Starting a new business is exciting. Most entrepreneurs strive to take something they’re passionate about and set up a business around that. Those who are successful in building a business that meets with their values and fuels their passions will be one of the lucky few for whom working no longer feels like work. Yet, starting a business is also scary. It takes a great deal of self-belief, determination and they’ll be a lot to learn, including how to set up a business. Unless you’re blessed with a sizable amount of start-up capital, you’ll probably be faced with wearing a lot of different hats – accountant, marketing manager, office manager, HR manager and sales manager, to name a few. Apart from which, you’ll need to ensure your business complies with all legal requirements. It can be overwhelming.
That’s why LegalDrop has provided you with this guide for start-ups. Our step-by-step guide will help you through how to set up a business and get your company operational.
To Set Up A Business You Should:
● Register Your Business
● Register Your Domain Name
● Secure Insurance
● Data Protection
● Terms and Conditions
● Business Bank Account
● Patent Applications, Licenses and Permits
Access your FREE Business Checklist
Legal Structures For Start-Ups
How you structure your business will depend upon your aspirations. There are three options for how to set up a business and each comes with advantages, disadvantages and certain legal requirements
Sole Traders are self-employed and responsible for paying their own taxes through Self Assessment. After which you may keep your business profits and opt to pay National Insurance (Class 2). It is important to recognise that becoming a sole trader leaves no legal distinction between yourself and your business, meaning you are personally responsible for all business profits but also any business debts.
How To Set Up As A Sole Trader
If you have decided to set up as a sole trader then you’ve chosen a reasonably straightforward path. First, you will need to head to Gov.UK and register as self-employed which is free of charge and a quick process. This will take you through registering for Self Assessment which is how you will submit your yearly tax returns when you are set up as a sole trader. Self Assessment tax returns and payment of tax is due by January 31st each year, following the year your business was launched.
Setting up a limited company means registering with Companies House. To set up a business as a limited company offers some protection personally as Directors are only responsible for debts amounting to their investment. Directors may be paid a salary and/or opt to be paid in dividends. Limited companies are a good option for those planning to employ staff, secure investment and who may have, or hope to acquire, shareholders. The downside of setting up a limited company is increased paperwork. Details of your business, including Directors and profits, will be available publically. Although there is no legal requirement, most limited company owners opt to secure the services of an accountant as you will be required to pay corporation tax and keep more detailed financial records.
How To Set Up A Limited Company
To set up a limited company you will need to register your business with Companies House. Setting up a business with Companies House will register you for Corporation Tax.
Arguably, Companies House are not as persistent as the HMRC are in reminding you of when tax returns are due, but they will be quick to fine you for missed deadlines. So, ensure your business address is registered to the best place for you to receive postal communications. Registering with Companies House currently costs £12 and you will need some key pieces of personal information for all shareholders.
No shareholders’ agreement is required when registering a limited company, however, it is advised, especially for companies with multiple directors and/or shareholders. A shareholders’ agreement is a contract that details share value, share ownership, company structure and running of the business, so a robust shareholders’ agreement can provide protection against future conflict. Although you may produce your own shareholders’ agreement, the right lawyer may be better placed to advise on points of consideration. LegalDrop offer shareholders’ agreement services from as little as £900. Find out more here.
General Business Partnership
For those with a trusted business partner and who are not wishing to set up a limited company, a General Business Partnership may be the best option. You will operate much the same as sole traders, sharing business profits, expenses and responsibilities. Both parties will be self-employed and, at the end of the tax year, you will each complete your Self Assessment as sole traders. See above for how to register as a sole trader
Entering into a General Business Partnership is an informal arrangement. However, you may wish to protect yourselves by securing a General Partnership Contract in order to define your roles, responsibilities and to lay out terms for if one of you wishes to dissolve the partnership.
Checklist For How To Set Up A Business
When setting up a business, there can be an overload of information, not all of which may apply to you and can be overwhelming. Here, we will talk you through only what most companies need to know in their first few weeks and what is necessary to get you up and running.
Registering Your Business
Whether you’re operating as a sole trader or establishing a limited company, you will need to register either as self-employed or register with Companies House as you will be required to pay income or corporation tax. Please see the above sections on how to set up a limited company and how to set up as a sole trader (internal article link) for more information on registering your business.
Registering A Domain Name
When deciding on a name for your business, it’s worth checking domain name availability. You’re very likely to be discovered online and, at the very least, customers, clients and competitors may well refer to your website and check your credentials and online reputation. Buying a domain name is not usually too costly but you will have to renew it every year to maintain ownership. There are many companies to buy domain names from including 123.Reg and GoDaddy, however, if you are building your website on a platform such as WIX you may find it is simpler to buy through them so that your hosting and domain name is centralised.
Quick Tip – It may well be folk law but it has been reported that some have checked to find that a domain name is available only to see it mysteriously purchased a short time after. It is a domain version of front-running which can result in the domain name being offered up for resale at an inflated price. The best way to avoid this is to be ready to buy your domain when you’re doing your research.
The type of insurance you’ll need for your business will depend on the nature of your company. In the UK, the only insurance you are legally required to have is employers’ liability cover, which only applies if you’re hiring staff. Most businesses, however, opt to protect themselves with professional indemnity insurance. Suitable for businesses, freelancers and those otherwise self-employed, professional indemnity insurance offers protection if a client or customer makes a financial claim based on faulty goods, inadequate service or breaking of a contract that has caused them monetary loss.
Insurance may be less costly than you think and it’s worth spending time doing some research into the different options and insurance suppliers available.
If you are keeping any data whatsoever on staff, clients or even website visitors, then it’s important to learn a little about data protection. You may not be required to do anything but it is important to know and to keep up with data protection guidelines. Misuse of personal data may result in a fine and damage your business reputation so it may be worth consulting a professional data protection adviser.
Terms and Conditions
Terms and conditions are essential for almost every business and establishing your T&Cs early can save you time and money in the long run. In the early days of structuring your business, drafting terms and conditions can help you to define your rates, relationship with your customer/client, return and/or cancellation policy and intellectual property rights.
Terms and conditions should reflect the interests of both parties and be fair and reasonable. Your terms and conditions may be laid out on your website, in or on your products, on written material or, as in most cases, in a contract. However, even terms and conditions that have been signed by the client or customer can only be enforced if deemed reasonable. Therefore, it may be worth sourcing some legal advice to ensure your T&Cs are fair, robust and provide cover for you in a number of scenarios.
For instance, if you’re a freelancer and a project you’re working on is canceled, is it reasonable to invoice for the entire expected fee regardless? These are the kinds of questions LegalDrop may be able to help you with, so get in touch for a draft or review of your business terms and conditions.
Business Bank Account
Limited companies are legally required to have a business bank account. All company finances, including payroll, should be run through your business account. This is because, as a limited company, your business is considered a separate entity, financially and legally, from yourself. You may find this research by Which? useful in comparing business bank account options.
Sole traders are not legally required to keep a business account. However, many choose to do so in order to keep their business and personal finances separate. Doing so can make your Self Assessment far easier to complete.
Additional Business Licenses And Permits
Depending on your business type, you may need to acquire other licenses and permits to operate. For example, to play live or recorded music on premises you may need TheMusicLicense. You will also need both a Premises and Personal License to serve alcohol and if you’re serving food various licenses and registration with your local council may be required. If you have been gifted with a genius idea or invention then you will not require, but might want to look into patenting. Having a patent protects you from others being able to copy your idea. It can be a lengthy process so it’s best to submit an application as soon as possible. LegalDrop’s platform can help connect you with patent and trademark specialists who will be able to assist you with this.
Seek Professional Legal Advice and Guidance
The above highlights some of the key registrations, licenses and paperwork you’ll need to complete to launch your business, as well as some advice on a few things you’ll want to read up on. However, there may be additional set-up necessities depending on whether you are acquiring business premises and whether you are employing staff. So do make sure you do some sector-specific research and do consider speaking with LegalDrop vetted Legal Advisers, for personal professional advice on how to set up a business.