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Starting a New Business: Legal Requirements

3 Mins read

While you might love to be your own boss, the thought of setting up a business can be intimidating. When working as a sole trader and with limited liability, the legal requirements might feel manageable. However, when you start employing staff it becomes a lot more intense, as you must comply with a significant amount of employment law.

While fears can prevent us from leaping into a new venture, there are steps you can take to make the journey into business straightforward and reduce your stress. Here we explore these tasks, which you can tick off one by one and feel reassured you are on the right path. 

Step One: Registering your business

Registering your business makes it legal for you to begin trading. You will need to choose the type of business that suits your needs, whether it is partnership, limited company and self-employed. Depending on which you choose, there is a process you will be expected to follow at gov.uk.

If you are going to be a freelancer and working for yourself, you will only need to register as self-employed with the HMRC. There is no need to register this business with Companies House. However, if you want to register as a limited company, you will need to make a filing. There is no time limit on when you are expected to register your business. However, if you are going to start hiring staff, you will need to do this sooner rather than later and preferably within six months of your first tax filing.

Step Two: Choose the appropriate insurances for your business

Getting insured shouldn’t be an add on. It is essential to protect yourself and your business because you would be surprised how things can go wrong. Employer’s liability insurance is a legal requirement for businesses if you employ people, even family members. The insurance covers any compensation cost that you might incur because of illness or injury while working for you.

If you are offering a service, such as legal, architecture or healthcare advice, or the like, you will also need professional indemnity insurance. Compensation may be awarded to your customers, and this insurance covers this potential cost.

Step Three: Hiring employees 

The law is clear that it is illegal to discriminate against someone for their gender, age, ethnicity, disability, etc. Therefore, you will have to follow appropriate procedures during the recruitment process. As there are different stages to the hiring processes, and each one can offer an opportunity for mistakes, you will need to understand discrimination law.

The starting point is the job description, which should be specific about the skills and experience required. You should also advertise the position widely and interview based on the candidates’ abilities concerning the job spec. When you interview, you need to be careful to ask questions that are perceived as lawful; for instance, asking if someone is planning to start a family is considered discriminatory.

Step Four: Data Laws

The UK’s General Data Protection Regulation (UK GDPR) is not just an issue for big corporations. Whatever your size of the business, you have a duty to manage data within the law. You will need a straightforward Privacy Policy in place that is both accessible and up to date so that all staff, customers, and clients are aware of how personal data is stored, for what purpose, and how long it will be kept. Not only does this relate to the people who sign up to your website or provide information when making an order, but all the staff you choose to hire.

Do I need to hire a solicitor?

Starting a business can be done without the help of a solicitor. There is no law to say you need to hire their services, and when beginning as a freelancer there is little need. As a sole trader, the setup is quite simple, and the duties are basic and manageable. The only requirement is that a sole trader registers for self-assessment and then file the tax returns at the end of a financial year. The deadline is the 31st of January each year.

Equally, if you are setting up a limited company with just one shareholder, you can set this up by filling in a form online. Alternatively, you can use a company formation agent who can set this up for you within a matter of hours. You will need to provide details of your registered office, details of the shareholder and your business name.

When there is more than one shareholder, then you would be advised to seek the support of a solicitor. The solicitor can prepare the filing process for Companies House and ask all those questions you might not have thought about. For instance, they will ask you to consider what happens if one of the shareholders sells those shares; they will want to know what happens if there is a disagreement between shareholders and organize the potential licenses you might need to permit you to trade.  

In all, be careful with your business’ beginning. If you take the time to consider all of these legal issues and aspects then you might avoid a potential problem further down the road, and save yourself both money and time. 

Colin Bates is the Director of Mackenzie and Dorman, a leading solicitors based in Belfast, Northern Ireland. 

Legal structure stock image by Marlon Lopez MMG1 Design/Shutterstock

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