IN319 - Setting Up a Business in the UK: The Legal Considerations

Starting a new business is very time consuming, especially if the UK is new to you, with different rules and regulations. Dixcart Legal Limited (Dixcart Legal) can assist with your legal requirements in a seamless way (as well as providing access to tax, IT, and payroll teams if required) so that you can focus your time on building your business.  

Set out in this brief note are issues to consider when starting up a business, along with some summary information to get you started.

ISSUES TO CONSIDER BEFORE YOU SET UP A BUSINESS

  • Where do I want to sell my products/services?
  • Do I want to form an establishment in the UK or do I want to appoint a third party, such as an agent, initially?
  • What is the cost of establishing a company in the UK? 
  • If I do want to set up a business in the UK, what sort of legal structure do I require?
    • Sole Trader?
    • Partnership?
    • Limited Liability Partnership?
    • Limited Liability Company?
  • Which documents need to be in place?
  • What rules and regulations do I need to comply with?
  • Do I need to register for VAT?
  • What do I need to do before I start trading?
  • What do I need to do once I start trading?
  • Are there any tax reliefs available to me?
  • Do I need a property?   If so:-
    • How long do I want to be there?
    • Do I want to occupy it under a lease, a serviced office or licence arrangement?
    • How am I going to finance it?
    • What liabilities am I facing?
    • Which documents should be in place?
  • Do I need a registered office?
  • What name can I use for my business?
    • Are there any restrictions on the name I choose? 
    • How do I carry out a search to check the name is not already being used by another business?
  • Do I need personnel?   If so:-
    • Do I need Employees? Consultants?
    • Will employees from overseas be working in the UK?
    • How will they be paid?
    • Do I need payroll services? 
    • Do I need to think about immigration rules?
  • What level of insurance should I have in place?
  • How am I going to fund the new venture? 
    • Am I taking a loan from someone?
    • Which documents do I need to put in place? 
    • Am I giving security or personal guarantees for the loan?
    • Am I granting share options?
  • How do I protect my business in general?
    • Do I have a strategy in place for losses due to fire, flood, power shortages, strikes, snow, volcanic ash, road closures etc.?
    • What is the most valuable part of my business and how do I protect it? 
  • Do I need a website? 
    • What are cookies on a website?
    • What is data protection?
    • Who owns the website? 
    • What terms of use and privacy notices do I need?
    • Do I need a software system? 
    • Who owns the system?
  • Are any third parties such as brand consultants/advertising agents assisting me?  If so, what protection do I have and who owns what?

In short, we understand that there are a lot of issues to consider.  We set out below some summary information to get you started, as well as how we can help.

1.  What legal structures are available?

This should be one of the first things you consider.  This decision affects the tax and national insurance contribution requirements, HMRC reporting obligations, the liability attached to the business and the documents you need to have in place.

There are four widely used forms of business structure in the UK.  They are summarised in the table below.


Sole Trader

  • The business is owned and run by one individual. 
  • There is no legal distinction between the owner and the business. 
  • The sole trader takes all of the profits but also all the liabilities of the business.


Partnership

  • Two or more persons carry on business together.
  • Partners generally have unlimited liability and a partnership is not a separate legal entity. 
  • The Partnership Act 1980 governs how partnerships are run.  However, it is not recommended to leave it up to the Partnership Act.  For example, if you do not have a written partnership agreement and one of you leaves or dies, the law says the partnership will be dissolved.  We would recommend that a partnership agreement is drawn up. This agreement would include details setting out how the partnership would work, how you would each put money into the business and take it out, how important decisions would be made and what would happen in the event that one of you wants to leave, becomes ill or dies. 


Limited Liability Partnership (LLP)

  • This is a hybrid structure, between a partnership and a limited company.
  • A LLP is a separate legal entity. It is registered at Companies House and is governed by the Companies Act.
  • Members' liability is limited.
  • A LLP does not have shareholders or directors and is taxed like a partnership in that the profits are divided among the partners (members), who pay tax on their own share at a rate appropriate to their circumstances.


Limited Company
(there can of course be public limited companies whose shares are usually publically traded. However this note focuses on  private limited companies)

  • A limited company is a separate legal entity, which can be limited by shares or by guarantee. 
  • The members' (otherwise known as shareholders’) liability is limited.  In the case of shares it is limited to the amount paid (and unpaid) on the shares they hold, or, in the case of guarantee, to the amount they have agreed to contribute to the company’s assets if it is wound up.
  • A company limited by shares is most common. Shares make it easier to pass on ownership of the business and provide different ways of managing your tax affairs and possibly giving incentives to employees.
  • Companies are governed by the Companies Act 2006. Consequently there are a lot of rules to follow (there can be criminal penalties if you get it wrong).

The structure that is right for you will depend on your business. There are advantages and disadvantages to each. Dixcart Legal can assist you in making the right decision.

2.  Regulations when setting up a Business in the UK 

The choice of the legal structure will determine which regulations will apply to your business.  For example, in the case of a limited company, a number of documents and information, such as the articles, the name of the company, the names of the directors and the names of the shareholders need to be registered at Companies House.  In addition various statutory filings must be complied with and the company must create and maintain statutory books.

3.  Personnel

Do you wish to engage a consultant, an employee (the two most common engagements) or a person in some other capacity? 

An employee is an individual who works under a contract of employment, which, in turn, means that the individual agrees to serve the employer. A consultant is a self-employed individual working under a contract, who agrees to provide certain services to the employer.  The question of whether someone is an employee or a consultant is a mixed question of fact and law. 

The key issues to consider when hiring are: cost, equal opportunities/discrimination and immigration. 

The principal costs for an employer when hiring employees (other than the usual costs involved in training and setting up a new employee in the business) are the base salary, pension contributions due to auto enrolment (provided that the staging date has been reached) and employer national insurance contributions. You may also choose to provide other benefits in order to attract the appropriate talent to your business.

When recruiting you should also consider potential employment law claims to which the employee may become entitled during recruitment and during and after employment. For example, discrimination rules affect how you word a reference and the questions you can ask during recruitment.  

Employers must also observe immigration and visa requirements. The documents that need to be obtained will depend on the individual’s circumstances.  However in each case an employer must always check original documents before employing individuals to verify that they can work in the UK. 

If you are engaging an employee you must provide a statement of terms of employment within the first two months of employment.  The statement of terms of employment must contain specific information.  

The above issues are just a few of the considerations to take into account and are by no means exhaustive.

How we can help you

Dixcart Legal Limited provides legal solutions and assistance to the business community in the UK and worldwide.  We can:-

  • advise on ways to protect your business and ideas, including drafting:-
    • bonus arrangements;
    • restrictive covenants;
    • confidentiality agreements;
  • draft consultancy agreements and agency agreements;
  • draft director service agreements, contracts of employment and appropriate policies and procedures for employment;
  • draft terms and conditions to be used for your clients and suppliers;
  • form and incorporate your company, advise on the structure, prepare/amend the articles of association, draft a shareholders agreement and  advise on the legal mechanics of running a company day to day, draft and advise on a partnership or LLP agreement, form and incorporate a LLP and also provide company secretarial services;
  • assist with the purchase or sale of property and associated matters, including  advising on:
    • change of use of a property;
    • contracts;
    • dilapidations claims;
    • landlord and tenant issues;
    • leases;
    • lease renewals; 
    • licences;
    • mortgage documentation;
    • rent reviews;
    • terminations, sub-leases etc.

Dixcart Legal can also offer access to other services, including:

  • management and control of companies in the UK;
  • payroll services;
  • tax;
  • assistance with detailed pension arrangements;
  • immigration issues.

Further Information

For further information about Dixcart Legal please visit the Dixcart Legal website: www.dixcartlegal.com.

If you have any questions regarding the above, or require any assistance, please do not hesitate to contact Melanie Smith.

Categories: Jurisdiction, United Kingdom, Year, 2014