Legal steps to start a business (UK checklist): company, trade mark, terms of business

What legal steps should you take before you start a business? I am a business solicitor and I have seen a lot of new business owners make costly mistakes with their legal affairs. Business law is complex, but business owners are still expected to know it and follow it. If I were starting over and could only put three things in place before trading and dealing with clients, they would be these: set up a limited company, register my trade mark, and get bespoke terms of business. Here is why, and what to watch out for with each.

One caveat first. This checklist cannot be comprehensive of every law in the UK that you need to comply with. It is my top three, the things I would do first, based on where I see new business owners get into trouble most often.

Set up a limited company to protect your assets

The first thing I would do is set up a limited company. I would be the director and the shareholder of that company, and I would run my business through it.

The reason is that a limited company is recognised in the eyes of the law as a separate legal person. In short, that means my personal assets, my house and my car, are not at risk when I am trading and dealing with clients. If a client sues the limited company and the company does not have enough money to pay, it does not mean my house now needs to be sold to pay that client. Instead the company would go under, and my personal assets are ring-fenced and out of the way. That separation is the whole point of the structure, and it is why I would not trade in my own name for any business that deals with clients.

Setting up a limited company does not mean you can be a cowboy. You should still get insurance in place, and you should still deliver an excellent service, for obvious reasons. But at least the limited company separates your personal assets from the business and from the risk that comes with dealing with third parties. You have more peace of mind.

Register a trade mark with the UK IPO

The second thing I would do when starting a new business is register my trade mark with the UK Intellectual Property Office.

You can do this yourself. You can go to the UK IPO website and submit an application. But you run the risk of, for example, your application being opposed, which means entering into proceedings with the people opposing it, or losing your IPO fees if your application does not comply with the relevant legislation. See how to register a trade mark in the UK for the process.

The main reason to have a registered trade mark is so that you have the exclusive right to use your brand name in your business or industry. Without a registration you do not have that exclusive right, and you may find yourself building a brand you cannot stop others from using.

Word mark vs logo mark

There are two kinds of mark to think about.

• Word marks are trade marks that you apply for using letters only, for example your brand name. They are harder to secure, but at the same time they give you more rights over that specific brand name.
• Logo marks are typically an image or logo with some stylistic element that nonetheless contains your brand's name. Your chances of securing a registered logo mark are higher, but your rights could be a little more limited.

In an ideal world you would apply for as many trade marks as possible, so long as they are genuinely your trade marks and you intend to use them, so that you hold as much intellectual property as possible.

Why you need bespoke terms of business

The third thing I would do when starting a new business is get my terms of business in place. These are your terms of service, or your terms and conditions for the sale of products. The aim is to protect your business and minimise the risk of legal claims being brought against your company.

You should see your terms of business as the rules that have been agreed between your company and your clients. Since you are the one who drafts and decides what those rules should be, you have a unique opportunity to control, pretty much, how your relationship with your clients is to be seen. For the basics of drafting, see how to write a contract.

Why not to copy terms and conditions

I often see new business owners simply copy the terms and conditions from a competitor's website. That is a copyright infringement, and people are often sued for it. The alternative I see is downloading a cheap template from the internet.

The problem with both is that these documents cannot be bespoke to your unique business. Because they are not bespoke, they do not properly protect your unique business offering. The rules in the document are not the rules you actually need, and you usually only find that out when a client makes a claim and you look at your terms for the first time.

Selling vs licensing: a drafting example

I also see clients fall into legal traps when they draft their own documents. One client of my practice wanted to sell data. They had started drafting their own document and just wanted us to give it a quick review. In their contract they stated that they were selling data.

In colloquial terms, in conversation, you can talk about businesses that sell data and make a profit from it. But in a legal contract, a legally binding agreement, when you sell something you typically give exclusive possession of the thing you sold. That means once you have sold data to a third party, you cannot resell that same data to other people. That is exactly the opposite of what my client intended. They wanted to gather data and then continuously license it to multiple people, giving access to many customers, usually on a subscription basis.

Thankfully we spotted it, and we had to completely redraft a brand new set of terms and conditions to properly reflect their unique business. If they had not come to us and we had not drafted a new contract, their entire business would very likely have been in deep legal trouble. One word, sell instead of license, would have undermined the whole model. That is the difference between everyday language and legal language, and it is why I would not rely on self-drafted terms for anything that matters to the business.

The three steps as a checklist

To put it in order:

• Step 1: incorporate a limited company. Be its director and shareholder and run the business through it, so that your personal assets are separated from the risk of trading. Get insurance in place alongside it.
• Step 2: register your trade mark. Apply to the UK IPO for your brand name, ideally as a word mark and a logo mark, so that you have the exclusive right to use it in your industry.
• Step 3: get bespoke terms of business. Have terms of service or terms and conditions drafted for your specific offering, so that the rules between you and your clients are the ones you need and your liability is properly limited.

3 UK laws every business owner should know

Once you are up and running, there are three laws I believe you should be aware of: UK GDPR, the Companies Act 2006 and the Finance Act 2004. I cover what each one requires of you in legal aspects of running a business.

Next steps

Before you take on your first client, incorporate a limited company and run the business through it, apply to register your brand name as a trade mark, and have terms of business drafted for your specific business rather than copied or downloaded. If you are unsure how your terms should describe what you actually do, speak to a commercial solicitor before you start trading, not after a client makes a claim.