Starting a new company can be complicated, and legal challenges are one of the top reasons small businesses fail. With so much information and documentation needed to start and run a company, it’s important to stay on top of the legal aspects of starting a small business if you want to succeed. 

Here are eight legal mistakes commonly made when starting a new company and tips to help you avoid them. 

Legal aspects of starting a small business

2. Forgetting to do a UK trade mark search on your company name and logo!

Many new companies can be so excited to get started that the founders forget to do the necessary trade mark search to see if a company name and logo are already being used or don’t meet the grounds of registration. You wouldn’t want to invest into marketing a brand if you can’t protect it. More importantly, you risk being sued for trade mark infringement.

Tip: Start your UK trade mark search with research through Google, Companies House and the availability of a domain name. This way you’ll be able to see straight away if the company name you’re considering is being used or if there’s something similar already out there. Further research is then necessary, such as searching for trademark availability.  You can complete your own research and search with the Intellectual Property Office (IPO), which is completely free to use. The IPO even enables you to discover UK national trademarks owned by a particular person or company.

It’s important to think beyond just your business name when it comes to trademarking. Are there other parts of your brand that are unique to you? Words? Symbols? Images? If the answer to this is yes, you should consider trademarking it. 

To apply to register a trade mark visit the Gov.UK site and make sure to properly digest the guide to new applications as you can’t change your trade mark once you’ve applied and the fees are non-refundable. 



2. Not having a clear, detailed shareholders agreement

A shareholders agreement should detail how to deal with possible events that could arise, such as a shareholder wanting to leave the business, dying, retiring, incapacity or needing to extract assets. It’s impossible to include every scenario in an agreement, but the more areas that can be predetermined the better. 

Additionally, a company’s goals, strategy, management and decision-making plans need to be clearly explained in a shareholder’s agreement. According to Linkilaw, 65% of startups fail because of co-founder conflicts developing from having no previous legal frameworks for agreements. 

The agreement also needs to include how specific problems will be addressed. If certain details aren’t ironed out from the beginning, it could end up being a pricey and disruptive mistake if there are disputes among shareholders in the future - especially if you’re not working with a shareholders agreement solicitor. 

Tip: Even though it may seem like all of the shareholders are on the same page at the beginning, it’s highly recommended to get as many details as possible ironed out in a shareholder’s agreement before officially starting the company. However, if you have started a business already and don’t have a formal shareholders agreement or even a shareholders agreement template in place, look at doing that as soon as possible. 

Related: Business partner not pulling his weight? Ask him to agree to a dividend waiver

Related: What is the most tax efficient way to extract cash?

Related: Types of shares and how to allocate them

3. Missing out on protective contracts 

Don’t forget to draft contracts with suppliers, employees and contractors. Without protective contracts, you could run into expensive problems down the road. Focus on protecting your company and your finances as cash flow is so vital for small businesses. For example, having clear terms and conditions can help with cash flow and are necessary to protect your company’s legal exposure.

Additionally, you’ll need to create contracts to help protect your intellectual property and confidentiality. It can be beneficial to have restrictive covenants or non-disclosure agreements to avoid employees or contractors taking your know-how, clients, intellectual property or members of staff to a competitor or when setting up their own company. 

Tip: From the beginning, produce a standard contract to help streamline processes and ensure your company is protected. Don’t just download and use generic contracts you find online. It’s important the contacts are specific for your company’s circumstances and protect you from disputes in the future. Get in touch with us today if this is something you need help with. 

Related: SMEs’ most common issue is cash flow. Here’s how to solve it

Related: IR35 off-payroll rules are changing

Related: How to Become an Employer

4. Glossing over who owns the company’s intellectual property

As intellectual property is typically created by a consultant, some companies forget to formally assign it from the consultant to the business. According to a report by the Federation of Small Businesses, 25% of companies have had their intellectual property rights violated in the last five years. 

It’s important to note that intellectual property can only be granted or assigned through writing. Intellectual property includes trademarks, copyrights, patents and are essential for many businesses. This can especially be a problem when selling a business and looking for a business valuation. 

Tip: Ensure the relevant contracts are drafted to make your company’s intellectual property ownership clear. 

Related: Corporate finance for small business

5. Relying on a handshake

A handshake or a phone call isn’t enough to seal a deal. Keep in mind that any commercial decision should be put into a written contract to be legally compliant. Don’t only look at a contract as a formality; these documents are valuable and necessary for every company. 

Tip: Get everything in writing! 

6. Lacking employment documentation

There are a variety of employment documents that need to be put together and signed by employees, such as an employment contract. Additionally, an employee handbook can set forth company policies that form part of your employment contracts, covering areas like holiday, internet usage and conflicts of interest. 

Tip: Employment contracts should include job title, pay, hours of work, included benefits, holiday leave, employment start date and notice periods.

Related: The importance of an Employee Handbook and Contract of Employment

7. Neglecting legal obligations

When starting a new business, it’s important that you satisfy all of the necessary legal obligations, such as officially forming a legal company and figuring out the rules for Corporation Tax, capital gains tax, VAT and payroll.

Tip: Make sure you’re aware of all the legal aspects of starting a small business from the outset. That includes making sure you’re aware of tax rules and deadlines related to you and your business. Check what paperwork you’ll need for Companies House and HMRC.

Related: Small business tax, finance and legal changes for 2020

8. Using a solicitor for legal advice only after an issue arises

Many companies only engage with legal professionals after an issue comes up. This makes it easy to make legal mistakes along the way. Getting advice from a solicitor can provide you with the necessary information to put your company on the right track.

Tip: Work with a solicitor or law professional from the outset, so you can ensure your company has strong foundations.

At Accounts & Legal we provide legal compliance for small business owners

Avoid these common legal mistakes and get your company running smoothly from the beginning with Accounts & Legal. We provide comprehensive company registration services and company formation to help you set up a completely new company, guide you through the process and liaise with the appropriate authorities on your behalf. Essentially, we can take care of the legal needs of small businesses, ensuring legal compliance for small business.

We can also help with all your legal business compliance to ensure you're compliant in employment law, commercial law, HR and shareholders agreements. Give us a call on  0207 043 4000 or more information on the legal aspects of starting a small business, or get an instant quote here.