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Collyer Bristow: Legal Guidance

08-08-2012   


We are often asked questions by those who are just setting up in business , or who have set up and have queries they would like answered—often these questions are fairly similar in nature and include the same themes… This is the first of a series of questions and short answers and comments  which we hope will be useful. As always we confirm these notes are for general guidance only  — when in doubt please seek specific advice.

Paper trails.. the  key to the rest of it …

If you take only one piece of legal and common sense advice ( which might also save you a lot of time , money, aggravation  and stress)  away from these comments then it is this. Each time you agree to do –or not to do– something, so  agree to buy, sell , rent , lease , hire, fire,  enter into a contract , cancel a contract, etc.,  keep a note .. so easy to do , but so easy to forget to do…below we mention some examples of why this is important

I want to start a business – give me some initial guidance.

The easiest way to start to trade is to do so in my own name and on my own behalf—this is called a sole trader.. So there is almost nothing to stop me starting to trade later on today under the name Nick Gould. But this does not separate me as an individual from my business. Anyone I decide to contract with in my business life, will be contracting with me personally, for example my suppliers and customers.   All the income / profits I receive are mine. Tax, accounting and National Insurance issues are straight-forward. I will be treated as self-employed. Often this tends to be is the preferred route for many new businesses. Management decisions are easy – no arguments or shareholder disputes (a point not to be ignored as we will see another time ) as all the decisions will be mine . The big downside is on the risk and liability side. If it all goes wrong these problems  will all land on my doorstep….which takes us on to the benefits of the limited liability company…..

The great advantage of creating a company is that it is separate and distinct from its shareholders (owners) and directors (managers). So if I form a company and I am the only director and own all the shares, if it goes bust the liability stops and stays at the level of the company itself in most circumstances.  If things go wrong with a distributor and there is a breach of contract, again it is the company which gets sued, not me.

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Tell me about Directors and Shareholders and company secretaries

Every private company in England needs to have at least one director and one shareholder , but doesn’t need to appoint a company secretary any more. The director and shareholder can be the same person. They don’t need to be English—for company law purposes they need have no connection with England at all. Each year the company will need to file a form at Companies House ( the company registry) showing  details of all directors and shareholders.

Do I need an agent or a distributor ?

It is important that you consider carefully your contractual relationships and how best they can work for you and your business.  When appointing a distributor or an agent you should think about whether you want to contract with and supply products directly to customers introduced by a third party, the financial risk involved, margins on resale or commission payments, to what extent you can restrict competition, in respect of which territories and/or customers you will appoint a distributor or agent and the authority, rights and duties you will give to the other party.  Getting these contracts right can be the key to a successful business.

How about Brand Protection?

You will want to know how to protect the identity of your brand and products.  The external appearance of the whole or part of you products can be protected as a registered design and if a design is original and unusual an automatic unregistered design right may apply. You can use these rights to protect the packaging of products as well as the design of garments or accessories, for instance.  Distinctive shapes, logos and names are capable of protection as registered trademarks and graphic and artistic works are capable of protection under copyright.  There are many processes under English law by which  you can protect your brand and it is important to consider these at an early stage in your development so as to avoid wasted costs and potential infringement issues.

And Employment?

You will want to agree clear, written terms and conditions of employment for all staff.  Employees are entitled to be given in writing certain key pieces of information about their employment (such as salary, notice period, holiday entitlement etc.,) and you will be in breach if you don’t do this..  You need consider if it is appropriate to impose any restrictions on employees which seek to limit their ability to work for competitors or compete with your business for a limited period after the termination of their employment with you.  It is not always legally possible to do so, but in appropriate circumstances this can be a very effective solution.

If you engage the services of any self-employed contractors or freelancers, then you will equally need to ensure that the terms are clear and that there is no scope to argue that they are in effect your employees and entitled to employees’ rights (such as the right not to be unfairly dismissed).

Nick Gould
Partner

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Collyer Bristow LLP solicitors
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www.collyerbristow.com
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