During these unprecedented times, where the situation is changing on a daily basis, we are aware that individuals and business owners will have many questions and uncertainties about how these developments impact on them.
Here, through a series of Q&A with expert lawyers from across our firm, Sintons hopes to be able to answer some of those pressing questions, and provide some certainty and clarity for people who are unsure how to proceed.
We will bring you a question and answer per day for the next few weeks.
Q – I have a great idea for an online business which I want to launch despite the challenging conditions. Do you think now is still a good time to launch a business? What legal measures do I need to put in place before I launch?
A – Starting a business can be an exciting but also daunting experience. The COVID-19 pandemic has had a significant impact on businesses across the globe and understandable caution should be taken if you are considering setting up a business in the current climate. However, the pandemic has also highlighted many opportunities for online business with a virtual offering, given the constraints currently imposed by governments around the world. Ultimately the decision to set up a business in the current climate will be fact-specific and dependent upon an individual’s business and strategic plan.
When considering launching a business, there are various aspects to consider from a legal perspective:
- Type of business structure – there are various forms that your business could take, with the most common ones being:
- Sole Trader – this is the simplest form of business structure whereby a single individual owns and operates the business. There is no distinction between personal and business assets and all debts and liabilities will rest with the individual. Little is required to formalise this business structure.
- Partnerships – this business structure involves two or more persons carrying on a business with a view to profit. Under English law, a partnership can be a general partnership, a limited partnership or a limited liability partnership, all of which are distinct in terms of operation, legal formalities and liability of partners involved. A partnership agreement should be entered into to govern the relationship between the partners.
- Private Limited Company – this business structure requires the incorporation and registration of a private limited company at Companies House which creates a separate legal personality. The company can be limited by shares or by guarantee and will provide limited liability for its members. The company will need a director who will be responsible for the day to day running of the business of the company. There is a distinction between a member’s personal assets and the business assets of the company.
- Funding – a business may require funding from banks or private investors and the funder may require some form of security over certain assets of the business or rights of ownership. It is important that you understand what you are signing up to, especially if any there are any unusual or particularly onerous terms. The business may also be eligible for funding from the regional LEP or certain grant funding available to SMEs. It is important to understand all the potential sources of funding available to your particular business which will depend on sector, location and size.
- Employees – if employees will be engaged to assist in the operation of the business, there are various steps that the business needs to take as a new employer including registering with HMRC and obtaining employers’ liability insurance. Employment contracts will also be required to regulate the relationship between employer and employee as well as appropriate employment policies to cover matters such as sick leave and maternity leave.
- Premises – if you are planning to enter into a lease of commercial premises for the business, it is important that you ensure that the lease reflects the key commercial terms agreed in the head of terms such as term, renewal, break clauses, rent payments and security required. It is also important to ensure that the use of premises envisaged by the business is allowed under the terms of the lease.
- Intellectual property/brand – any intellectual property created to be used in conjunction with the business ought to be identified and protected where necessary. A brand will be a crucial element in growing and developing a business and care must be taken to protect it.
- Commercial contracts – you will likely need to contract with third parties such as suppliers or customers in the ordinary course of your business and you should consider using standard terms of purchase or supply which include adequate protections for your business in terms of limitation of liability, early termination or cancellation. You will also need to ensure that your website includes appropriate terms of use and privacy policy.
- Data Protection – where you are using personal data in your business, you will need to ensure that you have the necessary compliance documents in place and that all necessary contracts meet data protection requirements.
- Licences and/or permits- depending upon the nature of the business in question, licences and/or permits may be required in order for the business to operate (for example, premises or environmental licences).
It is crucial the right legal advice is obtained from the outset to ensure you are doing everything you can to grow and develop your business in the most efficient way possible.
* For advice on this or any other business-related matter, please contact Chloe Dinsdale, senior associate in the corporate and commercial team at Sintons, on chloe.dinsdale@sintons.co.uk or 0191 226 3652.
