Legal documents you need to start a business: terms, privacy policy and complaints policy

You have the business idea and you are ready to act. What legal documents do you actually need to comply with the law and protect the business? There are two that every new business must have, terms of business and a privacy policy, and a third that far fewer businesses put in place but which, in my opinion, is the most strategic document of the three: a complaints policy. This article covers what each one does and why the complaints policy earns its place.

Terms of business

The main legal document that you must have when starting a business is your terms of business. These are the legal contract that you put in place with your clients or customers. Every time someone buys from you or engages you, the terms of business govern that relationship.

The main goal of your terms of business is to limit your liability as a business. When something goes wrong, and at some point it will, your terms are what determine how far you are on the hook. Without them you are relying on whatever the law implies into the arrangement, which is rarely drafted in your favour.

If you want to understand how the contract itself is put together, see how to write a contract.

Privacy policy and GDPR

The second main document that you must have when starting a business is a privacy policy. The goal here is compliance: you need to comply with data protection regulations such as GDPR.

Almost every business collects personal data in some form, whether that is customer names and email addresses, enquiry forms on a website or supplier contact details. A privacy policy sets out how you collect, use and protect that data, and having one in place is part of being legally compliant from day one.

Why you need a complaints policy

Now for the document that only the smarter businesses tend to use. The most strategic legal document, in my opinion, is the complaints policy.

Inevitably, one day, and it does not matter how many years down the line, you will receive a complaint from a client or customer. Having a complaints policy in place, especially if you are a service provider working B2B, so you offer services to other businesses, allows you to do three things.

Resolve complaints before court action

First, a complaints policy gives you the chance to rectify whatever issue occurred without the claimant going directly to court and suing you. If there is an agreed process for raising a complaint, the natural first step for an unhappy customer is to follow it, which puts you in a position to fix the problem before it becomes a legal claim.

Control what complainants must provide

Second, it gives you control over how complaints are to be made. For example, you can specify what kind of information the complainer, your customer, must provide you with to enable you to rectify the issue.

That matters for two reasons. The obvious one is that you get the information you need to sort the problem out. The less obvious one is that if the customer does not give you that information, you can argue that they are not doing what they are supposed to do, and what they agreed to do, to enable you to fix the issue. A complainant who has not followed the agreed process is in a weaker position than one who has.

How a complaints policy can delay court claims

Third, and this is the strategically important point, a complaints policy allows you to delay action. If the complainer, your customer, has to go through a complaints procedure that takes many weeks to complete, that delays the moment between when they had the issue and when, if they decide to, they bring action against you in the courts.

Time is useful. It gives you room to investigate, to put things right and to have a sensible conversation while tempers cool, rather than being served with a claim the week after a problem arises.

Choosing a UK business structure

With the documents dealt with, there is one more thing to consider before you start: which business structure you want to use. There are many different kinds of vehicle, including private limited companies, partnerships and simply acting as a sole trader. Each has a different effect on your personal liability and your tax position.

The pros and cons of each are set out in which business structure to choose, and it is worth deciding this before you sign your first client, because your terms of business should be in the name of whichever entity is actually trading.

Next steps

Before you take on your first customer, put three documents in place: terms of business that limit your liability, a privacy policy that keeps you compliant with data protection law, and a complaints policy that gives you control and time when something goes wrong. Choose your business structure at the same time so the documents are in the right name. If you want these drafted properly rather than adapted from a template, speak to a commercial solicitor.