Mistakes to Avoid with a Start-up Business
When starting your new business venture there is a danger of racing ahead without addressing the legal issues which could end or cripple an otherwise good thing. This is a quick overview of how to avoid some of them.
Put in place and understand the formal relationship between directors, shareholders, or partners
When setting up a small company the directors are usually the shareholders. But an all too common problem is when the two director/shareholders in a company disagree, eg what if one shareholder wants to sell out to a third party? Model articles of association, which most small companies use, often lead to deadlocked companies when director/shareholders fall out. Considering your relationships and formalising them in a Shareholder’s Agreement is vital to avoid this.
Consider and use the right business structure
This is linked with 1. Few start-ups consider the business structure. For example, partnerships are potentially more risky for individuals, but good for flexible ventures. They should draw up a partnership agreement rather than be governed by the archaic Partnership Act 1890.
Companies offer more individual protection but are more regulated. Consider the model articles of association in particular, these are the rules for how the company secretary, directors and shareholders run the company. Do these actually allow your company to be legally run as you wish?
This is wide ranging. Have you limited your liability through the right business structure and insurances?
Do you have written terms and conditions that protect you? Always make sure they are in writing, any variation – put it in writing – and consider your position with any client who will not sign your terms.
If you have any intellectual property you need to protect it.
Make sure you comply with employment law and have written agreements of employment.
If you are renting premises this may be your biggest overhead but do you understand your lease, does it have a break clause, repair requirements, upward only rent reviews? Negotiate it properly at the start and avoid being caught out.
Comply with Rules, Regulations and Statutory Duties
GDPR is the big new one, you need to be compliant, do you have a policy and policy statement? But also your Health and Safety requirements, again, do you have your policy and statements?
Associated with this is tax laws. Are your employees on PAYE, have you VAT registered, should you go with director’s dividends or a salaried director? Make sure you have a professional to take care of your tax issues.
The Biggest Mistake
Thinking you can do it later is the single biggest mistake. Anxiety and costly professional fees are going to be the minimum if you fail to address matters at the start. The worst is there is no practicable solution, such as the fine too high, the legal costs too much and your business has to die. We at Marlborough Law want you to avoid that and do it properly. Please feel free to call us to see how we can help.