Clementine Duckett, corporate partner at LCF Barber Titleys, on how to avoid costly business mistakes.
1: Choosing the best legal structure for setting up a business is vital. Choose a structure which can accommodate your future plans for the business considering in particular tax consequences and the personal liability of shareholders.
2: Get trademark, copyright or patent protection. Business owners often overlook the value of their intellectual assets and it’s often not until a product is launched or becomes successful that it becomes a consideration, which can be too late.
3: Don’t forget a shareholders’ agreement. When going into business with others it’s easy to assume that nothing will go wrong. However, if the relationship breaks down a costly legal dispute could occur.
4: Get employment contracts and other HR guidelines and handbooks in place. It’s compulsory to provide employees with written terms and conditions.
5: Don’t ignore changes to employment law. Employment legislation is continually evolving and in 2019 there are some major changes. These include increases to the national minimum and living wage and contributions for auto-enrolment pensions, as well as changes to payslips.
6: Don’t draft contracts without legal experience. Failing to have clear terms and conditions of business can impact on cash flow and often ends in disputes. Too often businesses rely on terms and conditions that have been cobbled together over time or copied from Google.
7: Stay ahead of the changes to the tax system. Changes to Entrepreneurs’ Relief (ER) mean many face significantly higher tax bills, when they dispose of shares. For company sales taking place on or after April 6, 2019, shareholders must have held their shares for at least two years, rather than the previous requirement of 12 months, to qualify for ER.
8: Understand the duties and responsibilities of being a company director.
9: Every business should have clear payment terms and the consequences of non-payment, coupled with an effective credit control policy to ensure good cash flow.
10: Make a five, ten or 20-year plan. It’s never too early to have a conversation about an exit strategy or succession plan. It helps keep directors focused.