One of the areas that puts people off starting a business is a lack of understanding about the legal aspects involved, and implications of being self employed. I was pleased that my course offered help in this area, through a workshop with Philip Parkinson of McCombie & Co, and it seems it’s not as daunting as I thought.
During the workshop the basics of business law were discussed, and there were plenty of opportunities to ask questions specific to our circumstances. Philip covered key areas for new businesses, with my experience and views shown below, however don’t just take my word for it, always seek professional advice!
Take a look at this link of 10 top questions to ask your prospective solicitor: http://www.businesslink.gov.uk/bdotg/action/detail?r.lc=en&type=RESOURCES&itemId=1073791786&r.s=sl
So, first things first...
Company Legal Status
There are a number of legal structures available to companies, options include:
- Sole Trader
- Conventional Partnership/ Limited Liability Partnership
- Joint Venture
- Limited company
A decision needs to be made for the legal structure for the following reasons:
• Taxation
• Regulatory requirements
• Annual costs
• Accounting requirements/Publication of accounts
Once you have made this decision, as a sole trader/partnership you have to inform HMRC (Tax and NI) within 3 months and the VAT office. As a limited company you have to inform Companies House (for registration, usually £20), HMRC and VAT office.
From speaking to Phil, it was clear that The Ethnic Diet Association should operate under Limited company status, as this will protect both ELHFA (the joint venture partner) and me from having personal assets stripped if bad debt is accrued.
The formalised Limited status should also help to gain valuable credibility with the large corporate and government organisations we are targeting as customers.
The downside of a Limited company is that we have to adhere to stricter accounting controls, make our accounts public and therefore pay for an accountant (c£500/yr).
Trading Name
Obviously this is a key decision as a company’s name gives that all important first impression. Phil raised some good considerations:
• You can’t use an existing name – this is checked through Companies House website, www.companieshouse.gov.uk/
• Offensive words and/or names implying a connection with the government cannot be used e.g. a mint making company cannot be called ‘The Royal Mint’.
• Acronyms – Remember to check the acronym of your company, you do not want to make the mistake of spelling ‘ASS’ or similar when shortened. The Ethnic Diet Association becomes TEDA, which is ‘snappy’ and memorable.
Group discussion suggested that you should check if the online domain name you have chosen is available to allow a website to be created at any point. There are many sites use can search this, such as www.123reg.co.uk.
Basic legal issues
• Will you need confidentiality agreements with 3rd parties?
• Be aware of competitors’ trademarks and patents and do not infringe these
• Ensure your company letterhead provides full company name (if a Limited company, registration number and origin country is also included)
• VAT details if applicable
It is also highly recommended to include these details on emails. For more information I would recommend: http://www.lawsociety.org.uk/choosingandusing/helpyourbusiness/foryourbusiness.law
Terms of Business
Clearly defining your role and relevant conditions is essential to determine:
• How much and when you get paid
• What your company and customer obligations are
• What happens in the case of a dispute
Whilst preparing terms of business, make every effort to limit your liability, ultimately giving you control of the contract.
For TEDA, the Terms of business has to include the obligation of the manufacturers to deliver the products to us on time, and for the folders, maintain our exclusive use of the bespoke design. Printers must respect copyright law and maintain the integrity of intellectual property.
Customers need to adhere to invoicing conditions to make the payments, 3rd party distributors must meet contractual agreement for retail price, promotion and other terms.
Partnerships – maintaining control
Partnerships offer unique challenges relating to decision making control, such as:
- Who will run the business?
- Who has financial control?
- Equity split, provision for the transfer of shares
- Who has the casting vote?
- How are all parties interests protected?
As TEDA is a joint venture with ELHFA, all of these details need to be considered. In my circumstance, ELHFA will be a ‘silent partner’, given their lack of resources and financial position. This means we have agreed that I have the casting vote, with a 51% share of the company, full day to day decision making authority within the remit discussed by the Board.
Intellectual Property Issues
According to Oddie (1999), the ‘digital age’ is increasing the breach of intellectual property laws, and is therefore an important consideration for the intellectual property that TEDA owns. Issues covered in the workshop were:
• Trademarks
• Copyright
• Patents
• Passing off
Although copyright is created whenever you produce an original piece of work, this does not protect the idea itself and is difficult to enforce. For a small business like mine, it is not feasible to pursue claims through the courts for financial reasons. This is obviously a major concern as the VTA products could easily be photocopied or replicated, especially if a digital version was launched in the future.
Phil suggested attempting to get a patent for the idea behind our VTAs, done through www.patent.gov.uk, but warned it is unlikely and costly though would be the best idea for the business.
What Can Go Wrong?
Phil stressed the importance of being prepared for disputes, and making sure you have the proper protection in place. This should avoid disputes going to court, and petty arguments turning into full scale litigation which could destroy your company and bank account!
More legal considerations
• Premises – I will be using ELFHA’s existing offices and the business incubator’s facilities
• Employees – Obviously completing necessary tax, NI and health & safety procedures is the main consideration. However, in the initial stages I shall be operating as the only employee of The Ethnic Diet Association. When I need employees I shall follow the steps on http:
//www.businesslink.gov.uk/bdotg/action/layer?r.l1=1073858805&topicId=1073858787&r.lc=en&r.s=m.
• Branding – As I have discussed, I want to build TEDA as a point of authority for ethnic diet advice, and Gonzalez & Gil (2008) states the importance of protecting via trademarks and copyrights.
Conclusion
This workshop was an eye opener into the legal aspects of business, but explained them in an easy to follow way, although you should always seek specialist advice. From the workshop information I have made a checklist which you could copy and use for your own business to ensure you meet meet key legal objectives.
Recommended links:
• Disputes - www.acas.org.uk (Advisory Conciliation & Arbitration Services)
• Health & Safety – www.hse.gov.uk (Health & Safety Executive)
• Office of Fair Trading – www.oft.gov.uk
• Trademarks – www.itma.org.uk (Institute of Trademark Attorneys)
• Copyright – www.ipo.gov.uk
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