If you are a sole trader, partnership, start-up or an established company, we are on hand to guide you through any legal issues that you may face. We will ensure to set out your options and advice based on the type of business you operate in and your overall needs.
When you start a business, one of the most important questions to ask yourself is how will the business be structured. Different legal structures will offer different advantages and drawbacks, and it will be important to select the option that works best for your needs at the outset as it may be costly to have to change structures subsequently.
The simplest type of structure is when a single person goes into business on their own as a sole trader. If that sole trader is trading under a separate business trading name, they will be required to register a business name with the companies registration office in order to publicise to the wider public the person trading behind the business name. In contrast to a company, there are much fewer administrative hurdles to establishing such a sole trader business.
The main drawback of trading as a sole trader is that person’s personal assets are potentially exposed to creditors of the business if the business is not successful.
One of the most common structures selected is a limited liability company which offers the significant advantage of limited liability protection protecting an owner’s personal assets from risk in insolvency. Given the value of such legal protection, there are variously administrative and accounting obligations that must be met. We can assist with establishing the limited liability company and ensuring the appropriate company office filings are made, the creation of the formal company registers and the obtaining of the official company seal.
If you are forming a company with more than one shareholder, we recommend you sign up for a shareholders agreement. That shareholders agreement is a legally binding agreement that set out how the business will be managed and seeks to provide for what will happen in the event of disputes between the shareholders. Typically, a shareholders agreement will contain provisions that deal with the following:
- the right to appoint directors to the board;
- in what circumstances a shareholder can sell their shares to third parties or require a third party to buy their shares when purchasing another shareholder’s shares;
- pre-emption rights to require another shareholder to offer their shares to an existing shareholder;
- bad/good leaver provisions whereby if an employee leaves a job whether they can be required to sell their shares back to the company/other shareholders;
- minority protections whereby certain decisions cannot be taken without the approval of certain minority shareholders;
- non-compete provisions whereby shareholders cannot be involved in competing businesses so long as they hold shares in the business.
- Partnership Formation
When two or more persons go into business together with the objective of earning a profit and do so without forming a company, they will be deemed to have formed a partnership. The main difference with a company is that the partnership will not amount to a separate legal personality and the partners will not benefit from limited liability protection. Conversely, the partnership will not be taxed in addition to the partners, whereas a shareholder will face “double taxation” with a company as the company as a separate legal entity will be subject to corporate taxation and the shareholders will be subject to income tax on the dividends distributed. Furthermore, there is no obligation to file accounts with the companies registration office which may be of value to someone that has particular privacy concerns.
There is no requirement that the partnership must be registered or that the partners even have signed up for any written partnership agreement. The Partnership Act 1890 provides default terms that will unless otherwise agreed apply to a partnership. However, a number of those terms implied by the 1890 Act are typically not appropriate for modern partnerships and it is recommended that the parties dis-apply those terms by signing up to a formal partnership agreement that contains the specific terms of their partnership.
A typical partnership agreement will contain terms that deal with, amongst other things, the following:
- the decisions that can be taken by partners alone, by majority or by unanimity;
- how profits will be distributed between the partners;
- in what circumstances partners can be involved in other businesses and in particular, potentially rival businesses;
- how a partner can resign or be expelled from the partnership;
- how the partnership will be dissolved;
- what property forms the property of the partnership;
- what the partners will be required to contribute to the partnership.