The Honest Guide To What You Do And Don’t Actually Need A Solicitor For – Part 1: Setting Up A Business

Last updated: 6 September 2017

Estimated reading time: 17 minutes

There’s no doubt that legal advice is beneficial and in some cases invaluable when setting up your business. However, at Harper James Solicitors, we pride ourselves on being totally upfront with our clients…

That’s why we’re starting a series on what you and your business genuinely need a business solicitor – and legal advice – for, and what you can actually do for yourself. This is part one: what you do and don’t need a solicitor for during the business formation stage.

Here you’ll find out:

  1. What a solicitor definitely can’t do for you, and where else to look
    1. 1. Choosing the right business structure and registering it
    2. 2. Helping you with agreements about business premises
    3. 3. Helping you with licences to trade
  • When you need a solicitor for setting up your business: at-a-glance task checklist
  • What our clients’ experiences were when choosing whether to take legal advice
  • What a solicitor definitely can’t do for you, and where else to look

    Now, it’s true that a business solicitor could do these for you, maybe if you were asking in a personal capacity, but it isn’t their job or area of expertise – so why pay for that? When setting up a company, there are some obvious first steps you probably shouldn’t be paying a solicitor for. They include anything that doesn’t need legal expertise, such as:

    • having an idea
    • writing a business plan (unless, of course, you’re planning to set up a law firm – then a solicitor might be able to help!)
    • market research
    • choosing a name for your business

    Of course, much of the creative spark to start a new business should come from yourself. A solicitor can’t help with the lightbulb moment, but let’s explore some of the alternative resources you can draw on for this part of your business genesis:

    Idea generation Family, friends, colleagues, other businesses and yourself are the ideal starting point for generating a business idea.
    However, you can also read advice on business ideas here:

     

    Writing a business plan There are numerous free templates and guides available online for writing your business plan. Our favourites are:

     

    You can also find many agencies and freelancers who offer services to write your business plan for you.

    Market research Market research is an absolute must when setting up a company, since you need to understand both potential and existing customers’ wants, needs and budgets. You will need to do both desk and field research.
    You can do your own primary research in the form of surveys, polls, questionnaires and focus groups. These are reasonably simple to do, once you have decided which questions you want answered. You can also commission any number of market research companies to do this for you on a bespoke basis. Some of the bigger market research companies include:

     

    Always use an accredited company – the Market Research Society’s Buyers Guide is handy, or find a smaller market research consultant at the Independent Consultants Group.
    You can also get out there and do it yourself, either online or offline. Standing on street corners with a clipboard, or cold-calling are becoming increasingly difficult, so the internet is fast becoming the most efficient way to gather the market information you need. There are a host of websites and tools to conduct online surveys: you will usually have to pay to target a specific demographic. Google Surveys can be useful for this task.
    Desk research is often secondary and utilises third-party information and research that has already been published. You can pay for reports that have been published recently, or look out for companies that publish occasional reports (or summaries) for free. Useful sources for free market research analysis can be industry publications, trade associations and even competitors, but also these:

    Choosing a name for your business Advice and suggestions on choosing a strong business name are plentiful online. However, there are certain legal considerations when naming your business, and they are different depending on the legal structure your business takes. Generally, though, your business name must not:

     

    • be offensive
    • contain any sensitive words or imply connection or endorsement from a government body or local authority
    • be the same as or too similar to someone else’s business name, unless you are a sole trader using your own name, or your business is part of the same group as the existing business name
    • be the same as an existing trade mark registered by a different company
    • include words such as ‘accredited’ unless you have permission from BEIS
    • include misleading titles – for example, if you’re a sole trader or partnership, the name can’t include ‘limited’, ‘ltd’, ‘LLP’ or ‘plc’ and so on.

    You don’t really need a solicitor to advise on choosing your business name, you just need to check these places to make sure it fulfils the above criteria:

    However, if you want to stop people trading under the same business name as you, you’ll have to register your name as a trade mark. You don’t necessarily have to use a solicitor to do this, you can register a trade mark yourself here.

    Registering your business at Companies House Once you’ve chosen a legal structure for your business, such as a limited liability partnership or limited company, you may need to get legal advice on the configuration of that structure, and draft agreements to make sure everyone in it is clear on their responsibilities and liabilities.
    However, once this is all finalised and you have the agreements you need, you don’t need a business solicitor to register your business at Companies House. Once you’ve chosen a name that is unique, allowed, and not too similar to any other registered company, you can register your business at Companies House yourself. We’ll explain more about this below.

    What a solicitor can advise you on when setting up your business

    There are some things a business solicitor can definitely help you with when setting up your business, such as:

    1. Choosing the right business structure and registering it at Companies House
    2. Helping you with agreements about business premises
    3. Helping you with licenses to trade

    However, in some types of business, you might be able to do these tasks yourself. Let’s look at some common business structures to see whether or not you really need a business solicitor for each task:

    1. Choosing the right business structure and registering it

    Whether or not you will need legal advice on choosing the best legal structure for your business clearly depends very much on the size, complexity and goals of the business you’re setting up.
    Here we give a very brief overview of common types of business structures, and where you can read more on each type:

    Type of business What is it? Find out more
    Sole traders A simple way of running your own business without partners or shareholders. Involves minimal set up and accounting duties, but you’re personally liable for any business debts. Guides on gov.uk and Small Business.
    General partnerships Personally sharing responsibilities between yourself and another person or business entity. Profits are taxed as income, and each partner files a separate tax return. Like sole traders, all partners are liable for any business debts. Guides on gov.uk.
    Limited partnerships (LPs) LPs are a rarely used legal structure for most companies – their purpose is almost exclusively for setting up and administering funds.
    LPs are similar to a general partnership, except at least one partner is a general partner who controls and manages the business, and at least one is a limited partner whose liability for debts is limited to only the amount they’ve contributed to the business.
    Guide on gov.uk.
    Private fund limited partnerships (PFLPs) Introduced on 6 April 2017, the PFLP is a new type of limited partnership specifically suited to the needs of private equity funds and their managers and investors. This business structure aims to offer better protection and clearer boundaries for investors’ limited liability (compared to LPs), and also aims to lessen some of the administrative and financial burdens that have had an impact on private funds using the LP structure. Read the new legislation, Legislative Reform (Private Fund Limited Partnerships) Order 2017.
    Limited liability partnerships (LLPs) A relatively recent invention, LLPs further reduce any partner’s financial liability for the debts of the business. They must have at least two designated partners at all times. Guides on gov.uk.
    Social enterprises Businesses that help people or communities. These are often set up as charities or charitable incorporated organisations, but they can also be co-operatives or community interest companies. Read gov.uk’s guide to legal forms for social enterprises. Further resources available at Social Enterprise UK.
    Limited companies A company is a trading vehicle existing in its own right; that is, it is a separate legal entity from the people that own it (the shareholders) and the people that manage it (the directors). The most common form of company used in practice is a company limited by shares (which can either be a private or public company). A company limited by shares is responsible for its own debts and liabilities. The liability of each shareholder for the company’s debts is generally limited to the amount unpaid on that shareholder’s shares. Limited companies are incorporated at Companies House and are subject to ongoing filing and disclosure obligations. Guide on gov.uk.

    You can also choose to set up your business as part of a franchise. However, to do this, you must first choose one of the above legal structures before then going on to buy a franchise. For this reason, the initial steps of forming a legal business structure are therefore the same.
    Of course, a solicitor can advise you on which legal structure will best meet your needs, but so can a business adviser or financial adviser.
    But once you’ve chosen your preferred structure, do you still need a lawyer (or accountant or agent) for the actual company formation and registration?

    Choosing the right business structure and registering it – do you need a solicitor or not?
    Sole trader It depends on the business. However, unless you need something specific like a licence to trade, you have regulatory obligations, or data protection principles, most sole traders are fine handling their business affairs on their own.
    You don’t have to register at Companies House if you’re a sole trader. You just have to register for Self-Assessment and file your tax return each year. You don’t have to register for VAT unless your turnover is more than £85,000.
    General partnership Probably. Although there’s no legal obligation to do so, it’s important to get legal advice on setting up as ordinary general partnership and on drafting a partnership agreement that details how you’ll work together.
    The Partnership Act 1890 (PA 1890) forms the basis of today’s partnership law. Although the PA 1890 covers most of the necessary ground in setting up a partnership, it doesn’t cover all of it and some provisions are outdated. It also treats all partners as equal (for example in terms of contribution and profit share). Therefore, it is always advisable to enter into a general partnership agreement to ensure the relationship between partners is accurately documented.
    You’ll all need to register as self-employed. One of you will have to be the nominated partner and register your partnership for Self-Assessment with HMRC. You can register the partnership online or by using form SA400. Register as a partner using form SA401.
    Limited partnership (LP) Yes. LPs are used specifically for dealing with potentially complex funds to set up and administer them. Within a LP, there will be two types of partners (general and limited) and they each have different responsibilities and debt liabilities. It is therefore important to get a solicitor to advise you on which parties should take which roles, and draft agreements to that effect, including a limited partnership agreement, to ensure the arrangement complies with the Limited Partnership Act 1907 (as amended).
    Registering a limited partnership can only be done by post, not online yet. Download the form and find the address to send it to here.
    Private fund limited partnership (PFLP) Yes, particularly as you will be dealing with complex financial structures (similar to LPs, above). A LP may only be designated as a PFLP if it satisfies the ‘private fund conditions’ and the general partner must confirm the partnership meets these conditions when applying for registration and designation. Whether your asset fund business is an existing limited partnership that you want to convert to a PFLP, or it is a completely new fund, it is likely that your business will require new or amended documents and agreements that will benefit from legal advice.
    Limited liability partnership (LLP) Yes, as the responsibilities of each partner need to be set out in the LLP agreement, along with how profits are to be split, who will make decisions, and how partners sever ties with the business. It is vital that you get legal advice on this agreement, and whether your business will even qualify to register as an LLP.
    A solicitor will most likely need to draw up the documentation for your LLP to be registered, but once this is complete, it’s possible you can register your LLP yourself on form LL IN01.
    Limited company Yes, you will need legal advice to ‘incorporate’ your company if you have more than one shareholder or if other people have significant control (ie, over 25%) over your company.
    It is always recommended that, where a company has more than one shareholder, they enter into a shareholders’ agreement on incorporation and that the articles of association of the company are tailored to the specific needs of the company. The articles of association are a public document and must be filed at Companies House on incorporation. The company must notify Companies House of any changes made to the articles during its lifecycle.
    If you only have one shareholder, you can set up as a limited company, and register it yourself, without help from a solicitor – either online or by post on form IN01, although we would always be happy to do this for you if preferred.

    There are several helpful government guides on forming and registering types of company at Companies House. Find them all here:

    2. Helping you with agreements about business premises

    No matter what kind of business structure you’ve chosen, it’s advisable to get legal advice from a commercial property solicitor if:

    • Your business is buying or selling commercial property
    • Your business is going to be a landlord or tenant of commercial premises
    • Your business is taking over an existing commercial lease

    Commercial property law is very complex – much more so than residential property!
    One of the only situations in which your company would not require legal advice from a specialist commercial property solicitor is if you are a sole trader running a business from your home. Most of the advice you’ll need for doing this can be found on gov.uk.

    3. Helping you with licences to trade

    There are as many licences to trade as there are different business ideas! There are, however, many licences which you can apply for yourself, including those for street trading, selling alcohol, and operating food premises. You can find a complete list, and usually apply online, here. You can also use the licence finder to find out which licences are applicable to your industry.
    However, there are some kinds of licences that are very specialist, and which will require advice from a licensing lawyer. The types of licence you may need legal help with include:

    • Air carriers and civil aviation
    • Chemical weapons
    • Controlled medical drugs
    • Consumer credit
    • Due diligence on licensing
    • Gambling and betting licences
    • Licensing any intellectual property
    • Overseas trading, such as importing and exporting
    • Working with hazardous substances

    When you need a solicitor for setting up your business: at-a-glance task checklist

    TaskDo you need a solicitor?
    Choosing a business nameNo
    Preparing partnership agreementsYes
    Preparing shareholder agreementsYes, if you have shareholders
    Preparing articles of associationYes, if you have shareholders and want articles that are particularised
    Registering at Companies HouseNo, providing you have all the required documentation (for which you may need a solicitor)
    Selling, buying or leasing commercial propertyYes
    Getting insuranceNo – find the correct business insurance at ABI
    Obtaining licences to tradeDepends on the industry
    Registering for VAT and other relevant taxes with HMRCNo

    So, as we’ve seen, you can actually do a lot of the company formation tasks yourself, especially if you’re a one-person-band with a straightforward business. But once your business ideas and structure start getting more complex, it’s best to involve a solicitor – at least for sound legal advice, if not the actual filing itself.

    What our clients’ experiences were when choosing whether to take legal advice

    We asked several of our clients what their experiences were with legal advice (not necessarily from us!) during the initial stage of setting up their companies. Here’s what they said:

    Nick Holzherr, CEO, Whisk.com and Air HR software:
    When setting up your business, were you clear on what you did and didn’t need a solicitor for?
    I wasn’t sure at all. To be entirely honest, I was often looking to save on legal contracts and tried to use templates from template banks – a process that took significant amounts of my time
    For the very first steps in your company formation (like deciding which kind of legal structure to take, registering with Companies House etc), how did you feel about getting a solicitor at this stage? Did you consider a company formation agent?
    Because we took investment when first setting up Whisk.com – I used a solicitor firm that our lead investors (Midven) recommended. It was the biggest deal we’d ever done – so we definitely wanted to have solicitors helping us. We set up all company formation documents, investment documents and employment contracts.
    That’s actually when I first met Toby Harper – he was acting for the other party. I was so impressed with how he quickly helped everyone get to the same page that I asked him whether he could help me on new deals we were doing. He happily obliged – and about a year later he set up Harper James and I’ve been a client ever since.
    What source(s) of information did you use when deciding what set-up tasks to give to a solicitor and which to do yourself?
    I was relying heavily on what other parties asked, rather than looking out for my own needs. For example, when our investors asked for long contracts or when a large corporate asked for contracts – we’d make them happen.
    Were there any particular areas you knew you could do yourself, but felt more comfortable having a solicitor do for you?
    For me the biggest question is usually firstly what the risk level of the deal is and secondly whether me providing a legal contract will slow down or speed up a deal. For example, if the deal will have a big impact on my business – I’ll ensure I have a contract that’s been put together by a solicitor I trust. If it’s on the smaller size (e.g. less than £25,000) I might use a template or use a Statement of Work. On the other hand, if the other party is likely to take ages to confirm a legal contract, I often try and get a Statement of Work agreed instead and keep that really simple. That way, the other side doesn’t involve a solicitor and we can move quickly.
    If you were aware you could do it yourself, what was the reason for asking a solicitor to do it instead? Did you prefer the security and reassurance of having a solicitor do it, or was there another reason you outsourced it?
    I know that a solicitor will do a much better job than me on a contract – considering all the important aspects. If something is important and/or has potential risks for the business – I’ll almost always use a solicitor. It also saves me significant time: what takes me 3-4 hours takes a solicitor 1 hour – and with Harper James that ends up being a really cost effective way of working as well.
    Do you think solicitors in general will tell you if there’s something you can do yourself?
    To be honest, I’ve not really had that experience – but I think that’s because I’m a lot more risk *prone* than most people! At the point I’m talking to a solicitor, it’s almost always something I definitely need to speak to a solicitor to.

    Duncan Smith, CEO, Fubar Radio:
    When setting up your business, were you clear on what you did and didn’t need a solicitor for?
    It was clear from the outset that we would need a solicitor to process all legal matters relating to the establishment of the business – matters such as shareholdings, Articles, subscription agreements, service agreements and so on. Toby was able to offer a suite of documents for such matters.
    What source(s) of information did you use when deciding what set-up tasks to give to a solicitor and which to do yourself?
    In our case, Toby already came recommended and the establishment of his independent law services at competitive rates made the decision a no-brainer.
    Start-ups are fraught with a multitude of tasks that the founders can handle but legal work is not something that you should ever attempt without proper legal advice. Otherwise, you can be caught out by something years later. So it was an automatic choice for us. Dealing with a VC lead investor threw up numerous matters of due diligence from their side. A solicitor’s advice in handling these matters was invaluable.
    Were there any particular areas you knew you could do yourself, but felt more comfortable having a solicitor do for you?
    I would always recommend using some of your seed money to invest back into some solid experienced legal advice. Shareholders will thank you for it further down the line and it demonstrates to them that you take such matters with the seriousness that they warrant.
    Do you think solicitors in general will tell you if there’s something you can do yourself?
    Generally, yes. Looking back over the past 25 years of being an entrepreneur, I can’t think of any occasion where it has paid in the long run to attempt some legal work independent of advice. I have always taken the view that paying for advice once and making a commercial decision to do it yourself next time is better than never having sought the advice in the first place.

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