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21 Oct 2020


Setting up a business – the legal considerations

In the UK, 672,890 new companies were set up in the last financial year, according to Government statistics. With the endless possibilities ahead of you, starting a new enterprise can be exciting and a great way to be your own boss but there are legal requirements for new businesses that you need to be aware of before taking the plunge.

Setting up your business

The most common types of business are as follows:.

  • Sole trader – It is simpler to set up as a sole trader, but you’re personally responsible for your business’s debts. You also have some accounting responsibilities.
  • Limited company – If you form a limited company, its finances are separate from your personal finances, but there are more reporting and management responsibilities. You will need to register the company with Companies House and let HMRC know
  • Partnership – A partnership is the simplest way for 2 or more people to run a business together. You share responsibility for your business’s debts. You also have accounting responsibilities.


Once you’ve set up your business, it’s vital to protect it just in case anything goes wrong. One of the first things you should do is get the right business insurance for your new venture. Never wait for things to go wrong before getting your business insured.

Different types of businesses will have different insurance requirements. Most businesses need public liability insurance, which protects you from claims from customers. If you have employees, or work with freelancers or volunteers, you must get employers’ liability insurance cover. It’s worth looking into specific insurance such as shop insurance to cover your contents if you’re setting up in retail, but there will be specific insurance products that are tailored for your trade.

If your business is located at home, your home insurance will not cover your business. In addition, depending on the equipment and number of visitors you have, your premiums can increase.


In the early stages of your business, you will likely encounter two types of contracts – sales and purchasing.

For sales contracts, you will need a standard document of 1-2 pages which is simple and transparent enough to be signed on the spot. It should refer to your Terms and Conditions for all the legal details but these can be covered off in a separate, more detailed document. In your sales contract, include the scope of the services or products you are being paid for and how much it will cost. Also, ensure a liability cap for the damages that you can exclude under applicable law is included.

For purchasing contracts, make sure you know exactly what you are agreeing to buy and include things like price, price changes and general conditions in the contract. Make sure that your company owns all the rights and IP of anything that other businesses or freelancers produce for you.

It is worth getting legal advice when drafting your standard sales and purchasing contracts, as well as setting out your terms and conditions.

Employing others

When hiring employees, you have legal responsibilities to your employees. You’ll need to take health and safety policies into consideration, and by law, you need to have employers’ liability insurance.

Salaries and tax responsibilities are also a big consideration when hiring employees. This will include making sure they are paid a reasonable wage, National Insurance contributions and workplace pensions for eligible staff. It is also important to consider working time, equal and fair treatment of employees and making sure, anyone you take on has the right to work in the UK.

You will need to set out clear terms and conditions of employment for each employee and strike the right balance between attractive employee conditions to draw in and retain talent, and clauses that will protect your business both during and after the employee’s employment with you.

Other things to consider

There will also be additional legal considerations to take into account, as you will need to establish the financial and decision-making power structure of your business/company. For example, in a limited company, unless you are the only director/shareholder, it may be necessary to draw up a shareholders’ agreement to avoid disputes later.

You’ll also need to make sure you understand the regulatory framework of your sector as well as the laws around data protection and intellectual property.

Depending on the complexity of your business, it is worth seeking legal advice to make sure you have everything covered.

Getting professional advice

From applying for a patent to working out what to record as business expenses, getting advice from helpful professionals who have experience in supporting new business start-ups will be key in the early stages.

We recognise that every business, whether large or small, is different and has its own specific goals and requirements.

Here at Harding Evans, we take the time to develop legal solutions that fit your individual business’ needs. We deal with a variety of topics to help you get your business off the ground including mergers and acquisitions, employment law and HR advice, and advice on commercial and contractual agreements.

If you have any questions about the legal side of setting up a new business, give our commercial team a call on 01633 244233 or email hello@hevans.com.


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