These notes are summaries of the topics covered on the Business Law & Practice module on the LPC course. It covers all the essential aspects a student will need to know to be prepared for the exam such as company law, partnership law, director duties, board meeting procedure and all the different t...
L1.Legal and Practical Considerations of Starting up a Business
The following areas should always be considered when starting a business - Business
Mediums:
1. Taxation
o Businesses with residence in the UK must make a true return of income each
year.
o Notifications and Returns
Inform HMRC of new business
If previously employed send P45
Make return in time and consider self-assessment
o Employees
If have employees then need to operate PAYE and make appropriate
Income Tax deductions
o Accounting Records
Essential to keep full and accurate [digital] records from the start
which give a true and fair view or risk an estimate from HMRC which
may be difficult to disprove.
Records depend in the size and type of business but should record all
receipts and payments of money relating to the business.
Helps to prepare the business’ accounts to represent the true results
of the business
o Engaging an Accountant
NOT ESSENTIAL – except that a company may require audited
accounts (extra cost but advantage)
Professional Advice on NI contributions, VAT and the operation of
PAYE.
Can draw up business accounts and help with timely claiming of tax
reliefs.
HMRC usually corresponds with the accountant if there is one but
sends Tax Returns and formal notices to the business partner.
o Tax Planning
Commercial and Investment factors to ensure that the taxation
implications are properly understood and minimised.
Full advantage is taken off any available allowances, tax reliefs and
exemptions.
2. Banking
o Separate bank account should always be opened for the business
o To open a business account you DO NOT require to give the bank a “charge”
over the property.
o Companies: Bank will require certain documentation
Certified Copy Certificate of Incorporation
Memorandum and Articles of Association
Standard Resolutions of the Board of Directors authorising the
opening of the account and those entitled to operate the account.
*Is client aware of the risks of giving personal guarantees (PG)?
3. Licences and Registrations
, o Data Protection Act 2018: If the business is keeping/using personal
information (contact information Commissioner)
o Consumer Credit Act 1974: If businesses is offering credit/hire facilities
(issued by FCA)
o Financial Services and Markets Act 2000: If the business is engaging in
investment business (e.g. solicitors may need authorisation)
o Licence to Run a Recruitment Agency (from the Employment Agency
Standards Inspectorate)
o Licence for Food Manufacture (from the Food Standards Agency)
4. Intellectual Property
o Protection by Registration: Invention and design rights at the Patent Office,
o Trade Marks at the Trades Mark Registry
o Passing Off: Whether there is any possibility with the client offending
someone else’s intellectual property rights – example: by common law tort of
passing off
5. Business Premises
o All businesses need premises from which to do business.
o Cost of accommodation is often the largest start-up cost and therefore it is
vitally important that the accommodation arrangements are properly
structured
Conveyancing Matters
Need for planning permission
Need for Landlord’s/Building Society’s Consent
Terms of Occupation of premises
Insurance position
Commercial/Investment Matters
The taxation implications
Investment implications of ownership
Income return
Capital return
Risk
Using a “Residential Premises”
Need to obtain planning permission for any extensions etc
Need to check the Title Deeds of the property
o Could conduct a Land Registry Search
Use of house for Commercial Purposes would jeopardise
entitlement to CGT relief when selling the house
Likely to increase Council Tax
May invalidate ‘Insurance Policies’
Easier to just rent a premises.
6. Financing
o Client may require advise as to sources of funding and client should be
introduced to it.
o Independent Legal Advice (ILA) needed for loans from
family/friend/daughters etc.
o The Business Person Himself
, Usually for a new business venture an investment of capital will be
required as a display of commitment to another outside source of
finance.
o Banks and other Lenders
Provide and overdraft facility from the businesses bank for the day to
day operating expenses of the business, finance can be obtained from
the banks and other lenders as a fixed term loan.
o Venture Capital
Where the business needs substantial finance and does not want to
use its bank then it may be able to obtain finance from a venture
capital organisation.
In addition to taking the shares they will often insist on representation
on the company’s board of directors.
o Loans from Family Members
Tax advantages in paying the family member a salary or interest on
the loan – income tax reliefs.
Salary paid to employees or interest paid to lenders will quality as
income expenditure further to ITTOIA Pt 2 and deductible in
computing the profits of the business.
Both family members should be able to take advantage of their
personal allowances for Income Tax purposes (£12,500 – 2020/2021)
so that no IT is paid on the income.
7. National Insurance Contributions
o The Self-Employed (i.e. Sole Traders & Partners) must pay for themselves
o If they have employees then must pay employers NICs and collect and pay
employees NICs.
8. Value Added Tax
o A. Compulsory Registration
If taxable turnover of the business has exceeded £85,000 (threshold
since 1st April 2018) in the previous period of 12 months OR is
expected to exceed £85,000 in the next 30 days (alone) following the
start if trading then:
The proprietor must register for VAT within 30 days
VAT - Client should contact the local HM Revenue & Customs
Office and they will send necessary forms to complete.
o Must also show (a) Letter from his bank (b) Copy of the
completed orders would be enough also
o B. Voluntary Registration
Possible if can show that making taxable supplies by way of business
even if NOT excess of £85,000
Upon registration VAT must be charged and accounted for on the
output of goods or services by the business.
9. Insurance
o Compulsory Insurance:
Employers Liability
Third Party Liability for Vehicles
Professional Indemnity for certain activities (e.g. solicitor)
, o Advisable Insurance:
Fire
Theft
Product Liability
Professional Liability
Directors’ Indemnity
Trade Indemnity
Key Person
10. Employees
o If the business is to have employees then there are legal and practical
considerations to bear in mind in the following areas
o Recruitment
Duties under the Equality Act 2010
o Statement of Main Terms
Under the S.1 Employment Rights act 1996 then the employer must
give the employee a statement of certain basic terms of his
employment
For employees engaged on or after 6th April 2020 this is now a “day
one” right)
Can also be given in a Written Contract
o Contract of Employment
There is NO LEGAL REQUIREMNET as such for employment contracts
but they are often advisable to define clearly the employer/employee
relationship and to protect employer’s position.
Place of work
Duties
Restrictive Covenants
Confidentiality
Extended/Persistent absence from work
o Insurance
Employer’s Liability – COMPULSORY
o Tax & National Insurance
o Health & Safety
There are various common law and statutory duties upon the
employer to take reasonable care for the safety of the employees.
o Right of Redundancy, Not to be Unfairly Dismissed, Ante-Natal Care, Equal
Treatment
11. Name and Publicity Requirements
The Company, LLP and Business Names (Sensitive Words and
Expressions) Regulations 2014 (SI 2014/3140)
The Company, LLP and Business (Names and Trading Disclosures)
Regulations 2015
[Failure to comply with the above can be an offence and can lead to
loss of the ability to enforce contracts and personal liability in the case
of a company] – S.1197 CA
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