An Overview Of Legal Isues For Small Business

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Small business and start up legal overview.

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An Overview Of Legal Isues For Small Business

  1. 1. Small Business Legal<br />Small Business – Big Issues<br />Paul Bennett <br />Bennett’s Legal<br />
  2. 2. What is a small business?<br />Less than 50 people<br />Start up to 50 people <br />Owner managed<br />Often run by family and friends<br />Often smaller<br />Focus on what they know<br />Fall outs and failures come at a high price<br />
  3. 3. What will we cover in this course?<br />Business Structure;<br />Insurance;<br />Red Tape – The Danger Areas;<br />Finance;<br />Terms of business/Contracts<br />
  4. 4. Aims & Audience<br />This is not a how to do it course!<br />Small businesses may view it to understand areas of risk;<br />Non-specialist solicitors (or paralegal/new qualified) will get something out of it;<br />It is not a specialist legal discipline course – it is a mix of general commercial and employment law disciplines. <br />Understand the aim is awareness and it should help when advising businesses.<br />
  5. 5. Business Structure<br />Sole Trader <br />Partnership<br />If they intend to be a sole trader, they are self-employed, with no special legal structure.<br />The trader is the business. <br />In a partnership, two or more self-employed people work together as partners and share the profits (or losses). <br />No legal personality meaning the partners are liable for the businesses debts<br />
  6. 6. Structure Part 2<br />Limited Company<br />Limited Liability Partnership<br />A limited company is a separate legal entity, distinct from its shareholders, directors and employees. <br />Unlike a sole trader or partnership, it is not the same as the individuals who own or run it. For example, it is a separate legal entity and can sue or be sued in its own name. <br />A limited liability partnership has some of the advantages (and disadvantages) of both a company and a partnership. <br />It has a separate legal entity and therefore can continue despite the resignation or death of some members. <br />
  7. 7. Why this matters?<br />Managing entrepreneur risk plays a huge part in the solicitors advice on this issue;<br />What risk are the business owners comfortable with? <br />Taxation is also effected;<br />Personal<br />Business<br />Capital Gains Tax<br />Accountants may therefore take a different view to solicitors.<br />
  8. 8. Attitude To Risk<br />High <br />Low<br />Speculative nature<br />Limited funds<br />Business plan unwritten<br />No management experience<br />No industry knowledge<br />Stock or set up costs are high<br />No stock<br />Limited start up costs<br />Good industry knowledge<br />Well researched<br />Business plan established<br />Solid financial footing<br />
  9. 9. Taxation<br />Personal<br />Business<br />Income tax<br />National insurance<br />Capital Gains Tax<br />Value Added Tax<br />Corporation tax<br />Value Added Tax<br />Capital Gains Tax<br />LLP Return<br />
  10. 10. Insurance<br />Risk<br />Taxation<br />Is it covered by insurance?<br />Key man?<br />Health insurance?<br />Employee Insurance?<br />Public Liability Insurance?<br />Company and individual cover?<br />
  11. 11. Sole Trader<br />Advantages <br />Disadvantages<br />Clients can keep simple, unaudited accounts. <br />Their National Insurance is low. <br />Unless their earnings are high, total tax payments can be lower than if you formed a limited company. <br />Setting up is quick and easy. <br />Clients will need to tell the tax and VAT authorities – this can be done online now.<br />You can form a limited company later and transfer the business to it, though some stamp duty may have to be paid. <br />Clients are personally liable for all the businesses debts. <br />This means that their own assets - all of them - are at risk. This includes many peoples houses and family assets etc. <br />The options for raising money are limited. <br />If clients are a sole trader, it is harder to sell the business or pass it on – the value is less because so much depends on the individual and their goodwill. <br />
  12. 12. Partnership<br />Advantages <br />Disadvantages<br />Each partner is personally liable for all the business debts of the partnership (other than tax on profits), even if another partner caused them. <br />Clients may be able to raise money by introducing new partners. <br />Limited start up costs.<br />To avoid disputes, it is vital to have a comprehensive agreement drawn up by a lawyer and agreed by all partners. <br />This means if the business is speculative then this is an issue. <br />
  13. 13. Limited Company<br />Advantages <br />Disadvantages<br />Own legal personality – it can sued or sue in the companies name;<br />Protects personal assets;<br />Company takes risks not the individuals (or group of individuals);<br />Creditability enhanced – company not just one person perception.<br />Costs;<br />Need Directors and Shareholders;<br />Corporate tax not just personal tax;<br />Increasingly complex accounts needed;<br />Annual management (costs and issues)<br />
  14. 14. Limited Liability Partnership<br />Advantages <br />Disadvantages<br />Modern;<br />Half way house between partnerships and limited company;<br />Personal taxation retained by partners;<br />Retain the trust element between “partners”.<br />Limited taxation options;<br />Bureaucratic;<br />More complex to manage than Limited Company – so it is worth it?<br />
  15. 15. What is the right structure?<br />It depends on the business and the owners of it?;<br />Taxation and risk need to be balanced;<br />Evaluate the options with the business owners – start up options likely to be simple and cheap – as grow can always change – but beware of the risk element. <br />
  16. 16. Checklist Part 1<br />Do you need to protect your personal assets from unpredictable liabilities, e.g. being sued by a client?<br />Do you need to be able to distribute profits to working principals?<br />Do you want your children (or member of family or others) to inherit your share of the business?<br />
  17. 17. Checklist Part 2<br />Do you need to be able to raise outside capital (e.g. to<br /> develop the business)?<br />Is your partnership agreement or, if a limited company, articles of association, meeting the needs of you and your business?<br />Do you want to give or sell key staff a stake in the business?<br />Do you know what will be the effect on the business if<br /> a shareholder director/partner dies unexpectedly?<br />
  18. 18. Checklist Part 3<br />Has the business owner(s) spoke to an accountant or tax advisor (if not they should do so as once risk is considered the likely solution lies with the taxation);<br />Review the position after a few months and twelve months then periodically with the business owners (due to capital gains tax and risk factors changing).<br />
  19. 19. Insurance<br />Businesses (of whatever structure) need to consider what risks they need to be insured against and they would like to be insured against;<br />As a solicitor advising small businesses they is a crucial first meeting issue – what have they got? What must they have? What do they really need? <br />
  20. 20. Public Liability Insurance<br />This covers those in contact with the public for accidents, mishaps and claims against the business;<br />A slip, trip or accident;<br />Typically all businesses will need this and it can be purchased cheaply;<br />Details of the insurance should be kept by the business for 40 years (it is a requirement).<br />
  21. 21. Examples<br />The Painter and Decorator<br />People visiting the site having an accident;<br />Injury;<br />Losses from the actions of the painter;<br />The householder who purchased the service.<br />The Party DJ<br />Held in a hall/pub;<br />Someone falling over equipment;<br />Liability may be split with others (i.e. Venue);<br />Likely that responsible venues will require service from someone with insurance.<br />
  22. 22. Employers Liability Insurance<br />Usually sold with PLI;<br />A requirement of being an employer or having “workers”;<br />Covers injury type claims sustained in the workplace;<br />Covers the actions of your business and your workforce against third parties.<br />
  23. 23. Professional Indemnity Insurance<br />Covers advice and actions of the business to its clients;<br />Tends to be thought of as “advisors” or professional insurance;<br />Growing importance and width to small business – the website designer with defective software would need this type of insurance;<br />Speak to a broker and get covered for a few hundred pounds.<br />
  24. 24. Red Tape – The Business Barrier<br />99% of my clients resent “red tape” and the costs of compliance when they make their first appointment;<br />Many are relieved when the know the reality and not the perception;<br />Key issues for small business are insurance, health & safety, data protection and employment law. <br />
  25. 25. Health & Safety<br />Its a two way thing;<br />The business sets the policy and manages risk;<br />The Employees must take care of themselves and each other!;<br />Free resources are made available by the Health & Safety Executive – these cover common risk and industry<br />With my clients I offer to guide them through the HSE material in the context of their business or get a specialist consultant to do so;<br />Legaltraining.tv are preparing a course on this so – watch this space.<br />
  26. 26. Health & Safety Checklist – Part 1<br />Have you considered the industry and known risk on the HSE website?<br />Has the small business?<br />Is the process documented?<br />Are records kept? By whom and where?<br />Risk assessments – has one been done? Is it up to date;<br />
  27. 27. Health & Safety Checklist – Part 2 <br />Does the business have a policy to manage Health & Safety?<br />Does the business provide appropriate equipment and training? (the HSE website guides on these);<br />Do the managers need extra training ( and a referral to a specialist H&S provider).<br />
  28. 28. Data Protection<br />Information Commissioners Registration? Does the business handle personal data?<br />Annual registration fee;<br />Guides for issues and industries on the website – businesses can therefore self-manage this or pay a service provider to.<br />Myth’s exist so start with a simple review and policy of what the business does with data and why?;<br />Use Commissioners Checklists and pass these on to clients;<br />Telling employees and customers etc what the data is collected for and how it is handled is a golden rule.<br />
  29. 29. Data Protection Part 2<br />Checklists should be used to monitor and record the information and compliance;<br />Review compliance at least annually with the business<br />What has changed data use wise;<br />Why?<br />How?<br />Who needs to be informed?<br />How to get that consent and record it?<br />
  30. 30. Employment Law<br />The starting point with employment law is always have what you have done documented:-<br />Offer of Employment Letters;<br />Contracts or Statement of Terms;<br />Have policies in a Staff Handbook – have a Managers Operations Manual to support this and aid day to day staff management;<br />Document and take notes at any discussions with staff – what was said, why, agreements reached.<br />
  31. 31. Employment Law Part 2<br />Have redundancy and disciplinary criteria documented;<br />Get staff to sign, acknowledge and agree handbooks, policies and agreed actions<br />
  32. 32. Employment Law<br />Remember the legislation protects applicants as well as employees;<br />Workers (including self-employed people) have certain employment rights. <br />The curse of the generalist – many commercial and generalist advisors try to be employment lawyers – don’t it is contract, employment legislation, data protection litigation and non-contentious rolled into one. <br />
  33. 33. About the speaker<br />Founded Boutique Employment & Business Support Law Firm Bennett’s Legal in 2009;<br />Clients include other law firms, management consultants and various businesses an industries including healthcare, SME’s and sport clubs. <br />Bennett’s Legal operate nationally from a West Midlands base see www.bennettslegal.co.uk or call 01743 453 161 or email contactus@bennettslegal.co.uk<br />

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