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A Guide to Starting up a Company

Setting up your own business for the first time, whether alone or with a business partner, can be both a rewarding, but often daunting, experience. This guide outlines the most common issues which you should consider when setting up your own business for the first time.

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Business Plans

It is not uncommon for entrepreneurs to overlook the importance of business plans, both in the short and long term. A well written business plan can focus the mind and will assist you in establishing and achieving your key objectives. Most professional lenders and investors will request a comprehensive business plan to help them to assess and evaluate the merits of any potential investment; for example, they will almost certainly want to know what purposes their investment will be used for and how it is hoped this will grow the business.

Articles of Association and Shareholders’ Agreement

The articles of association of a company are its constitution and are, in essence, the rules by which it must be managed – typically they set out the rights and responsibilities of its directors and shareholders. The most commonly used articles of association by owner managed companies (incorporated after 1 October 2009) are in a standard form called the model articles; but, generally, these will be suitable only where there is a single owner manager. Where the business is to be operated by a number of owner managers, or where third party investment is made, it is likely that bespoke articles of association will be required. Generally bespoke articles of association are adopted by a company to protect the interests of its shareholders along with any investors. It is also common for bespoke articles of association to be supplemented by a shareholders’ agreement – essentially a private document in which the parties agree to take, and refrain from taking, certain actions in relation to the operation of the company and its business.

Terms and Conditions of Business

Standardised terms and conditions of business are the cornerstone of modern commerce. They give a business confidence it will have legal recourse against those it deals with; whether it is a supplier who fails to deliver goods or a customer who doesn’t pay. Your standard terms and conditions can also be used to exclude the company’s liability against certain types of claim and to limit any liability to a specified amount (e.g. the contract price). Standard terms and conditions, along with offering legal protection, also serve an important practical use by often avoiding the need for repeated lengthy negotiations and reducing the risk of certain terms being implied into the contract by law.

Employment Contracts

Ensuring your company has written employment contracts with its employees will give it legal protection against certain risks; for example employees are usually prohibited from misusing their employers’ confidential information or setting up in competition with it. These restrictions are usually drafted to apply during the course of employment and for a specified period after its termination. In many circumstances you may consider it appropriate to have and enforce these restrictions in order to protect the goodwill and business of your company.

Corporate Governance and Risk Management

Corporate governance is often viewed as a hot topic for large privately owned and listed companies; however, its importance to all businesses, large or small, cannot be overstated. To a large extent good corporate governance involves the reduction of risk to a company’s business through checks, balances and other controls. At the highest level this may consist of the preparation of interim financial accounts and management reports; whereas, going down the chain of command, there may be certain reporting structures and restrictions on an employee’s authority (e.g. not being able to enter into contracts on behalf of the company).

Records

It is important for you to ensure all necessary filings with Companies House are made, board minutes and statutory registers are kept up to date and other certain financial records are maintained. These are statutory obligations and it is important for directors to ensure they are complied with. Although often viewed as an administrative burden, maintaining these records serves a number of purposes; most importantly, any future investor or purchaser will expect to see the company’s records in good condition. Ensuring the company is properly administered from its incorporation can avoid many headaches and unnecessary costs further down the line.

Insurance

Almost all trading companies will have some form of insurance in place; typically these will include employers’ liability insurance (all employers are required to maintain a policy), public liability insurance (for injury or loss caused to the public) and professional indemnity insurance (if carrying on professional advisory work). Having appropriate insurances in place reduces the risk to your company and will give you confidence that your company has financial protection in the event anything were to go wrong.

Intellectual Property

With the unprecedented growth of internet commerce and changing consumer habits, it is now vital for businesses to have an online presence – whether for trade or for information purposes. Therefore, you should seek to register any domain names you wish to protect (or which you may want to be associated with your business) with a reputable domain registrar at the earliest opportunity. You should also consider registering your trading names and other intellectual property, if any, with the Intellectual Property Office at the earliest opportunity.

Data Protection Act

You should acquaint yourself with your obligations under the Data Protection Act 1998 and register with the Information Commissioner’s Office. It is likely, if your business processes personal data, that it will be under a legal obligation to take appropriate measures to protect the data. You can find out whether your business is required to register with the Information Commissioner’s Office by visiting their website and completing the short self-assessment.

Tax

You should instruct an accountant or tax advisor as soon as you start trading to ensure that you are properly tax registered with HMRC. However, it is often advisable to instruct an accountant before you incorporate your company, or begin trading, to ensure that it is the most tax efficient method of operating your business.

Information and Advice

For more information on how Lanyon Bowdler can help you start a business please visit our website or contact a member of the team.