Setting up a business

Setting up a business is an exciting but often stressful process. However, we can help you take the steps that will protect you from unnecessary risk and costs.

So, what are the main legal considerations that entrepreneurs must consider before setting up a new business?

Legal structure

Choosing the right business structure is the first key issue to address. Your choice will have long-term implications for the life of the business and will depend on several things, including the tax consequences of each structure, the flexibility required and how risk-averse you are as a business owner.

When considering which structure to adopt, there are three main options. You can establish as a sole trader, form a partnership, or incorporate as a limited company. The easiest of these to establish is the sole trader model, although it is not necessarily suited to everyone due to the personal risk involved.

Documenting the arrangement

Documenting the relationship between all parties to the business is imperative. Should there be any disputes between owners, it is vital that these documents are in place as a safeguard.

Partnership Agreements and Shareholder Agreements are just two of the most common documents used to define structure and they should be professionally drafted.

Licence to trade

Depending on the type of business that you run, a licence might be required in order for it to legally operate. Knowing which licence is needed can be difficult and overlooking it can lead to costly penalties and even imprisonment.

VAT registration

Whatever the structure, if the VAT taxable turnover of a business exceeds the VAT registration threshold, it is legally obliged to become VAT registered. VAT taxable turnover is the total value of everything sold by a business which is not VAT exempt.

If a business is under the VAT registration threshold, it can become VAT registered voluntarily. This would be beneficial for a business whose output tax (the amount of VAT charged on its goods and services) is greater than its input (the amount of VAT that it is charged by other businesses), because it can reclaim the difference from HMRC.

Having a VAT registered business can help to build certain impressions about the business which, in turn, could make it more competitive. If a business is not VAT registered, then clients and competitors will be aware that its annual turnover is below the threshold.

VAT registration requires additional paperwork for the business, as well as VAT accounting and reporting procedures, and late filing will incur penalties. Therefore, consideration should be given before a business becomes VAT registered if it is not a requirement.


Businesses are exposed to several risks, and this extends to its premises, employees or visitors.

By law, all businesses must have employers’ liability insurance. Equally, certain regulators require businesses to have further insurance in place, depending on the relevant sector.

However, if there is no additional compulsory insurance required by the regulatory body of the business, it is still wise for businesses to take out cover as a precaution.