Anyone starting a business has a number of key decisions to make. What are you going to sell? Where are you going to sell it? What will your brand say about you?
But one of the most important decisions a start-up entrepreneur has to make is whether to incorporate (ie form a company as opposed to starting a sole trader business). Why would you set up your own company?
1 Separate legal personality from its investors
This sounds like a dry technicality, but it is the separate legal personality of a company that gives it limited liability. In simple terms, this means that as long as there is no fraud involved, no one can sue the shareholders for the sins of the company itself.
2 Being taken seriously
Rightly or wrongly, there is a gravitas that comes automatically with using a limited liability company. The implication is that you are a bigger player than you would be as a one-man band or husband-and-wife team.
3 Taxation benefits
Running your own limited company allows you greater control over your finances, as there are various options open to you to help limit the amount of tax you pay. A good accountant will be able to save you more money when trading as a limited company than if you are operating as self-employed.
4 Ability to attract equity investment
If you are a sole trader or unlimited partnership and want to attract equity investment, drawing up an agreement about sharing profits, losses, rights and obligations can be complex. A limited liability company on the other hand can simply issue more shares to a new investor (after following company procedures).
5 Separate brand identity
If you are already carrying on one form of business, using a limited liability company can ensure that your new venture is kept separate. Creating a limited company also enables you to sell the new venture on (or, if your glass is half empty, wind it up) with less fuss than a non-incorporated business.
If this all sounds complicated, it may not be as difficult as it seems. Companies can be incorporated directly at Companies House or via a formation agent, which may take some of the stress out of the process and give you a friendly face to ask about any questions you have along the way.
Breaking news: Georgina Harris, erstwhile editor of the Law Donut, is hanging up her pencil and heading for fresh pastures (well, Clapham).
In a shock move that has rocked London’s 3 million independent shops, retail ambassador Georgina Harris has departed Putney and returned to Clapham, triggering widespread economic implications, explains dead rapper Tupac.
In the survey of 500 small businesses in South London, 47% admitted they were worried about the amount of sales lost from luxury and excise goods, fearing it would lower profits. A further 15% said they were “very concerned”.
Sales of catfood, Nicole Farhi and cigarettes have plummeted in the capital. Estimates of cash lost range from 10 pence to £12,500,000 a week. (fact-check this - ed). HM Treasury sources deny rumour that Chancellor George Osborne is ‘personally’ concerned at the potential loss in local revenue from sales of pasties, cigarettes and alcohol.
“HMRC are looking at a massive drop in their tax takings from Greggs, not to mention the excise tax and import duty VAT on fags and tinnies,” explained department spokesperson Flava Flav.
“Don’t forget the VAT on the import duty worked out at a compound rate using HMRC-set variable interest rates that change at the full moon four days before the end of the previous month.
“We’ve got a web page that explains it, innit.
“Mind you, God knows how badly the economy will tank if hostelry inspector Tom Whitney goes.”
In a statement, Harris explained:
“HMRC is, not are.
“I’ve loved it at BHP. But a sofa’s a sofa and the cat needs a hot lunch.
“You have all been brilliantissimo to work with and I can’t bear to say goodbye to a lot of you. I have got to write a book now and I will miss you. Come to the pub next week.
“Tom* is paying,” she concluded, movingly.
Disclaimer: * ‘Tom’ was unavailable for comment so we are unable to substantiate this claim.
Surrounded by the brightest and best of the UK’s entrepreneurs, business minister Mark Prisk MP launched rather a useful tool for the UK’s small businesses at BIS HQ this week – a definitive calendar of events to help small business throughout Britain for every month in 2012.
Targeted at pre start ups as well as established and new businesses, the calendar marks the first time all Britain’s best business events feature on the same site in a searchable format. There are 600-plus events listed already – and Mark Prisk is aiming to get 1,000 online in the near future. He said:
“We want 2012 to be the year of enterprise, where entrepreneurs can unlock their business potential. Enterprise events don’t just take place on one day, or during one week, but they appear throughout the year and across the country.
“We need to make sure people know that there is support and advice available, that it is easy to get, and it is often on their doorstep.”
With shows, talks, workshops, schemes and local networking events listed, the calendar does just that. And the country’s diverse business support organisations – ranging from teachers who inspire primary school children to mentors of hi-tech start ups - are showcasing their event offers on the site too. Rajeeb Dey, one of the founders of the Government’s StartUp Britain campaign, said:
“The Enterprise Calendar is about helping businesses go for it. It will shine a spotlight on the broad range of plentiful resources that exist for people wanting to start or grow a business in 2012.”
The most up-to-date version of the calendar is online to search or download – and even upload your own event. Many events are free, so the calendar could well become an invaluable tool for you – and at the very least should benefit you with a couple of days of advice, inspiration and a range of handy new contacts.
The Law Donut team will be taking a well-earned break over the Christmas and New Year holiday period. However, we’ll be back in January 2012 with plenty more blogs, news and views on the latest happenings in the commercial and private client sectors.
2011 has been a bumper year for Law Donut but it wouldn’t be the fantastic resource it is without the contributions from all of our bloggers, legal experts, law firm partners, and those of you that have tweeted and re-tweeted; commented on our content including our blogs – a huge thank you from everyone at Law Donut HQ.
So, roll on 2012 – you can read about some of the changes we can expect in the coming year in Georgina Harris’ excellent blog Autumn statement: employment law changes. But as ever we’ll be staying on top of all the latest changes in the law – so keep checking back with us to make sure your business stays up to date and legal.
Best wishes for Christmas and the New Year from everyone at Law Donut – we’ll see you in 2012.
This info-graphic is complied from data from the HSE (2009/10) and uncovers some interesting statistics about injuries in the workplace. It breaks down the information into geographical regions, as well as industry and also addresses how many working days are lost each year due to illness or injury. Not only this, but it spreads a little more light on how much is spent annually on public liability insurance, although it becomes very apparent that this a very vital ingredient for any business that wants to survive.
This image has been provided by ConstructaQuote.
We’re always being told that people who start their own businesses (aka entrepreneurs) are risk-takers – people who feel the fear but do it anyway.
At Law Donut HQ, we thought our special GEW blog should perhaps be aimed at the rest of us – those who are a bit uncertain or not sure about what legal issues might crop up if we start a business, and therefore never actually give it a go.
So we’ve scoured Law Donut for, what we think, are the top five useful resources for you if you’re thinking about starting up but you’re worried you don’t know enough about legal requirements. Maybe you’ve already gone for it but need a bit more guidance on something specific.
If you’re thinking of starting a business, first read these FAQs that explain your key formation options: sole-trader, LLP or limited company and how to set these up legally. You can also find out about choosing a business name that’s legal (there are some words you’re not allowed to use), the details you must include on your business stationery and other legal essentials you may not have considered.
Is the prospect of something going horribly wrong and you getting sued putting you off starting up? Read our fantastic briefing on litigation and insurance to find out what you can do to reduce the risk and the sort of insurance you can buy to protect you and your business in the event of legal action.
“I’ve heard of intellectual property but I’m not really sure what it means or if it applies to me…” Sound familiar? If you own a business or are thinking of starting one, chances are you’ll have some intellectual property – whether it’s a website, logo or product you’ve invented. These FAQs are a great starter-for-ten (well, 11) on recognising what IP you’ve got and how to go about protecting it.
So you’ve got an awesome product you’re desperate to get to market and make your first million but you’re worried about trade descriptions and the rules on advertising, marketing and pricing. These 20 FAQs should answer most of your questions or at least point you in the direction of where you can find out more.
You’re thinking of taking on your first employee but not sure how to go about it… Employment law is a ‘biggie’ – in fact it’s the largest section on the Law Donut – but we thought the smartest place to start if you’ve never employed someone is getting their employment contract right. There’s a lot to it and we’d always suggest you take legal advice before you become an employer for the first time, but sometimes that’s not how it works in the real world. If you read these FAQs, they should at least get you started on the basics. However, getting a friendly local solicitor to help you out in this area would definitely be money well spent.
Obviously these are just a sample of the great resources you can find on Law Donut, both for start-ups and growing businesses. We also recommend you visit our sister donut Tax Donut – because if there’s one thing that can give you the heebie-jeebies when it comes to starting up, it’s facing an enormous tax bill with no idea where it’s come from or how to pay it. Good luck and Happy Global Entrepreneurship Week!
In the aftermath of the rioting throughout England this week – well, what we’re hoping is the aftermath – thousands of businesses are facing eye-watering cash losses. With estimates that, for example, one in ten of the UK’s leisure and retail business have been hit by sudden disaster, many firms who have been spared to date are concerned. But forewarned is forearmed.
Find out how to protect your firm now with our pick of the best web action guides – and, if you’re already facing the clean-up, the final factsheet takes you through the maze of getting your business back on its feet.
And if the worst happens…
2010 has seen the Law Donut go from strength to strength. In August we re-launched the site with a whole new user-friendly topics list and additional content — so we continue to provide you with the best free legal information, news and resources for your business. Since the re-launch, we’ve also added 14 new law firms from across the country as syndicator partners, who recognise the added value the Law Donut brings to their clients.
The Donut brand as a whole has also continued to grow through the year. In 2010, we’ve:
What does 2011 hold for the Donut brand? Well, you can expect fresh Donuts and an even stronger local presence through widespread syndication in the next year. And of course, we’ll continue to help business owners across the UK find answers to their legal questions.
So, New Year’s Honours must go to our law firm experts who continue to enliven the site with their blogs, comments and legal know-how. Also special thanks to our sponsors who have contributed enormously to Law Donut’s success.
Finally, thanks and best wishes for a Merry Christmas and a successful 2011 to all our readers, without whom Law Donut wouldn’t be the site it is. The Law Donut team will be taking a break over the festive period but the Law Donut site will still be active. We’ll be back on Tuesday 4 January — and we’re already planning further content developments for 2011, so stay tuned.
There is an established, but growing, trend for wealthy private individuals (known as “angels”) investing in young and small private businesses in return for shares in the company. This is a form of equity finance, as opposed to the more usual debt finance provided by lenders.
After the heads of terms have been agreed, the investor’s lawyers will be asked to conduct legal due diligence on the target company. The extent of this will depend on the trading history of the target and the investor’s appetite for information about the target. The scope of due diligence usually covers the constitution and structure of the board and shareholders, employment contracts, existing financing arrangements, existing licence, research and development and other collaboration agreements, property arrangements and key commercial contracts.
Timings and documentation
The target company is likely to require shareholder approval as part of the investment process in order for new shares to be issued to the investor, new articles of association to be adopted, the subscription and shareholders agreement (also referred to as an investment agreement) executed, the appointment of the investor director approved and the existing rights of pre-emption in relation to the issue of shares waived. These shareholder resolutions can either be passed by convening a general meeting or by passing shareholders’ written resolutions remotely.
If the target company has existing equity or debt investors, their consent may also be required as a result of any right of veto they have in any existing investment or loan agreement. This will normally become evident from the due diligence exercise, although it is more expedient if the target company obtains letters of consent beforehand.
If the incoming investor subscribes for more than 50 per cent of the share capital of the company, the share issue may result in the target company breaching any change of control clauses in its commercial contracts. If this is the case, the target company will need to seek consent to the investment round from the relevant third party before completion.
The legal advisers involved will need to agree that all conditions have been satisfied and decide on the precise mechanism for completion and the sequence of events. In practice, the execution pages are normally circulated by email and exchange will be agreed on the basis of electronic signatures, before funds are transferred.
Why I started the Donut
I’ve always found small businesses compelling – what makes them work and the challenge of going it alone are to me the most interesting questions in business. And after 19 years of running my company, BHP, I admire SMEs more than ever.
Running your own show is tremendous fun, especially if you know what you’re doing and can manage the 101 challenges that come your way every month. Which is where BHP content comes in.
We’ve been producing our expert how-to guides, sponsored by blue chips and government organisations, for nearly two decades. But, of course, as an entrepreneur, I wanted something new to do. In a (rare) idle moment online, I scouted about for a really good marketing website for small businesses. There wasn’t one.
So we decided to do it, launching on 20 April 2009. We built small and medium-sized enterprises (SMEs) their own site with everything they needed to make their marketing thrive. Founding partners Google and Royal Mail backed us all the way, as have our ever-growing list of sponsors such as Vodafone and Yell.
What we’ve achieved in a year
As well as Marketing Donut, we launched two more Donut websites to cover starting up and law. We’ve just announced that the fourth site to launch will be IT Donut, scheduled for the week commencing 23 August.
We use 300 top people to provide the expert advice on the Donuts, but, for me, the real experts are also the users. Before we started work, we asked people running small businesses what they wanted from a site. They told us they needed fast, practical and accurate answers to their questions. The Donuts give SME managers that, free. Tools, templates, checklists, the lot: plus the news their business needs to know.
All the Donuts report live on major small-business happenings – we were the first business advice site to break news of the rise in minimum wage on Budget Day. MyDonut, the e-newsletter, now goes out to tens of thousands of people a month – next year numbers should top 100,000. (This is in addition to the 300,000 subscribers to the SME newsletters that we publish for our clients. Life at BHP is one big deadline.)
Since the launch a year ago, the Donut sites have fast become a key player in the UK small-business scene. Our Twitter accounts have over 40,000 followers and our Twitter team picked up two national awards last year.
Local versions of marketingdonut.co.uk, startupdonut.co.uk and lawdonut.co.uk are syndicated to our partners, both nationally and in the regions. Thirty-five organisations already have their own Donut websites and more are coming on stream every month.
The Donut is a strong business model, because it is a win-win for everyone involved. Crucially, BHP had already invested several years building up the strategic relationships and the content before launching the first website. As with most successful SMEs, we always knew that the Donut project would not be a sprint to success, it would be a marathon.
2010-2011: what’s in it for you?
As we expand the core “answers to your questions” pages of the Donuts, we will continue to cover news and key topical issues for you. For instance, this month the Law Donut explains how to cope with recruitment and redundancy as the economy remains fragile, as well as what to do when all your staff want time off for June’s World Cup.
We’re currently building the IT Donut, which will be a comprehensive resource for demystifying IT, troubleshooting and trading online. It will become the first place any small business turns to when they have a tech problem that needs sorting fast. We’re currently recruiting experts who will rid us all of pesky IT stress forever, I hope.
We’ll also be providing a local service for users, thanks to our partners. Law firms, chambers of commerce and enterprise agencies are all getting involved. This is really exciting, as it gives users the best of all worlds – a huge library of constantly updated advice from experts throughout the UK, combined with local content.
An SME owner’s work is never done, so I’m signing off to tackle the above. Before I go – thanks to you, our users, and all our partners and experts, for a great year.