The top 3 legal issues for start up business owners

Legal issues for start ups and how to address them

For Global Entrepreneurship Week 2015 (16th to 22nd November), Start Up Loans, in partnership with Launch22, hosted a free business advice panel in Liverpool. The event was for those hoping to start or develop their own business, and provided legal, cash flow and business plan support. Clive Rich, CEO of LawBite, shares answers from the night to the top legal issues for start up business owners.

1. Should I incorporate as a company or remain as a sole trader?

In some ways being a sole trader is easy. There are no registration requirements, no ongoing reporting requirements – you have sole control of the business.

However, it’s not all plain sailing. The biggest problem is that as a sole trader you are personally liable for the debts of your business. If you owe money, someone can come after your personal assets, including your house. This can be a big worry. Sole traders also generally find it hard to raise money for their business. They don’t have shares to trade with so it’s harder for an investor to ‘take a stake.’

Limited companies are a safer way to trade. If you own a limited company your maximum liability for the company’s debts is ‘limited’ to the nominal value of your shareholding.

What does shareholding mean?

Most companies are divided into shares with a small nominal or ‘par’ value of say £0.01 each. So if the company goes bust and you have 30 shares of £0.01 each, your maximum liability for any debts would be 30 pence.

Of course this peace of mind does come at a price, as the regulatory framework surrounding companies is much more complicated than that applying to sole traders.

What are my responsibilities as a limited company?

  • If you own a small company you must register with Companies House, file annual accounts, pay Corporation Tax, register Directors and notify Companies House of significant changes such as changes in your share structure or changes in your Company Articles (all limited companies must have articles of association, which set the rules company officers must follow when running their companies). Find out more about articles of association.
  • You also have responsibilities as a Director of the company. For example, you must try and make the company a success using your skills and judgement, promote the success of the company for all its shareholders and to follow the company’s rules as set out in the articles of association. You may be personally liable for failure to comply with your Director’s obligations. Find out more about the responsibilities as a Director of a limited company.

However despite these inconveniences, running a limited company is still a safer option than being a sole trader. It is also fairly straight forward to convert from being a sole trader into being a limited company.

2. Should I try and register a trademark and is it costly to do so?

If you have a trading name that is capable of being registered as a trademark then it is generally a good idea to do so.

Trademarks must be a distinctive way of describing your business in order to be capable of registration. If you just use words that are in everyday general use then normally you can’t get a trademark. The reason for this is that a trademark gives you a ‘monopoly’ in the use of that mark to describe your business. The Registrar can’t grant you a monopoly in words that everybody else uses on an everyday basis. If you make football boots, like Nike does, you can register a name like Nike (which is unique and distinctive) but not a name like ‘the football boot company’ (which is not).

In the UK the trademark registry is organised into different ‘classes.’ There are 45 ‘classes’ which represent different kinds of goods and services (e.g. Class 20 is furniture and Class 25 is clothing). You register your trademark in the classes that are relevant to your product or service.

How do I go about registering a trademark for my business?

  • The process is not expensive. It costs £170 in trademark fees for one class and £50 for each class after that. On top of this you can add the fees payable to a trademark agent or lawyer to help you draft your application and deal with any objections that are raised to your proposed registration.
  • You make your application through the Intellectual Property Office (IPO) and the process is normally quite quick. Three months would be typical for a trademark to which there are no objections. The IPO register of trademarks is public so you can inspect the register online before you start to make sure that nobody else has already registered a mark which is the same as or very similar to the one you want.
  • Once registered you have up to 10 years protection for your trading name (with further extensions payable on payment of renewal fees). During the protected period nobody can use that mark for the same class of goods without your permission, or use a similar mark with similar goods if there is a likelihood of confusion. If you spot anyone infringing your mark – even if it is accidental – you can prevent them using it.

3. How can I hire apprentices for my business?

The Government wants to encourage apprenticeships and so the Apprenticeship, Skills, Children and Learning Act 2009 creates a new ‘template’ for employers and apprentices to enter into.

Contracts of apprenticeship have traditionally involved heavier responsibilities for employers than ordinary contracts of employment. This is due to the main purpose of an apprenticeship being to provide training to the individual. Usually apprenticeship contracts have been for a fixed term of several years and are difficult to terminate early. The new template makes the apprentice subject to a ‘contract of service’ instead which is a little easier to terminate. However, an individual employed under a contract of apprenticeship is still protected against unfair dismissal and enjoys employment protection just like an employee.

  • Bear in mind that the contract of service must identify the skill, trade or occupation for which the apprentice is being trained. It must also confirm the qualifying Apprenticeship framework that the apprentice is following.
  • Also remember that apprentices are subject to payment of the National Minimum Wage (though that level is set at a slightly lower level (£3.30 per hour) for those aged 16-18 or over 19 but only in their first year of apprenticeship).

Clive Rich is the Chairman of LawBite which provides Simple Law for Small Companies through a virtual law firm.

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