Starting your own business can be a snap but hold up – there are a few legal considerations to consider first. Lawyer Jo Tall, from offtoseemylawyer.com, lays out what you need to take care of when launching your company.
1. Keep the idea secret
You may be so excited at coming up with a great business idea, that you want to share it with friends and family and then with potential business partners who may be able to help you. However, you should instead be keeping it confidential at this point with a so-called Non-Disclosure Agreement (NDA) or Confidentiality Agreement with the person you want to share the idea with. These are relatively short agreements and are important because:
- An NDA stops your idea from being copied.
- If your idea is a design that you want to patent, once it has already been out in the public domain this won’t be possible anymore – so keep it under wraps!
- Oddly they flush out those who are good to do business with and those who are not. I find that if someone doesn’t sign anything, instead doing business on a handshake, it’s best to walk away.
2. Check no one else has the same or similar name
You would not believe the number of people who go to the expense of registering their domain names, getting logos and stationery designed at great expense, only to find out that someone else already has the name. Usually that person will inform you by way of a legal letter asking you to stop using the name right away and claiming damages for lost business. So, do a thorough search on the internet and also via traditional methods such as the Yellow Pages as not all businesses are online. Even if your name or brand logo is not identical to someone else’s or official registered, if it’s similar enough to cause confusion, you’re on thin ice! Check at Companies House in the UK for any limited companies that may have your name too. Lawyers can do this for you also.
3. Protect the idea from being copied
Ideas and designs fall into the area of ‘intellectual property’. As they are not tangible such as a car that you can lock up inside garage, there are various ways of protecting them depending on the type of idea involved. This is just a very brief outline of the law for the UK and you should consult an intellectual property lawyer for your country to see what your options are:
- Patents are registered with the Patent Office and protect inventions. This is a lengthy (can take years) and expensive process and you need to be sure your invention is truly unique.
- Copyright is automatically granted to authors of written articles, designs, musical compositions. There is no need to register. Just use the © symbol eg © 2014 Joe Bloggs.
- Trademark protects brand names and logos. These have to be formally registered with the Intellectual Property Office for the country where you wish to operate your business. You could register just for your country or have a Community Mark for the whole of the EU or go worldwide. Of course, the more you register, the more it will cost!
4. Check the law on your business’s activities
- Website and selling online – While it’s very easy to get online, the moment you do, you’ve legal obligations. If you fail to comply, you could be fined thousands of pounds and possibly have your business shut down! In the UK and most of the EU, under the eCommerce and Distance Selling Regulations, you need to provide certain information to visitors like who you are, your address, what you’re selling and delivery charges. Most importantly, when dealing with consumers, you need to tell them that they’ve a right to change their mind. These are ‘cooling off’ rights; whereby customers after receiving the goods have 14 days to change their minds and return them to you for a refund. You need to factor this in when thinking about cash flow and add the potential cost of lost postage as you’ll need to refund the initial postage charges too.
- The product or services themselves – Double check if there are special laws that apply to whatever it is you are selling. Say you’re selling home-made chocolates, you will be in the realms of food safety and food labelling. If you offer health related advice, you may be subject to the laws of the relevant medical council. Your local trading standards office or chamber of commerce is a good starting point for advice. You may also want to consider taking out professional indemnity or product liability insurance to cover you in case things go wrong.
- Advertising – Remember that any form of advertising whether broadcast or non-broadcast is subject to regulation and there are rules on what you can and cannot say. Again there are special rules in relation to what it is you’re promoting (for example, tobacco, alcohol or weight loss) and in relation to your audience (say, advertising to children). Check with the Advertising Standards Authority.
5. Have an agreement with everybody
This may seem an odd thing to add to the list, but it is probably the most critical. Even if you are setting up with your best friend, draw up a proper legal agreement and agree what it is you will each be doing, who gets paid what etc.. Agreements should be like manuals that cover all eventualities and tell you what to do. They avoid misunderstandings or relying on ‘gentlemen’s agreements’! And if your business is a success and you have a buyer wanting to acquire you for vast sums, they will want to see that you have proper contracts in place with every single person involved in the business. So start right away and speak to a lawyer.
6. Consult an accountant and tell the tax man
An accountant can look at your personal financial circumstances and advise you on the best way of structuring your business and whether you should say operate via a limited company, as a sole trader or partnership. Even if you do not consult an accountant, you must tell HM Revenues and Customs ( the taxman!) that you have set up your business as you’ll be changing your tax status and they need to know. The deadline is within three months of setting up on your own. The bottom line is consult specialists BEFORE you go too far. Many people make the mistake of thinking that lawyers are just there for when things go wrong. It’s the opposite: consult us before you start and you will not only sleep well at night knowing everything is covered, but save thousands on legal fees trying to fix bad agreements or that you have inadvertently broken the law….Be professional from the word go!
Sources of advice:
Advertising Standards Authority:
Information Commissioner’s Office:
Legal advice and templates:
Intellectual Property Office:
Add a comment