Taking the step of starting your own business is an exciting time. While you likely have a great idea or product, it's important to ensure you lay a solid legal and operational foundation to avoid unnecessary challenges down the line.

Starting a business involves more than just opening the doors and getting to work—there are key legal and financial steps you should take to set your business up for success.

We work closely with entrepreneurs and startups, here’s some essential advice on how to get your new venture off to the best possible start.

Choose the right business structure

One of the first legal decisions you’ll need to make is selecting the right business structure. This choice will have implications for your tax liabilities, personal liability, and ability to raise funding. There are a number of options:

• Sole trader: simple to set up, but you’re personally liable for any debts or liabilities.
• Partnership: a good option if you’re starting the business with others, but, like a sole trader, you’ll be personally liable for business debts.
• Limited company: provides limited liability, meaning your personal assets are protected. It can also be more tax-efficient, but requires more administrative work and compliance with reporting obligations.
• Limited liability partnership (LLP): similar to a partnership but provides limited liability for partners. It’s common in professional service businesses.

If you’re unsure which structure is best for your business, speak with a solicitor or accountant to evaluate the pros and cons based on your specific circumstances.

Register your business

Once you’ve decided on a structure, you’ll need to register your business. The process differs depending on the type of entity you choose:

• Sole trader: register with HMRC for self-assessment.
• Limited company: register with Companies House and ensure you comply with ongoing filing and reporting requirements, such as filing annual returns and financial statements.
• Partnership or LLP: register the partnership with HMRC, and LLPs must also be registered with Companies House.

Also, check if you need to register for VAT. If your turnover exceeds the VAT threshold (£85,000 as of 2024), you’re legally required to register, though you can voluntarily do so at any time.

Protect your business with contracts

Every business relies on contracts to operate effectively, whether with clients, suppliers, employees, or third-party partners. Properly drafted contracts can protect you from disputes and legal risks. Here are some contracts to consider:

• Client contracts (often referred to as terms and conditions): ensure clear terms for payment, delivery of goods or services, and dispute resolution. This helps to avoid misunderstandings that could damage your business relationships.
• Supplier agreements: have formal agreements in place with suppliers that set out expectations for pricing, delivery times, and quality of goods.
• Employment contracts: if you’re hiring staff, make sure you comply with employment law by providing written employment contracts that outline the terms of employment, including job duties, pay, and termination procedures.
• Shareholder agreements: if you’re starting a company with others, a shareholder agreement can outline how decisions will be made, how profits will be shared, and what happens if a partner wants to leave the business.

Custom contracts that suit your business’s specific needs are crucial for reducing risk and preventing disputes. Having a solicitor review or draft these agreements is a sound investment in your business's future.

Protect your intellectual property

Your brand, logo, designs, and even unique processes may be valuable assets. Protecting your intellectual property (IP) from the beginning will help prevent others from using or copying your ideas.

• Trademarks: register your business name, logo, or slogan to prevent competitors from using them. You can register a trademark with the Intellectual Property Office (IPO).
• Patents: if your business is built around a new invention or unique process, consider applying for a patent. This gives you exclusive rights to exploit the invention for a set period.
• Copyright: automatically protects original works such as written material, designs, music, or software. Ensure that you own the copyright for any content you create or commission for your business.

Failing to secure IP protection early on can lead to costly legal disputes and potentially damage your business’s reputation and financial standing.

Comply with regulations

Depending on your industry, there may be specific legal regulations you need to comply with. For example:

• Licences and permits: certain businesses, like those in food, health care, or retail, may need special licenses. Check with your local authority or industry body to see what’s required.
• Health and safety: ensure that you comply with health and safety regulations, especially if you employ staff or operate in a potentially hazardous environment.
• Data protection: if you collect or process personal data, you need to comply with the General Data Protection Regulation (GDPR). This includes having a privacy policy and ensuring the security of the data you collect.

Understanding and complying with relevant regulations from the outset can save you from penalties and legal action.

Secure funding and financial management

One of the biggest challenges for new businesses is securing the funding needed to start and grow. Depending on your business model, consider the following options:

• Personal savings or loan: many startups are self-funded, but be sure to plan how you’ll support both the business and your personal financial needs.
• Bank loans: traditional bank loans or government-backed loans can provide the capital you need, but ensure you understand the repayment terms and any collateral required.
• Venture capital or angel investors: if you’re looking for significant investment, venture capital or angel investors might be an option, but they often require equity in your business.

Make sure to set up a proper financial management system from the beginning. Open a business bank account, keep detailed records, and consider using accounting software or hiring an accountant to manage your finances. Staying on top of cash flow, taxes, and expenses will help you avoid financial troubles later on.

Insurance – don’t overlook it

Adequate insurance coverage is essential to protect your business from unexpected risks. Some of the most common types of insurance include:

• Public liability insurance: covers you if someone is injured on your premises or as a result of your business activities.
• Professional indemnity insurance: protects you from claims made by clients for professional mistakes or negligence.
• Employer’s liability insurance: if you have employees, you’re legally required to have this insurance, which covers injury or illness at work.
• Business interruption insurance: covers loss of income if your business is temporarily unable to operate due to unforeseen events, such as a fire or flood.

Ensure you have the right coverage tailored to your business type and risks.

Create a business plan

A well-thought-out business plan is not just a formality; it’s a road map that can help guide your decision-making as your business grows. It will also be invaluable if you’re seeking funding, as investors or lenders will want to see evidence of your strategic thinking.

• Executive summary: outline what your business does, its goals, and how you plan to achieve them.
• Market research: know your target market, competitors, and the industry landscape.
• Marketing strategy: explain how you plan to attract and retain customers.
• Financial projections: include cash flow forecasts, profit and loss statements, and how you plan to use any investment or loans.

Top tips for new business owners

• Seek legal advice early: involving a solicitor early can save you from legal headaches later. They can guide you through everything from contracts to IP protection.
• Network and seek mentorship: join local business groups or seek out mentors who have experience in your industry. Learning from others can give you a huge advantage.
• Stay flexible: while a business plan is important, be prepared to adapt as market conditions change or new opportunities arise.
• Prioritise customer service: happy customers will be your best advocates, so prioritize customer satisfaction from the start.
• Don’t rush: take the time to get everything set up properly before you launch. Skipping legal, financial, or operational steps can lead to costly problems later.

Starting a business is an exciting but complex process. We can help simplify it for you. By taking the right legal steps and considering key issues early on, you can set your business up for long-term success. If you’re feeling overwhelmed or unsure about any of the legal aspects of your new venture, we are here to help. As solicitors experienced in advising startups, we can guide you through each step and help you navigate any challenges that arise.

If you need advice and assistance to start up your new business, feel free to contact Sarah Naylor, head of commercial and dispute sarah.naylor@switalskis.com or call 01302 320621