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Do you work in recruitment? Are you the enterprising sort that has always wanted to be your own boss? Starting your own recruitment business may be the move for you, provided you have an established professional network and a few years of experience in the industry. This article will cover some legal and commercial factors you may want to consider before starting your journey.
Business Considerations
Choosing a Business Structure
You can think of a business structure as the legal framework your business will operate under. The four most common business structures are:
- sole-trader;
- general partnership;
- limited company; and
- limited liability partnership (LLP).
There are various advantages and disadvantages of each business structure. The structure best for your business depends on certain factors, including:
- what the sector(s) you intend to recruit in;
- whether you will employ others; and
- what kinds of clients you will work with.
For some sectors, especially those in the professional service industries (law, accounting, finance, and consulting), your clients expect to contract with incorporated businesses. However, if you are not incorporated, you may have to jump through more hoops to secure contracts.
Additionally, if you intend to employ others, it is generally easier to trade as an incorporated business. Finally, it is usually easier to raise financing through a limited company.
Sole Trader vs Incorporated Company
From a legal perspective, be aware of the implications of being a sole trader versus trading through an incorporated company.
As a sole trader or partner in a general partnership, there is no distinction between your personal assets and your business’ assets. Suppose you accidentally revealed sensitive client information and the client pursues an action in Court. Then, the Courts might use your personal assets to cover the cost of any damages awarded by a court.
On the other hand, if you trade through a company (or, less likely, an LLP), there is a legal barrier between your personal and business assets. Absent fraud or certain other forms of misconduct, the Courts can only use the business assets to settle a claim or pay any debt.
Developing a Business Plan
As an industry, recruitment is comparatively “asset-light”. Hence, you need a few assets upfront to start your recruitment business because you are selling a service rather than a product.
Additionally, to date, it is mostly an unregulated market (except for regulations surrounding data and privacy rights), which means you do not need any certification to start trading.
When developing your business plan, consider the following questions:
- How will you finance the up-front costs of the business?
- Will you start your business on your own or work with others? If the latter, what will be your relationship? Partners? Equal shareholders?
- How will you distinguish your business from your competitors?
- How will you build a brand?
- What are your IT and software needs, particularly how will you build your database?
- Do you intend to have an office or work from home?
- How will you build, develop, and market your brand?
- To what extent will you need to hire employees?
Financing Considerations
Your financing plans are a crucial element of your business plan and should be considered. However, if you intend to start your business solo, you only need to provide for yourself. You may not need to consider raising outside finances if you have sufficient savings. For example, if you have a large book of clients and an established position in the market, you most likely will not need to raise funds.
On the other hand, you might intend to make several upfront hires and want to start your business with a sophisticated database and IT system. In that case, you may need to raise additional money from outside sources.
Some general matters to consider include:
- if you will seek investments from outside investors up-front, and if so, how;
- what you forecast your first-year cash flow to be; and
- what a break-even scenario analysis looks like.
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Regulatory and Legal Considerations
Recruitment itself remains largely unregulated. Therefore, you do not need a practising certificate or any licensing to hold yourself out as a recruitment consultant.
However, there are certain legal and regulatory obligations that you may wish to familiarise yourself with.
GDPR
You will be dealing with the personal information of your candidates. Therefore, there are a couple of fundamental principles in the General Data Protection Regulation (GDPR) to bear in mind.
GDPR rules govern what you can and cannot do with personal data. Personal data is any information that relates to an identifiable individual. For example, if you can use the information to determine who the individual is, the information is personal data.
If you process personal data through your business, some key obligations include:
- to only use the data for its intended purpose;
- to never keep data for longer than necessary; and
- to only distribute the data to third parties with the individual’s consent.
As a recruiter, the information contained in your databases will invariably constitute personal data. You will need to register with the ICO and pay a licensing fee.
Non-Competes
Many upstart recruitment agencies are founded by those with previous experience in other recruitment firms. Therefore, be wary of employment contracts from previous employers. Poaching clients from your previous employer may be considered a breach of your employment contract. Specifically, if there is a non-compete clause and you breach it, your previous employer can claim against you.
Negotiating Contracts
Any agreement you enter into with a client will constitute a contract. The terms of the contract are legally binding, and it is therefore in your interest to negotiate the terms in your favour. In practice, your clients may require you to contract on their written terms.
Insurance
The law does not require recruitment firms to obtain indemnity insurance, which protects you if you are sued for negligence. However, it is always prudent to have a policy in place. Speak to an insurance broker for more information.
Key Takeaways
You should ensure that you have a well-organised business plan in place before you take steps to launch your recruitment business. This business plan includes determining how you will fund your business. You might wish to familiarise yourself with your obligations under the GDPR regime. Check that you are not breaching any obligations arising from your previous employment, especially those related to non-compete clauses in your previous employment contract.
If you need help with your start-up business, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Recruitment does not require many tangible assets to get your business on the ground (aside from database software and an IT system). Nor do you need any qualifications. Your most valuable assets will be your connections and clients. If you are well-established in the market and have some savings, this might be all you need.
The recruitment industry is not regulated in England & Wales. However, you will doubtlessly process personal data, which will make you subject to the GDPR regime.
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