Table of Contents
Starting a new business is an exciting endeavour. However, it is vital to recognise that the success of your business hinges not only on innovation but on having a firm grasp of legal considerations. Disputes can have financial, reputation and legal consequences. Unfortunately, these issues can hugely impact the course of your new business venture. This article will highlight some of the common legal issues facing new businesses.
1. Choosing the Right Business Structure
When starting a new business, you must invest in substantial planning and preparation in choosing the appropriate business structure. An essential part of your business plan is establishing the legal business structure you intend to use.
In the UK, businesses typically adopt one of four structures. These structures are:
- sole trader;
- general partnership;
- limited liability partnership; and
- limited company.
There are legal and tax implications tied to the business structure you choose. The following table outlines the differences between each one.
Business Structures
| Structure | Practical Implications |
| Sole Trader | Registering with HMRC as a sole trader means that you work for yourself. You will pay income tax and national insurance contributions through self-assessment. |
| Business Partnership | A business partnership is an arrangement where one or more individuals come together as business partners. Each partner is responsible for paying tax on their share of the business. To establish a business partnership, you will not need to register with Companies House as you are not establishing a company. You will, however, need to register with HMRC. |
| Limited Liability Partnership | Registering a limited liability partnership (LLP) with Companies House means your business is a separate legal entity to you and your fellow partners. The LLP model protects its members’ assets, limiting their liability to however much they have invested in the business and any personal guarantees they may have given when raising loans. Similar to a business partnership, one or more individuals come together as partners. However, this structure is distinct from a business partnership because the business has its own legal personality. An LLP can own assets and can also initiate and defend legal action. Partners have joint but limited liability. As in an ordinary partnership, the members’ profit share is taxed as personal income. LLPs must also register at Companies House. Additionally, a members’ agreement should state the profit share each member receives. |
| Limited Company | A limited company establishes a business as a separate legal entity. In contrast to the LLP structure, partner liability depends on their investment level. You must also register with Companies House to opt for the limited company structure. Note that the liability of shareholders depends on their investment level. However, directors may have personal liability in certain circumstances as they have directors’ duties to comply with. |
2. Intellectual Property Protection
Your new business’s image, products, and services define its distinctiveness in the market. Essentially, these elements form the core of your business’s significance. Safeguarding and controlling these assets protects your brand and secures your business’s value and competitiveness in the market.
Protecting intellectual property rights such as trademarks and patents can be vital for your new businesses. Registering your trademarks and patents can prevent others from using your company’s ideas, branding, or products without permission. Establishing intellectual property rights shields your unique image and concepts from imitation and infringement.
LegalVision’s Startup Manual is essential reading material for any startup founder looking to launch and grow a successful startup.
Call 0808 196 8584 for urgent assistance.
Otherwise, complete this form and we will contact you within one business day.
3. Contractual Disputes
Small businesses use a variety of contracts and agreements in their daily operations. Your business will enter various arrangements with suppliers, consumers, and employees. The following table explores the contractual relationships the business may enter into.
| Contract Type | Explanation |
| Employment Contracts | Employment contracts establish the terms and conditions of employment. They include aspects such as: + job responsibilities; + pay; and + termination conditions. Well-crafted employment contracts can prevent misunderstandings and help protect your business from legal disputes. |
| Partnership Agreements | If you choose to structure your business as a partnership, you will need a partnership agreement. This legal document specifies your roles, responsibilities, and how you will distribute profits and losses. A well-drafted partnership agreement can prevent conflicts and provide a transparent decision-making and dispute-resolution roadmap. |
| Supplier Contracts | Business owners rely on various suppliers to provide consumers with goods and services. Vendor contracts establish the terms of your business relationship. Within these contracts, you can specify: + pricing; + quality standards; + delivery schedules; and + liability. |
| Customer Agreements | Whether selling products or issuing services, you may require customer agreements to establish a contractual relationship between your business and customers. Within these agreements, you can outline aspects such as the terms of the sale and warranty conditions. Clear customer contracts can build trust and protect your business from legal liabilities. |
Key Takeaways
Ultimately, understanding key legal issues associated with new businesses can help you avoid unnecessary legal liabilities and safeguard your business interests. Accordingly, choosing the proper business structure, protecting intellectual property, and adequately drafting contracts is important to avoid disputes. By addressing these three aspects, you can safeguard your business interests and lay a strong foundation for your business in the competitive business landscape.
If you need help setting up your new business, our experienced startup 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 today on 0808 196 8584 or visit our membership page.
We appreciate your feedback – your submission has been successfully received.
