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Starting a New Business

Starting up a new business can be daunting, but wholly rewarding if done diligently.

Careful consideration must be given to all of the challenges facing new businesses, as starting a new business and developing it into a prosperous source of income will impose considerable demands and pressures on its owners.

It may be necessary for new business start-up owners to develop basic skills not only in connection with the trade or profession in which the new business intends to practise, but also administrative and managerial skills needed as the business grows and progresses.

The legal environment in which small businesses now trade in the United Kingdom is complex and contains many traps for the unwary.

Our Corporate & Commercial team here at Fisher Jones Greenwood LLP is there for all aspiring new businesses and their owners, to provide expert advice and support on a wide range of legal and commercial issues and challenges facing any new business.

We know that sound advice is important to support you in making those critical decisions concerning the form the new business start-up should take, and other issues that should be considered by all such new business start-ups.

We have substantial experience of helping individuals in connection with business start-ups and can advise you with regard to appropriate terms for partnership agreements, shareholders agreements, and all associated documentation in connection with any business start-up.

How We Can Help

If you require legal advice in relation to any corporate commercial topic or otherwise, please call and speak to one of our Solicitors in our Corporate and Commercial team on 01206 835300 or email Head of Corporate and Commercial, Ashton Carter [email protected]

Offices in Colchester, Chelmsford, Billericay, Clacton-on-Sea, Holland-on-Sea, Braintree, Sudbury and London.

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With over 40 years’ experience, Fisher Jones Greenwood is a long-established Essex Solicitors. With nine offices around Essex, Suffolk and London. Phone us on 08455 435 700 or email us and we’ll call you back to arrange a meeting with a solicitor or lawyer.

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More Information About Business Start-ups

Packages

Here at Fisher Jones Greenwood LLP, we offer bespoke fixed price legal packages specifically for new business start-ups as well as small-medium size corporate entities. These packages are designed to ensure that your business gets all the commercial legal advice it requires from the outset, with all of our packages capable of being personalised for your particular business needs.

FJG Entrepreneur

The FJG Entrepreneur Package is aimed at assisting people looking to launch a new business or who have a business that needs to be legally-secure for the future.

The package entitles you to utilise the expertise of our Corporate & Commercial team in relation to company formations, terms and conditions, employment contracts, and shareholder agreements, as well as partnership agreements, terms and conditions, and employment contracts for partnerships respectively.

The package itself is offered for a fixed fee, payable either in advance or on a monthly retainer. There are no long-term contracts, and you only pay for the services you require and use. As such, the FJG Entrepreneur Package is a terrific package to ease the financial burdens of new business start-ups and small/medium enterprises.

Utilising the package gives you the added security of having legal advice on retainer to cater to your every company/commercial need.

Company Secretarial Services

This particular package takes away the stress and pressures all new businesses and even established businesses experience, of ensuring that your company is complying with its ongoing filing requirements. Our support package relieves the burden placed on all businesses in relation to the various complicated and time-consuming administrative tasks required in operating a company.

As part of this package, for either a quarterly or monthly retainer, we will perform all of the Companies House filing requirements for your business (excluding the filing of accounts). The package includes: applying to obtain your company’s online filing access information, recording the precise dates for the filing of your company’s annual returns and all other corporate documentation for the purposes of our internal reminder system, and ensuring that these are completed and filed with Companies House before the prescribed deadline.

Compliance is necessary both to ensure the ongoing operation of your company, as well as to ensure that no fines or other financial penalties are incurred by your Company, providing you with a reassurance mechanism that your company will be expertly maintained from a corporate and administrative perspective.

FJG Employ

In addition to our general expertise and the other packages offered to all business start-ups, we also have our bespoke ‘FJG Employ’ package, that allows businesses to take the worry out of their Human Resources Management, Employment documentation, and Health and Safety compliance.

By offering a service tailored to your needs, it ensures that you only pay for the services you use. This means that entrepreneurs are free to spend more time developing and growing their businesses and less time on worrying about documentation and HR.

For more details on our FJG Employ package, please click here.

Key Factors

Key Factors in Deciding What Form Your Business Should Take

When you form a new business there are several pressing issues which you have to make decisions about. You will be looking to establish a business with the minimum of cost and in the minimum period of time. The following information may be of use when making your decision as to the type of corporate vehicle through which your business should operate:

Sole Trader/Partnerships/LLP

There are no formalities at all involved in establishing yourself as a sole trader or partnership business. If you do so without the benefit of a partnership agreement, then the business is governed by the terms of the Partnership Act 1890, and the business is created effectively automatically from day one of trading. Although the operation of the business will be surrounded by statutory requirements, compliance with these is no prerequisite to the business coming into existence.

Partnerships created in this way hold many dangers because the relationship between the partners is not regulated in any way other than by statute. Either partner can bring the business to an end at any time by giving notice of termination to the other. This can be catastrophic. If other arrangements are not agreed with regard to the continuation of the business upon service of such a notice then business assets have to be sold and the business dissolved.

One of the main purposes of a partnership agreement is to prevent this sort of scenario developing perhaps many years after the business commenced trading and when it has established a substantial value. Regulating how a partnership should be run by way of a partnership agreement is usually far more advantageous to all of the partners.

You can now have some of the benefits of trading in partnership (remaining self-employed for instance) without having to incorporate as a limited company. Limited Liability Partnerships provide the partners with limited liability and an LLP can own its own property and have its own debts. If you would like to know more about the LLP option, please ring us on 01245 584515 or email [email protected].

Limited Company

Formation of a limited company involves more detailed preparatory work, including the drafting of the company’s memorandum and articles of association which are the governing “constitution” of the company. These documents have to be formally registered with Companies House prior to the company itself being incorporated.

Directors and (if required) a secretary need to be appointed and shares in the company need to be issued. The appointment of a company secretary, however, is no longer compulsory under the new Companies Act 2006, with any Director capable of fulfilling the role without formal appointment as the secretary of the company at Companies House.

Administratively, the procedure for incorporating a company is more complex. There is a very substantial market however in “off the shelf” companies which have been pre-made by company formation agents and stockpiled for immediate use. These “white label” companies are not however suitable for everyone and you should take advice before deciding that this is the route for you.

The most important distinction between sole traders/partnerships and limited companies is the whole issue of limited liability: in other words, once incorporated, a company is a completely independent legal person and therefore has its own assets and its own liabilities. In normal circumstances, the debts of the business are the debts of the company and not of the people who formed it. This provides protection to the participators in terms of their personal assets should the company become insolvent.

This advantage in the early years of any business is more theoretical than real. In practical terms, if you are starting a new business and seeking credit or facilities from bankers etc., you will inevitably be asked to provide personal guarantees in relation to the company’s liabilities. If you fail to give such personal guarantees, then you simply will not get the credit, regardless of whether your company is incorporated or otherwise.

Limited liability is far more important in the early years however, for those engaged in activities where there may be claims for professional negligence if something goes wrong. The limited liability of the company also becomes far more important as the business grows and the business has its own trading record which can justify credit without any personal guarantees. A company can own property, enter into its own contracts, incur its own debts, and sue and be sued in its own name. Gradually over a period of time the distance between the individuals who run it and the liabilities which it incurs generally widens.

The other principal advantage of trading through a limited company in the early years is the ability to separate ownership of the business from the management of the business. The shares in the company do not have to be owned by the directors. There is more flexibility in terms of third party investment and power and control can be organised in the most appropriate way by means of changes in the company’s share structure. In a sole trading or partnership business, this distinction cannot be made. All of the partners are fully liable for the business’ debts to the full extent of their assets and in general terms, they are both owners and managers.

The story does not stop there, however. Companies are administratively more complex to run and in view of their separate identity even the founding members, if they work for remuneration, are regarded as employees of this separate entity. Consequently from day one the company has to account to the Inland Revenue for PAYE payments and tax is deducted by the company at source together with employee’s National Insurance contributions at a time when cash flow may be at its worst. This can be avoided in some instances where for instance the founding members have lent money to the company which could be repaid as an alternative to remuneration over a period of time. Generally speaking, however, it is a substantial burden. On the other hand partners in a partnership business can withdraw sums on account of their profit shares without the need for any PAYE scheme to be established unless or until the business takes on non-partner salaried staff.

General Considerations

Whichever way the business is established, it is important that the participators have their roles and responsibilities properly defined either through a partnership agreement or if trading through a limited company by means of a shareholders agreement.

Financing

Sole Trader/Partnerships

Major disadvantages to operating a business through either as a Sole Trader or Partnership, is that sole traders and partners are fully liable to the full extent of their assets in connection with all of the business debts. In a partnership, all partners have what is known as “joint and several” liability. This means that any creditor of the business can pick and choose between the partners as to who to pursue for recovery of all debts.

Potential personal liabilities also mean that third party investment is more difficult to introduce into the partnership and institutional equity capital commonly provided by venture capitalists may not be as readily available for non-corporate businesses.

Limited Company/Limited Liability Partnership

A company or Limited Liability Partnership on the other hand, unlike a sole trader or partnership, is able to offer security in a form of a charge over its own assets. This form of charge is usually included within standard security documents which banks will present to the company and which are known as debentures.

An individual cannot grant this form of security and accordingly the scope for raising bank finance secured on the assets of the business is substantially reduced. In the early years of the business, other substantial capital assets may not be available to grant a fixed charge to secure credit. “Floating” assets such as stock and work in progress together with loose pieces of equipment can be the subject of a debenture granted by a company but there is no equivalent security document which the partnership can issue.

Accounting

Another principal difference between partnerships and companies is the public nature of a company’s accounting requirements. Although these have been substantially reduced in recent years in connection with small companies all companies are still required to file accounts at Companies House each year.

If privacy is an issue to you, then a partnership structure still retains this privacy since the accounts do not have to be published to any third party (except of course the Revenue).

Although it is no longer necessary for full audited accounts to be filed at Companies House and limited companies can get by if they have the necessary skills in house without the assistance of an auditor, in the vast majority of cases, entrepreneurs who want to run their own business do not want to spend their time undertaking administrative tasks which have traditionally been seconded to professional advisers.

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