b4 legal information for new start ups

8/6/2019 b4 Legal Information for New Start Ups

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B4B4 Proven IdeaProven Idea

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Legal Information for

New Start-Ups


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B4B4 -- Legal Information forLegal Information for

New StartNew Start--UpsUpsAim:

To understand the different legal forms a business cantake and what considerations you will need to start one.

Learning outcomes:

Understand the different types of legal business

structure. Know what business names can and cannot be used.

Understand the major legal implications in setting up a

business. Know who to contact and why in order to become self

employed, or a business owner/manager.


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OutlineOutline Types of businesses

Choosing a name

Insurance

Licenses Self-Employment, Tax & NI & VAT

Contacts Exam!!!!


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Legal forms of businessLegal forms of business Sole Trader

Partnership

Limited Liability Partnership

Limited Company


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Souce: Business Link

Sole TraderSole Trader Simplest way to run a one-person

business Does not involve paying any registration

fees.

Keeping records and accounts isstraightforward.

You get to keep all the profitsbut you arepersonally liable for any debts that yourbusiness accumulates.


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PartnershipPartnership In a partnership, two or more people share the risks,

costs, and responsibilities of being in business. Each

partner is self-employed and takes a share of the profits.Usually, each partner shares in the decision-making andis personally responsible for any debts that the businessaccumulates.

Unlike a limited company, a partnership has no legalexistence distinct from the partners themselves. If one ofthe partners resigns, dies or goes bankrupt, thepartnership must be dissolved.

A partnership is a relatively simple and flexible way fortwo or more people to own and run a business together.However, partners do not enjoy any protection if thebusiness fails.


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PartnershipPartnership Set-up

Each partner needs to register with the Inland Revenue as self-

employed. It's a good idea to draw up a written agreement between the

partners. For further advice, consult an accountant or solicitor. Management and raising finance

Partners themselves usually manage the business, though theycan delegate responsibilities to employees.

Partners raise money for the business out of their own assets,and/or with loans. It's possible to have 'sleeping' partners whocontribute money to the business but are not involved in runningit.

Records and accounts The partnership itself and each individual partner must make

annual self-assessment returns to the Inland Revenue. Must keep records showing business income and expenses.


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PartnershipPartnership Profits

Each partner takes a share of the profits.

Tax and National Insurance As partners are self-employed, they are taxed on their

share of the profits. Each partner needs to pay fixed-rate Class 2 National Insurance contributions (NICs)and Class 4 NICs on their share of the profits.

Liability Each partner is personally responsible for all debts

run up by the partnership as a whole. This meanstheir homes or other assets may be at risk if thebusiness fails.


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Limited Liability PartnershipLimited Liability Partnership

(LLP)(LLP) A Limited liability partnership (LLP) is similar to

an ordinary partnership as a number ofindividuals or limited companies share in therisks, costs, responsibilities and profits of thebusiness.

The difference is that liability is limited to theamount of money they have invested in thebusiness and to any personal guarantees they

have given to raise finance. This means thatpartners have some protection if the businessruns into trouble.


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(LLP)(LLP) Set-up

There is no restriction on the number of members, but at least two must

be "designated" members - with extra legal responsibilities on them. LLP must register (incorporate) at Companies House. It's a good idea to draw up a written agreement between the partners.

For further advice, consult an accountant or solicitor.

Management and raising finance

Usually the members manage the business, but can delegateresponsibilities to employees.

Members raise money out of their own assets, and/or with loans.

Records and accounts

The LLP itself and each individual member must make annual selfassessment returns to the Inland Revenue.

All LLPs must file accounts with Companies House.


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(LLP)(LLP) Profits

Each member takes an equal share of the profits, unless the partnership

agreement specifies otherwise.

Tax and National Insurance

Members of a partnership are taxed on their share of profits and pay thetax and National Insurance (NICs), according to their business structure.

An individual will pay income tax and NICs, and a limited companypartner will pay corporation tax.

Liability Every LLP must have at least two designated members. Read the list of

extra legal responsibilities placed on them at the Companies Housewebsite.


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Limited Liability Company (Ltd. and plc)Limited Liability Company (Ltd. and plc)

Limited companies exist in their own right, distinct from theshareholders who own them. This means their finances are clearly

separated from the personal finances of their owners. Shareholders may be individuals or other companies. They are notresponsible for the companys debts (unless they have personallyguaranteed a bank loan, for example). However, they may lose themoney they have invested in the company if it fails.

Main types Private Limited companies can have one or more members (eg

shareholders). They cannot offer shares to the public (eg on the stockexchange).

Public limited companies (PLCs) must have at least two shareoldersand can offer shares to the public. A PLC must have issued shares to avalue of at least 50,000, before it can trade.

Private unlimited companies: these are rare and usually created forspecific reasons. Legal advice is recommended before creating one.


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Limited Liability CompanyLimited Liability Company

(Ltd. and plc)(Ltd. and plc) Set-up

Must be registered (incorporated) at Companies House.

Must have at least one director (two if it's a PLC) and a companysecretary, who may also be shareholders. Management and raising finance

A director or board of directors make the management decisions. Finance comes from shareholders, borrowing and retained profits.

PLCs can raise money by selling shares on the stock market, butprivate limited companies cannot. Records and accounts

File accounts with Companies House. A "shuttle" annual return (form 363s) will be sent before the anniversary

of incorporation each year. It needs checking, amending and returningto Companies House with the appropriate fee.The directors and secretary are responsible for notifying CompaniesHouse of changes in the structure and management.


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Limited Liability CompanyLimited Liability Company

(Ltd. and plc)(Ltd. and plc) Profits

Profits are usually distributed to shareholders in the form of dividends.

From 1 April 2004, distributions to individuals by companies withtaxable profits subject to a zero rate of corporation tax, will be subject toa minimum of 19 per cent corporation tax.

Tax and National Insurance Companies pay corporation tax and must make an annual return to the

Inland Revenue. Company directors are employees of the company and must pay Class

1 National Insurance contributions as well as income tax on theirsalaries.

If your company or organisation has any taxable income or profits, youmust tell the Inland Revenue that your company exists and that it is

liable to tax. Liability Shareholders are not personally responsible for the company's debts,

but directors may be asked to guarantee loans to the company.


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FranchisesFranchises Buying a franchise is a way of taking advantage of the

success of an established business. As the 'franchisee',

you buy a licence to use the name, products, services,and management support systems of the 'franchiser'company. This licence normally covers a particulargeographical area and runs for a limited time.

The way you pay for the franchise may be through aninitial fee, ongoing management fees, a share of yourturnover, or a combination of these.

A franchise business can take different legal forms -

most are sole traders, partnerships or limitedcompanies. Whatever the structure, the franchisee'sfreedom to manage the business is limited by the termsof the franchise agreement.


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Buying a businessBuying a business Take advice!

Try to get at least 3 years accounts

What is it worth to you? (this may be very

different to the asking price) One approx. rule of thumb:

annual profit x 1.5


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Choosing a name (1)Choosing a name (1) Do you want the name to reflect what your business

does? Or would something more abstract be suitable?

Would it be a good idea to include your own name? Do you want a traditional-sounding name, conveying

durability and old-fashioned values, or a modern name,suggesting a fresh, innovative approach?

Think about the future: avoid words or phrases that arelikely to date quickly, or limit your trading opportunities.

If youre likely to be trading overseas, check that thename doesnt mean anything inappropriate in the

relevant languages. Think about callers and customers: avoid very long

names, strange wordings and unusual spelling.


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Choosing a name (2)Choosing a name (2) You can choose just about any name you

want

But..

There are specific rules that you must followwhen choosing limited company names, soletrader and partnership names. And, for all types

of business, there are some sensitive words andexpressions that you can't use without officialpermission e.g. trade marks such as McDonalds.


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Sole trader and partnership namesSole trader and partnership names

People operating as sole traders or in

partnerships can trade under their own names,or choose a different business name.

The name must:

not be offensive not include the words "limited", plc or equivalent

not contain sensitive words and expressions (unless

you've obtained permission to use them)


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Sensitive words and expressionsSensitive words and expressions

There are some wordsand expressions that youcant use in a business

name unless you haveofficial permission. Theseare words that might givea false impression about

your business. They areknown as sensitivewords.

The rules about sensitive

words apply to all types ofbusinesses and fall intofive main groups:-

Parliament,Government, Royal,Queen, Prince

Words that suggestconnections withgovernment or royalty

Architect, Chemist,Health Centre

Words that suggest aspecialised activity

Charity, Insurance,Register, Trust

Words that suggest aparticular function

Association, Authority,Chamber ofCommerce, Chartered,Council, Institute,

Society

Words that suggest aspecial status

British, Irish, National,International,

European

Words that suggestyour business is of

national importance

ExamplesType of expression


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Sole trader and partnership namesSole trader and partnership names Is anyone else using your proposed business name? If a sole trader at the other end of the country is using it,

there may not be a problem; but if another local businessor a national firm is using it, you should definitely comeup with a different name.

Check local phone books, business directories and theInternet.

Make sure that your proposed name - or somethingsimilar - hasnt been registered by a company. You cando a company search on the Companies House website.

Make sure that the name isn't too similar to a word orexpression that has been registered as a trade mark.Check the Patent Office website to find out whether yourchosen name has already been registered as a trademark.


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Limited company namesLimited company names If youve decided to form a limited company, youll need

to register your name and other details with CompaniesHouse, but first:

Check that your proposed name doesnt break the rules.

Your company name must end with limited, plc or Ltd (or Welshequivalent) and must not be used anywhere other than at theend of the name.

The name isn't offensive.

The name isn't the same as - or very similar to - one already inthe register.

The name doesn't include any sensitive words or expressions -unless you have obtained permission to use them.


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Getting your name on the webGetting your name on the web Even if you are not intending to create a website

for your business immediately, its likely thatyoull want to have a presence on the web at

some point in the future. This could be

Single screen advertising your company andgiving contact details

Site that allows customers to browse through

products, place orders and make paymentsonline.


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Getting your name on the webGetting your name on the web Domain names

The address at which a website is located, forexample my-new-business.co.uk, is known as adomain name. (For most businesses based in the UK,a name ending with .co.uk is suitable.)

Your email address will normally include this name,for example [email protected].

To reserve a domain name for your business, youneed to register it through an agent, who will charge a

small annual fee. Its a good idea to do this as soonas possible - even if youre not going to use yourdomain name straight away.


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Registering your domain nameRegistering your domain name Decide on a suitable domain name for your business:

You can use numbers as well as letters. Hyphens can beused to separate words - but you cant include spaces, fullstops or other punctuation. Its a good idea to have a fewalternative names in case your first choice has alreadybeen taken.

Check whether the name is available:

The official registry for UK domain names is Nominet - youcan use their website to check whether your chosendomain name is available.

Register the name This is a simple process which you can carry out online

with any registration agent. There are hundreds of tochoose from - a good starting point is Nominet's list ofregistration agents.


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Useful Sources of InformationUseful Sources of Information Related guides on http://www.businesslink.gov.uk

Choose the right legal structure for your business Set up and register a limited company (private or plc) Set up and register as self-employed Book a course on Putting Your Business On The Web through our Training

Directory

Related web sites you might find useful View a full list of guidance booklets on the Companies House website:

http://www.companieshouse.gov.uk/about/guidence.shtml

Check registered companies at the Companies House website:http://www.companieshouse.gov.uk/info

Check registered trade marks at the Patent Office website:

http://webdb4.patent.gov.uk/tm/text

Find out about choosing a name for your business on the NationalBusiness Register website:

http://www.anewbusiness.co.uk


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Business InsuranceBusiness Insurance Compulsory:

Motor vehicles Employers Liability

Essential: Public Liability

Fire, theft Others as appropriate:

Professional Indemnity Personal Accident, Health, Life, Pensions

Goods in transit

Contact an Accredited Broker or Professional body


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LicensesLicenses Your business may require a license to operate

It is your responsibility to find out.

Who to apply to:

Local Authority Environment Agency

HM Customs & Excise

Information Commissioner

Police

Traffic Area Office


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SelfSelf--employmentemployment To be a sole trader, a partner or a member of a limited

liability partnership, you must be self-employed.

You must register with the Inland Revenue.

This does not mean that you cant also do other workas an employee, but the work you do for your

business must be done on a self-employed basis.

You may be fined 100 if you fail to register within

three months of becoming self-employed.


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SelfSelfemploymentemployment

Who to contact for helpWho to contact for help

Tax

Inland Revenue

National Insurance

Inland Revenue Value Added Tax

Customs & Excise

You must register for VAT if your businessturnover exceeds 56,000


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Record KeepingRecord Keeping

Start now!

What to keep? Receipts, Invoices, Bank Statements, Pay-in

book, chequebook, Business mileage.

(You will need to start doing your accounts!)

How long for?

6 years


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Useful WebsitesUseful Websites

Business Link National Website:

www.businesslink.gov.uk

Local e.g. North Yorkshire

www.here4business.co.uk/blyny Inland Revenue

www.inlandrevenue.gov.uk

Customs & Excise

www.hmce.gov.uk/


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Quick QuizQuick Quiz1. How many different legal forms of business are there?

2. Name them

3. What do LLP, Ltd and PLC stand for?4. Are directors and shareholders personally liable for acompanies debts?

5. Why might you contact Companies House?

6. Is a Franchise a legal form of business?7. What 3 names can you not use for your business?8. How much can you be fined for not registering as self-

employed within 3 months?

9. Which government agency should you contact for VAT,NI and Tax.10.How long to you need to keep Invoices etc. relating to

your business?

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