I am setting up a business with colleagues. What do I need to do?
The first step is to decide how you will own the business. Will you all have an equal share? Or will someone have a greater share of the business because they are perhaps putting in more money or because they will be devoting more time to the business?
Partnership? Limited Company? LLP? What should I choose?
The most suitable structure will depend on the circumstances of the business and it is worth seeking tax advice from a professional at this stage.
The most common choices are either a partnership or limited company. A partnership can be run with relative informality but, of course, you will not benefit from limited liability as you would if the business was run as a limited company. This means that you would be personally liable for the liabilities of the business.
Once you have decided on a structure that is best for your business, you will need to set out the rules that should be followed in the running of the business. If you are running a Partnership, the rules would be set out in a partnership agreement. If you are running a Limited Company the rules will be set out in the articles of association. These rules are crucial in not only setting out the day-to-day running of the business but also planning for the future. For example, it would be common for a company’s articles of association to, amongst other things, include pre-emption rights giving the remaining shareholders first right of refusal over the shares of a shareholder who wishes to sell up and leave the business. A mechanism for valuing the shares and agreeing a purchase price would also be included to minimise the risk of any disputes.
A company’s articles of association must be filed at Companies House and, as such, are public documents. You may also wish to enter into a shareholders’ agreement with your fellow shareholders setting out any further agreements between you that you wish to keep confidential, perhaps regarding business financing or long-term strategy.
The setting up of a new business is an exciting and extremely busy time. Adopting standard articles or proceeding without a written partnership agreement can seem attractive in saving time and cost in the short term. However, they are crucial documents that set out the company’s structure and rules which if agreed at the outset can avoid protracted and expensive arguments in the future and secure the stability of the business.
How often should we renew our standard terms and conditions?
There is no set rule of thumb for how often your business’s Ts&Cs should be updated. However, they should be reviewed regularly to ensure that they still conform with your business’s practice. Ultimately, your terms and conditions are relied upon whenever a customer has a problem and so they should be up to date and fully understood by all your sales staff.
The Consumer Rights Act 2015 (CRA) was the final stage of the government’s overhaul of consumer law and most of its provisions have now been in force since 1 October 2015. The CRA has sought to both consolidate and update this area of law, giving consumers clearer and better protection. Major changes have been introduced by the CRA in relation to consumer contracts for goods, services and digital content and unfair terms.
There are also a number of trigger events within your business that would warrant your Ts&Cs being updated such as a change in your product or services offering, the commencement of online sales or a change in your customer base, for example, selling to both businesses and individual consumers.
I want to involve my children in the business. Where should I start?
Getting your children involved is a big decision for any business – you might also see this as the first step towards your retirement! Due to the close relationships within a family, it is easy to overlook ensuring written agreements are in place that provide the same protections for your hard work and investment in the business that you would have if you were taking on an outside business partner.
The most common way to ensure these protections are in place is to amend the company’s articles of association – the rules governing the company, to include, amongst other things, pre-emption provisions to ensure ownership of the company remains in the family and set out the process for making crucial decisions, perhaps making certain decisions subject to your consent.
Finally, specialist advice should be sought to ensure the transfer of the business and its assets to the next generation in the most tax-efficient way.