Starting a Business

There are basically 3 ways that you can set up your own business. These are as:

  • A sole trader
  • In partnership with one or more people
  • A limited company

Each has their own advantages and disadvantages.

Sole Trader

This is the simplest form of business model. There are no legal formalities required to set yourself up in business as your own boss. The downside is that you also carry the can if things go wrong. You are personally liable for all the debts of the business, and creditors could look to your house, car, savings etc to settle any money owed to them. You do not have to produce audited accounts, but you will need to keep records for the taxman. If you do set up in business on your own in this way you should advise your tax office, as you will now be taxed as a self-employed person.


If you set up your business with one or more people, then you will be in partnership, whether or not you actually get anything down on paper – even if the partners are other members of your family. Your partnership will be governed by the Partnership Act 1896. Generally this is not what you want or need. Anybody working together in partnership (including families) should get a Partnership Deed drawn up, which covers how the partnership will work on a day-to-day basis, how it can develop and how it can be ended. Generally each of the partners is personally responsible for all the businesses liabilities on a joint and several basis, whether they knew about them or not. Therefore choose your partners carefully. Partners remain self-employed and only need to prepare accounts for tax.

Limited Company

This is the most formal way to run a business, and it has the added advantage of limiting your liability to the amount of share capital you have invested in the business. Note that Banks and others will therefore ask you for personal guarantees for loans etc. The disadvantages are that there is a cost involved in setting up a company – you can buy one off-the-shelf for less than £100. Also you have to comply with Companies Act legislation – accounts, records and returns at Companies House. As a Director you are no longer self-employed, but employed by the company, so you are likely to have to pay National Insurance and PAYE Income Tax.

Trading Name

Business names no longer need to be registered with any Government Department. They are however governed by the Business Names Act 1985. Trading names must be displayed in accordance with the Act at each place of business, and on stationery and invoices etc.

You will need to check, that the name you choose to trade under is not the same or similar to any other business, particularly in your locality. If it is then you may find yourself being sued for “passing-off” ie trading on the back of someone else’s reputation, or even in breach of a trademark.

If you set up a limited company then you will only be able to register a name which is not already on the register. You should first search the Companies House Register of Companies.

Trading Laws

If supplying goods, you should have a working knowledge of consumer law.

Terms of Business

These deal with your contractual relationship with your customers and suppliers. They should cover such items as estimates for work, payment terms, transfer of title to goods, failure to perform contractual duties etc.

Employing Staff

There is much employment legislation with which to comply. Legal-Zone provides an employment law nutshell, and can assist with forms and documents to comply with the legislation.

Trademarks, Copyright & Patents (Intellectual Property)

If you have a distinctive style or mark then it may well be worth registering it as a trademark. A trademark is any sign which can distinguish the goods or services of one trader from another. Registering it will prevent others from using a similar style. Copyright automatically arises to prevent certain types of work from being copied without permission

Patents need to be registered to protect inventions and processes from being copied by competitors.

Insurance Issues

If you have employees then you must take out Employers Liability Insurance, and display the certificate where your employees can see it.


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Hopefully this has proved useful. However, the information provided can never be a substitute for advice from an experienced lawyer. If you are in anyway unsure of what you need to do in your individual case our lawyers are available to help. 

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