Palmers Solicitors

Business Owners Frequently Asked Questions

Running a business can be an exciting adventure, but along the way, you are likely to face challenges that may leave you wondering where to turn next.

Many business owners deal with common legal issues during the establishment and growth of their company and need quick, easy to understand answers to their queries.

That’s why we have put together some of the most frequently asked questions that we receive from business owners to offer a little guidance.

What is a shareholder agreement?

Most limited companies are ‘limited by shares’. This means they are owned by shareholders, who have certain rights. For example, directors may need shareholders to vote and agree on changes to the company.

A shareholder agreement is a method of ensuring that shareholders are protected and treated fairly. It aims to establish a reasonable relationship and decide how the company will be run.

It outlines the majority shareholders’ obligation to protect minority shareholders and give them a voice when key decisions are made and protects those who remain shareholders from decisions of future management if the company is sold.

The agreement should:

  • Set out how the company is going to be run.
  • Describe in detail how important decisions are to be made.
  • Describe the rights and obligations of shareholders.
  • Protect minority shareholders and the company.
  • Regulate the sale of shares in the company.

What is a partnership agreement?

In a partnership, you and your partner(s) share responsibility for your business. This includes:

  • Any losses your business makes
  • Bills for things you buy for your business, like stock or equipment.

Partners share the business’s profits, and each partner pays tax on their share.

A partner does not have to be an actual person. For example, a limited company counts as a ‘legal person’ and can also be a partner.

When you set up a business partnership you need to:

  • Choose a name
  • Choose a ‘nominated partner’
  • Register with HM Revenue & Customs (HMRC)

The ‘nominated partner’ is responsible for managing the partnership’s tax returns and keeping business records. There are different rules for limited partnerships and limited liability partnerships (LLPs).

Do I need business terms and conditions?

Every transaction a seller makes, ought to have terms and conditions (T&Cs), which set out those arrangements, provisions, requirements, rules and specifications. Whether goods and services are sold on a standard basis or to specification, standard terms and conditions of sale (or supply) are a core part of most businesses.

Please note that these are different from Website terms and conditions.

What it should include:

  • A policy on refunds and returns
  • Payment terms of the transaction
  • What happens if a customer receives damaged/ defective good or service
  • Liability
  • Delivery policies.

What happens if I need to take legal action for an unpaid debt?

You can use a mediation service, go to court, send a statutory demand or make someone bankrupt if a person or business owes you money.

Mediation

Mediation is when an impartial person – trained in dealing with difficult discussions between two opposing sides – acts like a referee in a dispute.

The Civil Mediation Council is the largest registering organisation for mediation in England and Wales and many of the country’s top mediators are CMC members.

Court action

You can make a court claim for your money if mediation does not work. You can make a claim online if the money owed is less than £100,000 and owed by no more than two people or two organisations.

  • The court can order the money to be paid.
  • Make an official demand for money you are owed.

You can use a statutory demand to ask for money you are owed from a person or business. If they ignore the statutory demand or cannot repay the money, you can apply to a court to:

  • Make someone bankrupt – if you are owed £5,000 or more by an individual, including a sole trader or a member of a partnership
  • Get a company wound up (liquidated) – if you and any other creditors are owed £750 or more.

It can be financially prohibitive and you may not get any of your money back. Get legal advice before doing this if you are unsure.

Can I re-negotiate the lease on my commercial property?

This has become highly topical because of the effects of the pandemic. Commercial tenants who have been forced to close have been protected from eviction until March next year and the Government has just introduced new laws and a code of practice to be used in negotiations between tenants and landlords.

The process of renewal or renegotiation is governed by the Landlord and Tenant Act 1954, which rules on what happens at the end of most commercial leases and lease renewals.

At the time of renewal, the overall terms of the existing lease may, by agreement, be re-negotiated and amended, as well as the rent itself which can be altered either up or down.

How do I acquire a freehold on my commercial property?

Whether it is your first purchase of a commercial property or you are looking to move to bigger premises, preparation is the key to a smooth transaction.

With a lot of capital at stake, it can be a risky venture, whether acquiring the property in a traditional sale or at auction, you need to make sure you carry out due diligence.

This and making sure your legal team are kept informed at all stages should lead to a smooth transaction.

Key points to consider:

  • Determine how much you will need to spend, including Stamp Duty Land Tax (SDLT), VAT and professional fees.
  • Find out if VAT is payable on the purchase price of the property. You may need to fund an extra 20 per cent up-front for the VAT, even if this is recoverable later on.
  • Depending on the price of the property, SDLT may be due. If the price is subject to VAT, then SDLT is payable on the VAT, too!
  • You may need your accountant and/or a specialist tax adviser to help with early advice on capital allowances relating to the property and its installations or equipment.
  • Commission a survey of the property and identify whether you might need other advice or tests on the condition of the property.
  • Be sure to also check for unexpected occupiers who might have rights to stay in the property as protected business tenants.
  • Are you borrowing money? Check with the lender about the types of security they require.
  • Make sure you or your advisers deal with anti-money laundering regulations and checks.
  • Set up regular communication slots with your team of advisers. The more information you provide – and the sooner any possible wrinkles are spotted – the smoother the process can be.

How do I incorporate my business?

A business cannot operate as a limited company until it has been incorporated at Companies House under the Companies Act 2006.

Establishing your business as a company means the directors are required to file certain documents every year such as annual accounts and a confirmation statement.

They must also inform Companies House about any changes, such as the appointment or resignation of directors or a change to the company’s registered office.

It may be worthwhile seeking professional advice from a solicitor or accountant before deciding whether an incorporated company is the best way for you to run your business.

What are director’s duties?

Your responsibilities to Companies House include being legally responsible for running the company and making sure information is filed on time.

This includes:

  • The confirmation statement
  • The annual accounts, even if your company is dormant
  • Any change in your company’s officersor their personal details
  • A change to your company’s registered office
  • Allotment of shares
  • Registration of charges
  • Any change in your company’s people with significant control(PSC) details.

You can hire other people to manage some of these things day-to-day (for example, an accountant) but you’re still legally responsible for your company’s records, accounts and performance.

Duties include:

Company’s constitution

You must follow the company’s constitution and its articles of association. These are written rules about running the company, agreed by the members, directors and the company secretary. The constitution sets out what powers you’re granted as a director and the purpose of those powers.

Promote the success of the company

You must act in the company’s best interests to promote its success.

Independent judgement

You must not allow other people to control your powers as a director. You can accept advice, but you must use your independent judgement to make final decisions.

Exercise reasonable care, skill and diligence

You must perform to the best of your ability. The more qualified or experienced you are, the greater the standard expected of you.

Avoid conflicts of interest

You must avoid situations where your loyalties might be divided. You should consider the positions and interests of your family, to avoid possible conflicts.

You should tell other directors and members about any possible conflict of interest, and follow any process set out in the company’s articles of association.

This duty continues to apply if you’re no longer a director.

Third-party benefits

You must not accept benefits from a third party that are offered to you because you’re a director. This could cause a conflict of interest.

The company may allow you to accept benefits like reasonable corporate hospitality if it’s clear there’s no conflict of interest.

Interests in a transaction

You must tell the other directors and members if you might personally benefit from a transaction the company makes. For example, if the company plans to enter a contract with a business owned by a member of your family.

Other duties you must perform as a company director include not misusing the company’s property and applying confidentiality about the company’s affairs.

What are articles of associations?

When you register your company, you need a ‘memorandum of association’ – a legal statement signed by all initial shareholders or guarantors agreeing to form the company.

You also need ‘articles of association’ which are written rules about running the company agreed by the shareholders or guarantors, directors and the company secretary.

If you register your company online, you don’t need to write your memorandum of association. It will be created automatically as part of your registration.

If you register by post, use the memorandum of association template.

You cannot update the memorandum once the company has been registered.

With articles of association, you can either:

  • use standard articles (known as ‘model articles’)
  • write your own and upload or send them when you register your company

Community interest companies: You cannot use limited company model articles if you’re setting up a community interest company (CIC).

Use the CIC regulator’s model constitutions instead.

How do I make someone redundant?

Redundancy is when you dismiss an employee because you no longer need anyone to do their job. This might be because your business is:

  • Changing what it does meaning less staff are required
  • Doing things differently, for example using new machinery
  • Changing location or closing down.

For a redundancy to be genuine, you must demonstrate that the employee’s job will no longer exist and can be compulsory or voluntary.

Employees have certain rights and may be entitled to redundancy pay.

All employees under notice of redundancy have the right to:

  • Reasonable time off to look for a new job or arrange training
  • Not be unfairly selectedfor redundancy.

You should always take steps to avoid redundancies before dismissing staff.

Employers must try to find suitable alternative employment within the organisation for employees they’ve made redundant as redundancy should always be a last resort

Employees can try out an alternative role for four weeks (or more if agreed in writing) on a trial basis without giving up their right to redundancy pay.

What is a Settlement agreement?

A settlement agreement is a type of legal contract that helps to resolve disputes among parties by coming to a mutual agreement on the terms without the need for litigation. Primarily used in civil law matters, the settlement agreement acts as a legally binding contract recording the terms of the resolution.

If you have a complaint against your employer which you could take to an employment tribunal, they might try to settle that dispute to stop you from making a claim or taking an existing claim any further.

If your employer wants you to give up your right to go to a tribunal, there are only two ways they can do this legally:

  • Negotiate a COT3 agreement through Acas
  • Get you to agree to a ‘settlement agreement ‘in which independent legal advice is required

A settlement agreement might involve your employer promising to pay you a sum of money, stop treating you unlawfully or both.  Your employer will usually contribute towards you seeking independent legal advice in the basis that the agreement is entered into.

The settlement agreement is a legal contract between you and your employer – you both have to stick to it. Your employer is likely to want you to keep the agreement confidential.

What is TUPE?

When a business changes owner, its employees may be protected under the Transfer of Undertakings (Protection of Employment) regulations (TUPE).

TUPE applies to employees of businesses in the UK.

The business could have its head office in another country, but the part of the business that’s transferring ownership must be in the UK.

The size of the business doesn’t matter.

When TUPE applies:

  • The employees’ jobs usually transfer over to the new company – exceptions could be if they’re made redundantor in some cases where the business is insolvent
  • Their employment terms and conditions transfer
  • Continuity of employment is maintained.

When TUPE applies

There are two types of transfer protected under TUPE regulations:

  • Business transfers
  • Service provision changes.

Transfers within the public sector aren’t usually covered by TUPE but some transfers from the public sector into the private sector are. However, public-sector employees get similar protection. Read the codes of practice to find out more.

Business transfers

This is where a business or part of a business moves from one employer to another. This can include mergers where two companies close and combine to form a new one.

Service provision changes

This is when:

  • a service provided in-house (e.g., cleaning, workplace catering) is awarded to a contractor
  • a contract ends and is given to a new contractor
  • a contract ends and the work is transferred in-house by the former customer.

Employees aren’t protected under TUPE if the contract is:

  • for the supply of goods for the company’s use (e.g., a restaurant changing food suppliers)
  • for a single event or short-term task (e.g., a catering company being used for a large corporate event).

Only the employees who can be clearly identified as providing the service being transferred are protected.

How do I protect my intellectual property?

The type of protection you can get depends on what you’ve created. You get some types of protection automatically, others you have to apply for. Protecting your intellectual property makes it easier to take legal action against anyone who steals or copies it.


Examples of intellectual property with automatic protection:

Copyright: Writing and literary works, art, photography, films, TV, music, web content, sound recordings

Design right: Shapes of objects

Protection you have to apply for:

Trade marks: Product names, logos, jingles

Registered designs: Appearance of a product including, shape, packaging, patterns, colours, decoration

Patents: Inventions and products, e.g., machines and machine parts, tools, medicines

Keep these types of intellectual property secret until they’re registered. If you need to discuss your idea with someone, use a non-disclosure agreement.

Using more than one type of protection

More than one type of protection could be linked to a single product, for example, you could:

  • Register the name and logo as a trade mark
  • Protect a product’s unique shape as a registered design
  • Patent a completely new working part
  • Use copyright to protect drawings of the product

Our team are here to help

We provide a listening ear and practical advice to business owners. When there are difficult or unclear decisions that need to be taken, feel free to use us as a sounding board.

We’re always here to support you, so make sure you seek our advice, as and when you need it.

There’s no such thing as an ‘unnecessary question’ – so if something is bothering you, get in touch, and we’ll provide the answer.

Business Owner FAQ Animations

How do I make someone redundant?

What are director’s duties?

How do I incorporate my business?

Can I re-negotiate the lease on my commercial property?

What is a shareholder agreement?