1. Select the appropriate legal structure
This sounds boring as hell but choosing the right business structure can be crucial. Will you run your business as a sole trader? Do you have a business partner or partners keen on entering into a partnership? Are you planning on setting up a limited company or a limited liability partnership? The most suitable option will depend on your objectives and the most tax efficient way of achieving these. Make sure you do your homework as there is a lot of information out there. For example, incorporating a company requires more administration, but your personal assets will be protected.
2. Choose your business name carefully
Ensure that it is not the same or too similar to the name of a current business or an existing trade mark, as legal action can be taken against you to prevent you using it. If you are incorporating a company you must also avoid certain 'sensitive' words, for example those that imply association with a governmental body, or educational organisation. You can't call your business a 'university', for example. If you're not sure, you may want to get legal advice before deciding on a name.
3. How are you going to finance the business?
If you do not have the resources to self-fund, will you rely on debt or equity finance? A bank loan will undoubtedly require you to provide some security, whether it is over your company’s assets, your house or in the form of personal guarantees from you and your business partners. Equity finance may come from family and friends or an external investor, such as a business angel or a private equity firm. These funders will take a share of the ownership of your business in return for the funds and expertise they provide, so you will be risking their money as well as your own.
4. Keep proper records
No matter what form of finance you use, it is imperative that you open a separate business banking account and that you properly record your finances from day one, so either instruct the services of an accountant or ensure that you manage your own book-keeping system carefully. If you have incorporated a company, then you are required to create company books, which should be updated regularly. Particular changes to the company must also be filed at Companies House.
5. Protect your interests
Ensure that any arrangements with investors or partners are documented and that your intentions and expectations are protected. Draw up standard terms and conditions for the business which can be incorporated into any purchase and supply contracts. This will not only put you in a better negotiating position, but will also ensure that all material risks are covered. Consult your solicitor if you are unsure about the legal effect of any contracts you are entering into.
Do you need to rent or can you work from home? Depending on your business, you may be able to save time and money by setting up an office at home. If your business requires larger premises, then be careful about entering into any lease agreements, particularly those that are long-term, as these are often very difficult to terminate early. You may wish to consider serviced offices, which may be more expensive but are more flexible.
7. Research and keep up-to-date with the legal requirements of your industry
There may be specialist legislation for you to comply with, or you may be required to possess a qualification or be a member of a trade association before you can work in that field. No matter what industry you are working in, if you have formed a company or a limited liability partnership then it is important that you comply with the annual filing requirements of Companies House. You can be fined and your company struck off if you do not submit its accounts and details of its officers and ownership on time.
8. Protect intellectual property
This, of course, depends on the nature of your business. You may need a trademark registration, a patent application, registration of designs or perhaps confidentiality agreements with your business partners. The law in this area is complex and may surprise you, so it is important to be thoroughly informed. For example, an invention by your employee may not automatically be owned by you.
9. Network, network, network
Your product or service is nothing without customers. When you launch your venture, business will be generated by word of mouth, so make use of any free publicity and networking opportunities. Ensure that you have a reputation for good customer service. This will not only attract new business, but will help ensure the retention of your existing customers.
10. Promote your business online
If you are setting up a website, then hire a professional designer to ensure that it looks good and works well. Utilising social media is an effective way of promoting your brand, so consider writing a blog or creating a Facebook or Twitter account for your business.
Catherine Feechan is a partner in the corporate team of law firm Brodies LLP.