to lay a strong foundation for your business.
To secure your commercial future, it is crucial to choose the right structure for your operations, secure adequate funding and set up contracts that will protect your business interests.
Read on to find out more about the legal aspects of starting a new business.
What is the best legal structure?
Choosing the right legal structure for your business is important because it saves time and reduces costs and risk.
The most common options are:
- a limited company;
- a partnership;
- a limited liability partnership (LLP); and
- a sole trader.
There will be legal, tax and accounting considerations that will affect your decision on what is the right choice for you and your business.
We help people to decide on the most suitable legal vehicle to use and will work in conjunction with your tax advisers. We then advise on the legal documentation that should be put in place.
Shareholders’ and partnership agreements
If there is more than one person involved in the business ownership, whatever form it takes, agreeing documents at the outset to govern the relationship can avoid disputes later. Shareholder disputes in private companies are common. They are often very costly and waste management time.
Parties can significantly reduce the risk of disputes arising (or if disputes do arise, the cost of resolving them) if they agree in writing at the outset of a business relationship what is to happen in the event of a dispute. Such agreement can be set out in a shareholders’ or a partnership agreement.
Funding your business (and issues relating to borrowing money)
If you need external finance for your business, there are various options available.
If you are borrowing from a bank, it is important to understand the terms both of the lending and any associated security that may be required by the bank. The bank may also require personal guarantees when lending to a corporate entity.
Our team can advise on legal issues arising out of your dealings with banks, including facility agreements and legal charges.
When acting for financial institutions, we draft and oversee the lender’s security, such as debentures and cross guarantees. We also advise in connection with inter-creditor deeds and deeds of priority, which govern the ranking of security between multiple lenders.
Our broad network of contacts allows us to help clients tap into funding sources from a variety of sources, including high net worth individuals with an appetite to invest in specific business sectors.
By acting for both lenders and companies seeking finance, our corporate team understand the commercial realities, pressures and priorities from both sides of the fence.
Other third party borrowing
Your business may borrow money from lenders who are not financial institutions. For example, friends, relatives or other business associates might lend the required money.
Where there is more than one lender, documentation to regulate the relationship between lenders is required.
Our in-house banking expertise
Our commercial team can advise you on the legal documents associated with lending and security.
In addition, Pearson's consultant, David Meredith, brings nearly 40 years’ experience in the banking sector. David can discuss with you the commercial aspects of any proposed or existing lending and security.
Putting in place appropriate commercial contracts
It is important to think carefully about all of the legal contracts to which the business is or will be a party, to protect the property of the business. Remember: contracts do not have to be in writing to be binding.
The following are just a few of the questions you should ask yourself:
- What supplies do you require? Are the terms on which those supplies will be ordered or delivered clear? What risks might your supply chain be subject to?
- Do you have terms and conditions (T&Cs) on which you sell your products? Do those T&Cs comply with all necessary legal requirements? For example, do the T&Cs cover distance selling, consumer protection legislation and data protection legislation?
- Do you have procedures and checks in place to ensure you comply with the new General Data Protection Regulation (GDPR) which will come into force in May 2018? (The GDPR will affect the way you, as a business, collect, store and use your data will be subject to additional scrutiny.)
- Are third parties selling products for you? Do you have written terms with those third parties? Do you know how those relationships could be terminated?
T&Cs should be drafted to cover your specific business. You risk increasing the chance of disputes if you use “off the peg” T&Cs purchased online. Attempts by business owners to amalgamate and adapt their own and others’ precedent T&Cs can be dangerous.
Our lawyers specialise in commercial contracts and are experts in dealing with complex areas of the law (such as the Commercial Agents Regulations 1993). We will draft contracts, which are bespoke to your business and therefore work for you on both a practical and legal level.
We can also provide expert advice on how to comply with the GDPR.
Protecting your business interests – business “health check” for commercial agreements
One of the best ways to protect your business interests is to put in place robust commercial agreements. Tightly worded agreements reduce the scope for arguments with third parties who might otherwise try to find gaps in the terms. Such agreements offer other means of recourse if third parties breach their obligations.
- advice on the commercial agreements regulating the relationship between your business and third parties;
- a bespoke business “health check” on your suite of commercial agreements to identify weak spots in the drafting, fill any gaps and advise on how to tighten the wording to suit your business;
- advice on how to protect your intellectual property rights by putting in place appropriate documentation and/or registration of those rights;
- advice on or preparation of shareholders’ and partnership agreements.
Well-drafted shareholders’ agreements can include appropriate restrictive covenants to deter shareholders from damaging the interests of the business.
Company secretarial support
Companies are subject to a number of laws that require strict compliance. Fulfilling those requirements helps businesses to deal with the administrative aspects of running a company. Compliance also brings certainty in the areas of ownership and management.
We provide a company secretarial service which includes keeping statutory registers up to date and filing all necessary forms and documents at Companies House.
Remember: if you are considering an exit from your business, the buyer will want to ensure that you have properly maintained the statutory records and will check your compliance carefully.
Leasing or buying business premises
If you are seeking business premises to house your new venture, click here to read about what is involved in buying a property or leasing commercial premises.
Employees and employment contracts
For more information on issues to consider when employing or dealing with staff and staff policies, click here.
How can we help?
Whether you are an experienced director creating a new subsidiary or setting up your first venture, our company/commercial team can guide and help you to decide how to structure your operations from the outset. We then use our broad experience to provide strategic support to help you meet your objectives both in the short and long term.
For further information, please contact Keith Kennedy on 0161 684 6942 or make an enquiry.