Small business and start up legal overview.

1. Small Business Legal Small Business – Big Issues Paul Bennett Bennett’s Legal

2. What is a small business? Less than 50 people Start up to 50 people Owner managed Often run by family and friends Often smaller Focus on what they know Fall outs and failures come at a high price

3. What will we cover in this course? Business Structure; Insurance; Red Tape – The Danger Areas; Finance; Terms of business/Contracts

4. Aims & Audience This is not a how to do it course! Small businesses may view it to understand areas of risk; Non-specialist solicitors (or paralegal/new qualified) will get something out of it; It is not a specialist legal discipline course – it is a mix of general commercial and employment law disciplines. Understand the aim is awareness and it should help when advising businesses.

5. Business Structure Sole Trader Partnership If they intend to be a sole trader, they are self-employed, with no special legal structure. The trader is the business. In a partnership, two or more self-employed people work together as partners and share the profits (or losses). No legal personality meaning the partners are liable for the businesses debts

6. Structure Part 2 Limited Company Limited Liability Partnership A limited company is a separate legal entity, distinct from its shareholders, directors and employees. 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. A limited liability partnership has some of the advantages (and disadvantages) of both a company and a partnership. It has a separate legal entity and therefore can continue despite the resignation or death of some members.

7. Why this matters? Managing entrepreneur risk plays a huge part in the solicitors advice on this issue; What risk are the business owners comfortable with? Taxation is also effected; Personal Business Capital Gains Tax Accountants may therefore take a different view to solicitors.

8. Attitude To Risk High Low Speculative nature Limited funds Business plan unwritten No management experience No industry knowledge Stock or set up costs are high No stock Limited start up costs Good industry knowledge Well researched Business plan established Solid financial footing

9. Taxation Personal Business Income tax National insurance Capital Gains Tax Value Added Tax Corporation tax Value Added Tax Capital Gains Tax LLP Return

10. Insurance Risk Taxation Is it covered by insurance? Key man? Health insurance? Employee Insurance? Public Liability Insurance? Company and individual cover?

11. Sole Trader Advantages Disadvantages Clients can keep simple, unaudited accounts. Their National Insurance is low. Unless their earnings are high, total tax payments can be lower than if you formed a limited company. Setting up is quick and easy. Clients will need to tell the tax and VAT authorities – this can be done online now. You can form a limited company later and transfer the business to it, though some stamp duty may have to be paid. Clients are personally liable for all the businesses debts. This means that their own assets - all of them - are at risk. This includes many peoples houses and family assets etc. The options for raising money are limited. 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.

12. Partnership Advantages Disadvantages Each partner is personally liable for all the business debts of the partnership (other than tax on profits), even if another partner caused them. Clients may be able to raise money by introducing new partners. Limited start up costs. To avoid disputes, it is vital to have a comprehensive agreement drawn up by a lawyer and agreed by all partners. This means if the business is speculative then this is an issue.

13. Limited Company Advantages Disadvantages Own legal personality – it can sued or sue in the companies name; Protects personal assets; Company takes risks not the individuals (or group of individuals); Creditability enhanced – company not just one person perception. Costs; Need Directors and Shareholders; Corporate tax not just personal tax; Increasingly complex accounts needed; Annual management (costs and issues)

14. Limited Liability Partnership Advantages Disadvantages Modern; Half way house between partnerships and limited company; Personal taxation retained by partners; Retain the trust element between “partners”. Limited taxation options; Bureaucratic; More complex to manage than Limited Company – so it is worth it?

15. What is the right structure? It depends on the business and the owners of it?; Taxation and risk need to be balanced; 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.

16. Checklist Part 1 Do you need to protect your personal assets from unpredictable liabilities, e.g. being sued by a client? Do you need to be able to distribute profits to working principals? Do you want your children (or member of family or others) to inherit your share of the business?

17. Checklist Part 2 Do you need to be able to raise outside capital (e.g. to develop the business)? Is your partnership agreement or, if a limited company, articles of association, meeting the needs of you and your business? Do you want to give or sell key staff a stake in the business? Do you know what will be the effect on the business if a shareholder director/partner dies unexpectedly?

18. Checklist Part 3 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); 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).

19. Insurance Businesses (of whatever structure) need to consider what risks they need to be insured against and they would like to be insured against; 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?

20. Public Liability Insurance This covers those in contact with the public for accidents, mishaps and claims against the business; A slip, trip or accident; Typically all businesses will need this and it can be purchased cheaply; Details of the insurance should be kept by the business for 40 years (it is a requirement).

21. Examples The Painter and Decorator People visiting the site having an accident; Injury; Losses from the actions of the painter; The householder who purchased the service. The Party DJ Held in a hall/pub; Someone falling over equipment; Liability may be split with others (i.e. Venue); Likely that responsible venues will require service from someone with insurance.

22. Employers Liability Insurance Usually sold with PLI; A requirement of being an employer or having “workers”; Covers injury type claims sustained in the workplace; Covers the actions of your business and your workforce against third parties.

23. Professional Indemnity Insurance Covers advice and actions of the business to its clients; Tends to be thought of as “advisors” or professional insurance; Growing importance and width to small business – the website designer with defective software would need this type of insurance; Speak to a broker and get covered for a few hundred pounds.

24. Red Tape – The Business Barrier 99% of my clients resent “red tape” and the costs of compliance when they make their first appointment; Many are relieved when the know the reality and not the perception; Key issues for small business are insurance, health & safety, data protection and employment law.

25. Health & Safety Its a two way thing; The business sets the policy and manages risk; The Employees must take care of themselves and each other!; Free resources are made available by the Health & Safety Executive – these cover common risk and industry 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; Legaltraining.tv are preparing a course on this so – watch this space.

26. Health & Safety Checklist – Part 1 Have you considered the industry and known risk on the HSE website? Has the small business? Is the process documented? Are records kept? By whom and where? Risk assessments – has one been done? Is it up to date;

27. Health & Safety Checklist – Part 2 Does the business have a policy to manage Health & Safety? Does the business provide appropriate equipment and training? (the HSE website guides on these); Do the managers need extra training ( and a referral to a specialist H&S provider).

28. Data Protection Information Commissioners Registration? Does the business handle personal data? Annual registration fee; Guides for issues and industries on the website – businesses can therefore self-manage this or pay a service provider to. Myth’s exist so start with a simple review and policy of what the business does with data and why?; Use Commissioners Checklists and pass these on to clients; Telling employees and customers etc what the data is collected for and how it is handled is a golden rule.

29. Data Protection Part 2 Checklists should be used to monitor and record the information and compliance; Review compliance at least annually with the business What has changed data use wise; Why? How? Who needs to be informed? How to get that consent and record it?

30. Employment Law The starting point with employment law is always have what you have done documented:- Offer of Employment Letters; Contracts or Statement of Terms; Have policies in a Staff Handbook – have a Managers Operations Manual to support this and aid day to day staff management; Document and take notes at any discussions with staff – what was said, why, agreements reached.

31. Employment Law Part 2 Have redundancy and disciplinary criteria documented; Get staff to sign, acknowledge and agree handbooks, policies and agreed actions

32. Employment Law Remember the legislation protects applicants as well as employees; Workers (including self-employed people) have certain employment rights. 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.

33. About the speaker Founded Boutique Employment & Business Support Law Firm Bennett’s Legal in 2009; Clients include other law firms, management consultants and various businesses an industries including healthcare, SME’s and sport clubs. 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