There are several types of business structure and there certainly isn’t one structure that is suitable for all businesses. Many founders opt for a private company limited by shares - it’s a separate legal entity which can own assets, will be responsible for its own liabilities and is able to take on borrowings in its own name. The biggest draw? The liability of the owners (shareholders) is generally limited to the amount, if any, that remains unpaid on their shares – cue reference to ‘limited liability’. This is in stark contrast to setting up as a sole trader where the owner is personally liable for their debts on an unlimited basis.
If you intend to employ people, you must get Employers’ Liability insurance. Your policy must cover you for at least £5 million and come from an authorised insurer.
Other types of insurance which you may wish to consider include: (a) public liability insurance which protects you if your business causes injury or damage to any member of the public or their property; (b) product liability insurance which will provide protection if you intend to invent, product or manufacture a product.
Other types of insurance exist and these should be carefully considered depending on which type of business you propose to carry on.
Employment: If you intend to employ people, you are legally obliged to provide each employee with a written statement of their terms of employment. In addition, you must have a policy for managing health and safety in the workplace.
License/lease: it may be the case that you need space to run your business (for example, if you’re a beautician you may want your own salon), and it may be necessary to have a lease or a licence in place to govern the occupation of that space.
Commercial contracts: Depending on the nature of your business, you may need certain commercial contracts such as a supply agreement (if you are supplying goods or services), a manufacturing agreement (if you are manufacturing goods/are a customer of goods from a manufacturer, etc). Generally speaking, it is always better to have a written contract in place so that the parties are clear on their rights and obligations.
If whoever you are contracting with presents you with a contract, you must make every effort to read it and understand it – many issues arise from founders signing contracts without having fully understood its terms.
It is also important to be aware that the law treats business-to-business contracts and business-to-consumer contracts differently and so any commercial contract needs to be tailored appropriately.
If you are going to be processing personal information in the context of your business, you must register with the Information Commissioner’s Office (ICO). The ICO is the UK’s independent body for upholding information rights and registering will only take 15 minutes.
Whether you’re a sole trader, a partnership or a limited company, it’s essential to register your business with HMRC. The main reason to register your business is to prevent any nasty surprises from HMRC – if you’ve not registered and not paid the right amount in taxes, you could be hit with a fine and a backdated bill for the full amount you owe.
Protecting your IP makes it easier to take legal action against anyone who steals or copies it and the right method of protection will depend on what you have created. For example, you may wish to register the name of your business as a trade mark. That being said, before starting your business, you should think carefully about the name – is the name available to be registered at the UK Intellectual Property Office? Is there another company registered with that name at Companies House already?
In addition, if you are to employ staff, you should also ensure that within their written contracts (note the need to have written particulars in place) it’s made clear that any IP created is owned by the company.
A much broader yet hugely relevant and important consideration should be your business’s environmental impact. According to research undertaken by Forbes, 9 in 10 shoppers believe sustainability and other ethics-related considerations are important when buying beauty products. Any marketing claims made or, on any packaging must be correct and substantiated; many brands are coming under increased scrutiny for greenwashing which has adversely affected their reputation.
Whilst there is currently no specific law in the UK that prohibits greenwashing, businesses that falsely advertise their services or products as environmentally friendly or sustainable may face action under existing consumer protection laws or laws relating to misrepresentation.
We have provided a number of examples as food for thought and there may be more factors that you need to consider and this will depend on the structure of your business and the business that you propose to undertake.
If you have any questions in connection with this article, please contact Mireille Dagger at BDB Pitmans (firstname.lastname@example.org). @The_beauty_lawyer.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at March 2023.
Article written by Mireille Dagger, Senior Associate at BDP Pitmans, @the_beauty_lawyer
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