Law for Small Business For Dummies Cheat Sheet - dummies
Cheat Sheet

Law for Small Business For Dummies Cheat Sheet

From Law for Small Business For Dummies - UK, UK Edition

By Clive Rich

Entrepreneurs don’t normally think about planning their legal journey alongside planning other aspects of the business. Here are five typical life stages of a small or medium-size enterprise (SME) and their associated legal issues that you need to address. They form a map that may just stop you from losing your way in the middle of nowhere and driving your business into a legal muddy field — with a bored cow staring at your crying children in the backseat and a stony-faced spouse Googling ‘quick divorces’ on your smart phone.

Consider Legal Issues Before You Start Your Small Business

When you start on a long journey to somewhere new in your small or medium-size enterprise (SME), you need a map to follow. You need to consider some of the legal issues before you embark on that journey. At the initial stage of your small business, you have the following aspects in place:

  • An idea for a potentially scalable product/service idea with a big enough target market.

  • Some initial revenue models for how it can make money.

  • A business plan with milestones.

  • An idea of how much funding you need.

  • Initial core management (maybe only one or two people).

If you feel that don’t have the head-space to think about legal issues at this early stage, you may need to grow a bigger head! Here’s what you need to consider:

  • Reviewing your potential legal structure: Do you want to be a sole trader, a general partnership, a limited company or a limited liability partnership?

  • Checking Companies House and trademark and domain name registers: Search for competing trading names that may stop you using the name that you want.

  • Setting up your business structure: Implementing your decision as a sole trader/limited company/partnership structure. You also need to comply with formalities, such as registering your new enterprise with Companies House, filing resolutions and appointing directors.

  • Drawing up and entering into agreements: Shareholder and/or partnership ones.

  • Deciding what kind of external funding you require: Loans, equity funding from angels, crowd funding?

  • Raising funding: Plus closing the funding agreement(s) for your seed-funding round.

Take Care of Legal Priorities When Launching Your Small Business

During the launch stage of your small or medium-size enterprise (SME), you need to consider a bunch of legal issues. A whole host of issues are going on at this stage in your small business, including:

  • Hiring additional members of the team, whether as contractors or employees (make sure that you know the legal difference).

  • Acquiring or creating key assets (software, content and so on).

  • Creating a marketing plan.

  • Adding non-execs to give you more perspective and wider contacts.

  • Developing software – whether for your website, apps or programs.

  • Developing and launching a Minimum Viable Product to get you into the marketplace.

You have plenty to do just juggling these priorities. But don’t forget your legal priorities at this stage, otherwise all those plates you’re spinning risk crashing to the ground. Here’s your legal to-do list during this stage of your business development:

  • Creating contracts for your contractors and consultants.

  • Creating contracts for your employees.

  • Implementing share option schemes for employees or anyone else you need to incentivise.

  • Adding non-exec agreements.

  • Hiring temporary staff.

  • Setting out your online trading terms/privacy terms.

  • Complying with trading laws, such as the Electronic Commerce Directive, 2002.

  • Complying with employment legislation (for example, Health and Safety at Work, 1974, Pensions Act, 2008, Data Protection Act, 1998).

  • Contracting for premises for your business.

  • Reviewing and protecting your intellectual property, such as the potential for trademarks, patents, design rights, database rights and copyrights.

  • Entering into software-development contracts.

Essential Legal Steps When Growing Your Small Business

It’s important that you remember to take important legal steps when you’re growing your small business. When your business is really flying, you’re rushing round excitedly like a howling dervish doing the following simultaneously:

  • Securing your next round of funding for sales and marketing.

  • Consolidating your supply chain.

  • Developing user growth and/or revenue.

  • Obtaining market validation.

  • Developing sales and distribution channels.

  • Expanding into new markets and territories.

In your quieter moments, here are the legal priorities you have to contemplate as your business takes off:

  • Agreeing terms for ‘series A’ funding and signing agreement(s).

  • Negotiating and agreeing trading agreements for manufacture, distribution and licensing, wholesaling, and retailing.

  • Negotiating and agreeing service agreements for sales agents, sales affiliates and using software as a service (SaaS).

  • Contracting with consumers.

  • Applying consumer law properly (for example, the Consumer Rights Act, 2015).

  • Putting a proper process in place for dealing with consumer complaints.

  • Contracting abroad — exporting, franchising, licensing and setting up subsidiaries.

Stay in Business with These Legal Tips

As your business expands, you can’t neglect the legal aspects. Your expanding enterprise is a bit like a teenager experiencing growing pains — getting bigger at a startling rate but experiencing unexpected aches and strains that slow it down, or just make you want to have a lie down. These problems include:

  • Trading risks from customers and suppliers who don’t pay on time or at all.

  • Disputes with trading partners, contractors or employees.

  • Pressures on cash as expansion costs outstrip your ability to pay your way.

While mopping your fevered brow as you sweat about these threats, here are the legal issues to add to your list of concerns at this stage of your business’s growth:

  • Having a credit control policy in place to make sure that people don’t owe you too much.

  • Implementing Terms and Conditions to deal with payment defaults by customers and suppliers.

  • Defraying risk by using invoice discounting or invoice factoring agreements to collect cash early.

  • Setting up insurance policies to mitigate risk (for example, insurance for employers’ liability and professional indemnity).

  • Knowing how to handle financial threats, such as statutory demands or attempts by bullying creditors to wind up your business.

  • Managing disputes effectively — whether through the courts or other channels, such as mediation, arbitration or simply smart negotiation.

Know the Legal Requirements to Exit Your Small Business

When you’re exiting (that is, selling) your small business, you need to know what’s required legally. At last — the finishing line is in sight. Like an over-heated decathlete you can’t stop extra disciplines being added to your list of events, including:

  • Raising lots more money for significant growth.

  • Creating exponential growth through partnerships and joint ventures.

  • Buying or merging with other firms.

  • Repeating previous stages of the business with other products (diversifying).

  • Preparing the business for expansion or sale.

  • Selling shares or assets.

  • Exiting the business.

When plotting your path to blazing success, take note of this checklist of legal issues to consider:

  • Implementing significant ‘A’ or ‘B’ funding rounds.

  • Entering joint venture agreements with other partners.

  • Constructing acquisition or merger agreements with target companies.

  • Implementing legal steps from previous stages of your business’s growth for new diversified products.

  • Dealing with terms sheets and any buyer’s due diligence.

  • Contracting to sell all or part of the business as shares or assets.