Business Law & Compliance

5 key pieces of legal advice for new businesses

5 min read

18 September 2015

What are the first legal steps you have to take when setting up a new business?

Starting a new businesses can be a really exciting time. You get to be your own boss, set your own rules and, more often than not, you’re selling a service or product that you’re passionate about.

However if you’re not careful it can also be a stressful time. Deciding to become an entrepreneur is also a big investment, both financially and personally. You may have a lot at stake, so it’s important to consider all of the legal aspects that are involved in setting up and running a business before you get started. 

Here are the five most important legal steps you should follow on the road to startup success.

1. Create a shareholder’s agreement

Even if you’re starting a business with a family member or friend, you should still consider having a shareholder’s agreement in place from the outset. Setting out the boundaries at the start of the venture will help you avoid problems and can provide valuable ownership details should any unexpected issues arise later on.

Make sure it clearly spells out each shareholder’s rights and responsibilities, as well as how profits will be distribute and when, any limits on authority and how any future departures will be dealt with. 

And as uncomfortable as it may be to talk about, also consider covering the issue of what happens to the business in the event of the death or incapacity of a shareholder. This will all help avoid any disputes later, legal or otherwise.

2. Create and register a unique trading name

Your business will need a trading name and a domain name. Do your research carefully first to ensure you’re not infringing on anyone else trademark. You can see whether a trademark is registered here.

Use a domain name registrar to determine which domains have already been taken – any mistakes made at this stage can have serious consequences for your business later on. Once you’ve decided on the name and domain you are going to use; protect it.

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3. Write your terms and conditions

Even if you’re doing business with friends or business associates, you’ll need to get an agreed set of standard terms and conditions of business written up to give your company the amount of protection it needs. 

Make sure these have been signed or agreed by your staff and customers, and get them checked regularly by a legal expert because the law evolves quickly.

4.  Think about the structure of the business

Get the structure of the business right from the start and make sure it provides you with the legal protection and tax advantage you need. Don’t make the common startup mistake of assuming that a limited company is the only trading model available. You could consider being a sole trader, a partnership or a limited liability partnership instead.

If you need to, get some advice on the pros and cons of each model and which one is right for you in your circumstances. Also, be sure to review this decision as the business grows. The most appropriate structure for your business may change later down the line. Use this resource to help you understand the difference between different trading models.

5. Undertake employment properly

At some point, as your business grows, you’re likely to need to take on employees. When you reach that stage, do it properly: draw up written contracts which clearly define roles, expectations and mutual responsibilities for each new staff member and keep counter signed copies safe.

It’s not uncommon for a startup to initially start out by employing friends. This can be useful at the start but if things go wrong, it can be surprising how quickly a friendship can disintegrate, so make sure the business is protected.

Establishing your business in the marketplace if vital, so with a million things to do as a business owner, the idea of adding legal considerations on to your list may seem daunting.

However these considerations won’t take long to implement – try to set a few hours aside early on to ensure you have these important considerations in place from the start.

Marie Dancer is a managing partner at Richard Nelson LLP.