If it’s your first time in business, it’s likely you have focussed a great deal on your business model, on developing your brand identity and on finding your customer base. However, you may not have given much thought to the legal side of the business and the necessary documentation that follows. 

These important aspects often go overlooked. In this article, we will explore the fundamental legal documents your small business will need to establish itself, commence trading and prosper.

What are the first legal steps I must take?

This largely depends on whether you will trade as a sole trader or a limited company:

Sole trader

As a sole trader, there is very little you need to do to get started – the main thing you need to do is contact HMRC, register as self-employed, and provide HMRC with the trading name of your business.  

You will then be registered to pay tax and national insurance contributions on your self-employed earnings. 

Limited company

If you don’t go down the sole trader route, you need to understand how to set up a limited company. This requires an application to Companies House. As part of this application, you must provide (amongst other things) details of your directors and shareholdings and register a business name.  

They will then issue you a Certificate of Incorporation, the formal document confirming your new company's coming into existence. 

Once you have incorporated your company, you’ll need to register it with HMRC so that you are liable to pay Corporation Tax on its profits.

Depending on your circumstances, you may also need to register your business for VAT, but you must discuss this with your accountant before registering.

As a company, you should also prepare your company letterhead and other formal company documents, such as your invoice and receipt templates with your company details, including your logo, company number, registered office and VAT number, etc., as applicable. 

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Which insurance policies do I need?

You should put in place appropriate insurance policies before you begin trading. 

The types of insurance policies you need will depend on the type of business you will be running and the sector in which you’ll be trading:

• Employers Liability Insurance - is a legal requirement for all businesses employing staff.
• Public Liability Insurance - is recommended if your business involves interacting with the public or third parties.
• Buildings Insurance - is necessary if your business operates from its premises.

If leasing premises, the landlord usually insures the building and charges the tenant via the lease.

• Professional Indemnity - Insurance is required for businesses that offer professional services or advice.
• Cyber Insurance - is advisable for businesses vulnerable to online attacks.
• Product Liability and Stock Insurance - may be necessary for businesses that manufacture or sell goods.

What about data protection?

You should check whether you need to register your business with the Information Commissioner’s Office. If you do, then you pay a small annual fee to do so. 

However, if you do not register when you are required to do so, then this can result in a substantial fine.

You should also ensure you have the appropriate privacy policy, privacy notices and website terms prepared and available for use.

Staff Documents

When it comes to hiring employees for your small business, there are a number of legal documents that you'll need to have in place. These documents not only protect your business but also ensure that your employees are properly informed and protected. 

• Check Right to Work when hiring employees, including verifying identification documents
• Issue Contracts of Employment to employees outlining the terms of their employment (you should seek advice from an employment lawyer if you need help with contracts)
• Consult with an accountant to handle the tax and accounting side of employing staff, such as registering for PAYE, payroll processes, and tax and national insurance deductions.
• Comply with pension auto-enrolment and contributions laws and seek specialist pensions advice if necessary

Contracts

You should put in place comprehensive terms and conditions when dealing with your clients/customers. 

These contracts will help them understand your business's legal aspects. More importantly, they will protect your business in various ways, such as by limiting your liability and helping with your cash flow.

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Wrapping up 

In conclusion, setting up a small business requires careful consideration of legal requirements and documents necessary to comply with regulations and protect the business. 

Failure to comply with these requirements can lead to significant financial and reputational risks for your business. Therefore, seeking advice and support from experienced commercial or corporate lawyers can help ensure your business is legally compliant and well-protected. 

LawBite experienced lawyers can provide comprehensive support for all your commercial, corporate, and employment legal matters and help you establish a solid legal foundation for your small business.

About the author

Ashley Gurr is a commercial and contract lawyer at LawBite. Ashley has over 15 years of experience in private practice helping SMEs and in-house for an international consultancy group advising on commercial contracts and a multi-national utility giant in a contract strategy role.