Top five legal considerations when creating your start-up
New Year. New Start. New business — what’s your plan? There are lots of things to think about at this exciting time — creating your business is just one of them and should not be overlooked in your early stages.
Many founders fail to realise just how important creating your business in the right legal framework is. It is easy to shortcut or overlook this part, especially when there are so many other things going on (which may feel a little more exciting!). Think back to Facebook when a delay in paperwork resulted in Saverin’s share being reduced from 30% to 5% of the company following a complicated ownership dispute. Having your legal documents in place from day one could potentially save you much time and effort in the long run!
To help get your housekeeping in order, we have compiled a list of the top five legal considerations when creating your business.
(1) Who are you?
Your name can be both an exciting (and agonising!) decision. It might seem obvious, but your name can’t be offensive and some words require permission to be used.
Key points to remember here are:-
* Your ‘business name’ is your trading name.
* Your company name is the name you register with Companies House.
* Your website name (which requires separate registration with a domain registration provider) can be the same as the above or different.
Coming up with something original (it can’t be the same as or even too similar to another registered company’s name otherwise someone might make a complaint), non-offensive and meaningful can take time!
If you choose to incorporate your business, you will need to choose a Standard Industrial Classification (SIC) code to describe what your company does. Be clear of your purpose and who you are. You can pick from a very long list that covers everything from mining to manufacturing, education to entertainment, to transport to technology so there’s something for everyone! You will also need to clarify your business structure, i.e. are you going to operate as a sole trader, a business partnership, a private limited company or a limited liability partnership? The rest of the article assumes that you have chosen to operate as a company.
(2) Where are you based?
This must be a physical location. You’ll have to choose a registered address for your business so that Companies House and other important people can reach you with official communications about your company. There aren’t too many restrictions — only that it must be a physical address in the same country as your company is registered and remember that the address will be publicly available online.
(3) Who’s the boss?
Your business must have at least one director who is legally responsible for running the company. This job includes following the rules regulating companies, ensuring accounts and reports are properly prepared and filed on time and paying corporation tax. Be warned — this role cannot be taken too lightly! Directors may be fined, prosecuted or disqualified if they don’t meet their responsibilities, so think carefully about who you appoint. Private limited companies in the UK don’t actually have to have a company secretary, but sometimes it’s helpful to have one to assist with some of the directors’ duties.
(4) How is the company owned?
Shareholders are the people who own the company and get particular rights to voting and agreeing on exciting and important changes like the company’s business — they can even get rid of the directors.
When you set up the company, you’ll need to submit a ‘statement of capital’ which includes the total number of shares and the names of all the people who own them. You can have different types of shares with different ‘particulars’ depending on what rights you want people to have.
(5) How will you run your company
You’ll need some written rules about how the company is run — called ‘articles of association’, and agreed by the directors and shareholders. But don’t worry about having to draft a complex document — lots of companies use the standard model articles, which can always be amended in the future. Once you have everything you need to set up your company, you’ll need to decide whether you want to pay someone to help you with the process or if you’re comfortable doing it yourself.
If you decide to do this yourself, your options are:
Online — if you’ve opted for standard model articles of association then you can register online for just £12.
Pen and paper — you can fill out a form IN01 and post it to Companies House for a fee of £40 (or £100 if you’re in a rush and need your company on the same day!).
Once your company is registered, you’ll receive a ‘certificate of incorporation’ confirming you legally exist and giving you a unique company number. Congratulations on your start-up!
Trowers start-up team have produced a series of fact sheets to help start-ups, click here to access our online resources.
Like and share this post to help other start-ups!