Starting A Business? 5 Costly Legal Disasters To Avoid

by | Jun 17, 2022

Starting a new business can feel overwhelming. With so many tasks demanding your attention, it can be hard to know where to focus your time. And when time gets short it’s easy to put the more boring tasks off.

But this can be a risky and expensive decision!

Not everyone is an expert in business law, but you might be surprised how important it is to get the little things like insurance, contracts and taxes right as a new business.

Get the right advice and it’ll make your life easier and protect your business from potential disasters. Fail to prepare and you could find yourself losing money, in trouble with the taxman or worse!

That’s why we’ve put together the 5 most crucial things to get right when you’re starting a business, so you know where to direct your energy from the beginning to protect your business and set yourself up for success.

1. Choose Your Business Structure Carefully

Starting out with a plan is the first and best thing you can do for your business. In your initial plan, you should decide on the most important elements such as your main goals, your overheads, marketing ideas – and importantly – your business structure.

Types of business structures include:

  • Limited Business
  • Sole Trader
  • Business Partnership

All of these options have different benefits, requirements and qualifiers, so make sure you do your research beforehand to pick the one that suits your business idea and circumstances.

Your business structure has a big impact on how your business operates and how you’ll be categorised when it comes to profits, rights, responsibilities, taxes and insurance.

For example, many startups start trading as a sole trader, thinking they’ll change to a limited company once the business grows. But they may not realise that if the business goes into insolvency that they could lose their personal assets – even their house!

However, as a limited company, not only would their personal assets be protected but they may pay a lower rate of tax too.

The right business structure will depend on your unique circumstances, and while many startups make this decision alone, it’s actually a really crucial decision to get right. Get it wrong and you could cause yourself big (and expensive!) problems in the future. So getting proper legal advice right from the start is a really smart choice.

2. Stay Out Of Trouble With The Tax Man

To say taxes can be complex is an understatement. Not only does your business structure affect the type of taxes you’ll pay, but there are also a lot of rules around how and when you file your taxes.

If you get it wrong, you could face fines and investigation by the HMRC. Of course, no new business wants to mess up their first tax submission and face those consequences!

Getting the right advice early on in your business journey can make sure you fully understand everything you need to know to maximise your profits and stay out of trouble with the taxman.

In fact, in 2007 a ‘Mr Greene’ made a series of simple mistakes that resulted in him being investigated by the HMRC, enduring an accusatory meeting with tax officials and finally having to take his case to a Tribunal to have it resolved.

Many people turn to accountants for help, but lawyers can offer a different – and very valuable- perspective when it comes to staying on the right side of the law with your taxes.

3. Employment Law & Contracts – They’re Not Just For Big Business

Will your business have employees or hold contracts? If you plan to grow your business and trade safely it’s highly likely that you’ll encounter both employment law and the need for contracts.

It’s important that you know the correct procedures to follow so that your business and the people you work with are protected legally.

Many startups and ventures have the misconception that they don’t need to follow employment law or use contracts – just because they’re small or new. This is a dangerous idea, as your business is most vulnerable at its beginning – and the law applies to every business no matter how large or small.

In one employment law horror story, an employee accused his employer of grievances and misconduct. He refused to prove these grievances in any official capacity, but upheld his right to pursue his employer at a later date.

Of course, his employer couldn’t let that dangle over his head forever, and so took the matter to court.

Surprisingly the employee did not turn up to the Tribunal despite being requested, and was subsequently dismissed by his employer. He tried to claim unfair dismissal but the courts ultimately decided in the employer’s favour. All in all, this was a long and costly ordeal for the employer, who was not at fault in any way.

For all things hiring, redundancy, workplace disability and discrimination, getting professional legal advice so you can put the right procedures in place from the start can save you from disaster in the future.

4. Intellectual Property – Is It Worth Protecting?

You’ve heard of intellectual property, but do you know how it can affect your startup?

Whatever your sector or niche, the work you do or create is your most valuable asset. It makes sense to protect that, right? Intellectual property laws essentially let you define and protect your assets so you can make more money from them in future.

Examples of intellectual property in new businesses include:

  • Trademarks and patents
  • Trade secrets
  • Commercial contracts
  • Data protection

To give you an idea of just how far intellectual property law expands, take a look at Warner Bros…

In 2011 Mike Tyson’s tattoo artist sued the massive movie maker for featuring his copyrighted tattoo design in the film’s advertising. In the end, the issue was settled outside of court, but no doubt it caused a lot of trouble for both parties.

Seek the advice of a solicitor who knows the pitfalls of intellectual property and avoid a Warner Bros. style disaster.

5. Insurance – It Might Be Dull, But It Is Important

Insurance isn’t anyone’s favourite topic, but it’s the kind of thing that if you wait until you need it, it’s too late. There are a lot of insurances you may be required or advised to have as a new business including:

Employer’s liability insurance

Employer’s liability insurance is a legal requirement in the UK, as it protects you if an employee is ill or injured.

Public liability insurance

This insurance covers you for any claims made by the public should they become injured or claim damage resulting from your business.

Property insurance

This protects the building you operate from and your assets in case they’re lost, stolen, destroyed or damaged.

Professional indemnity insurance

This covers your business against claims for negligence or mistakes. If you’re seeking corporate contracts then this is a common requirement.

There are many other insurances and it’s important to get the right ones for your situation, so seek legal advice on what you may need to keep your business safe.

Do It Right Or Risk Paying The Price…

Knowing where to begin is the key to the success of your business. So take the time to create a business structure plan and understand your tax requirements to avoid intrusive investigations and fines. The last thing your new business needs is a costly and time-consuming tax enquiry or restructuring of your business.

Be prepared. Get employment law and contracts right the first time so you don’t have to face lawsuits and legal hoops further down the line. Prioritise protecting your intellectual property and ensure you know the insurances that are vital for your startup.

The best place to start with any of these important elements is with professional legal advice. Don’t know where to turn? Concerned about the costs of legal advice?

LegalDrop can help you to find the perfect legal professional for you quickly, easily and with clear, transparent pricing. Click here to learn more…

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