Company Formations & Start-ups

Starting up your own business is an exciting time, giving you the opportunity to work for yourself on a project you are passionate about.

Starting a Business: Legal Considerations

Posted on 20/11/2017 by Janette Allen Team

Starting up your own business is an exciting time, giving you the opportunity to work for yourself on a project you are passionate about. However, it’s easy to get swept up in the fun side of launching a business and forget about the legalities, which are also essential to follow.

We’ve listed a few key legal considerations that you need to decide when starting up your own business.

Decide on your legal structure:

Sole trader

When you have started working for yourself, you are a self-employed sole trader, even if you have not yet informed HMRC. This legal structure means you run your business as an individual, and can keep all business profits after tax.
One potential downside of being a sole trader is that you will be personally responsible for any losses the business makes, and can be personally liable in the case of insolvency or bankruptcy.

Limited Company

A limited company is an organisation set up by you to run the business, and its finances are separate to your own personal finances. Any profits made are owned by the company after corporation tax, which can then be shared. Limited companies have members who own shares in the company – how many shares is up to you.

Limited companies are a good option sometimes as company directors will not be personally liable for any debts of the business should it go wrong. Companies can be limited in the following ways:

Limited by shares

In the case of insolvency/liquidation, shareholders responsibilities for the company’s financial debts are limited to the value of the shares they own but haven’t paid for.

Private company limited by guarantee

Directors/ shareholders financially back the company up to a specified amount in the case of the company failing.

Public limited company

The company’s shares are traded publicly on the stock exchange market.

Business partnerships

In this legal structure, you and your business partner(s) personally share responsibility for the business. All business’s profits are shared between partners, and each partner then pays tax on their share of the profits. Limited partnerships or limited liability partnerships can be set up if a partner does not want to be personally responsible for the business’s losses, should this situation occur.

Licensing

If you are starting a company in the catering or hospitality industry – such as a bakery, pub, or restaurant – you will require a license. This applies to all industries where members of the public could be at risk from your actions. You should contact your council for details on what license you need.

Staff

You will need to register as an employer with HMRC if you want to employ people, and will need to get employment insurance too. Other legal aspects to consider here are also what to pay staff (at least NMW), checking that they can legally work in the UK, and whether staff need to be enrolled on a pension scheme.

VAT Registration

You are legally obliged to become VAT registered if your business’s annual turnover exceeds £82,000 (the registration threshold for 2014/15). Although HMRC are more lenient on new businesses, there can still be severe penalties if you fail to register your business.

Accountants

Hiring a trusted accountancy firm can help enormously with managing finances and growth within the business. We can be responsible for providing financial advice for your start-up, and help you ensure you are not spending unnecessarily.
Janette Allen are committed to providing expert accountancy services and advice, helping your business operate as tax-efficiently as possible. For more information, or to arrange a free consultation, please feel free to contact us today, and we’ll be happy to help.