How to avoid nightmares when setting up in business
Ten steps to being your own boss without risk or hassle
There are a lot of priorities when starting a business -- everything from market research to sourcing equipment, product manufacture to finance and promotion. However, failure to consider all the necessary legalities at an early stage can be a major headache and may cost you dearly down the road.
Helena Boylan, of Boylan and Co Solicitors from Westport, Co Mayo, has been operating a general legal practice since 2002. The practice deals with conveyancing, litigation, probate, family and commercial law. She identified the 10 most common legal pitfalls that new businesses need to avoid.
If you choose the wrong kind of legal structure for your business, it can result in a myriad of problems in later years. It is a good idea to speak to your accountant and your solicitor and take their advice before you start your new venture. The choices include: sole trader, limited liability company and business partnership. Each option has its own advantages and disadvantages.
- Easy to set up.
- Little or no protection of the sole trader's personal assets.
- You can be restricted in the way that you name your business as a sole trader and it is a good idea to consider registering your business with the register of business names in the Companies Registration Office. Visit www.cro.ie.
Limited liability company
- Because the company is a separate legal entity, if it gets into difficulty with its creditors, the creditors may have a claim against the assets of the company. (There are exceptions to this and there have been legal cases which have resulted in the lifting, by the courts, of the 'veil' of incorporation, to look behind the legal structure and discover what person or people are really behind the company, for the purpose of making them personally liable in certain circumstances.)
- Ensure the company name that you wish to use is not already selected as the Companies Office will not allow two companies to use exactly the same name.
- Being a director of an Irish company or a company secretary of an Irish company imposes substantial legal obligations. Directors and company secretaries should consider taking out the appropriate form of insurance to deal with this kind of liability.
- Structure properly at the start or it can lead to serious problems between the partners in the longer term.
- Prepare a partnership agreement which can outline the rights, entitlements and obligations of the partners.
- Make provision for what will happen if the partnership breaks down (as many of them do) and these can include, for example, restraint of trade clauses, where reasonable.
If a business partnership breaks down, one does not want to end up fighting over who is entitled to what. That can result in very costly court bills for the parties concerned.
- Partnerships dissolving can have significant tax and financial consequences as well as legal consequences for the partners.
Title deeds for security for borrowings
In a farm context, when someone is setting up an on-farm business, they may need to apply for a loan and related finance facilities.
The institution may ask for the title deeds of the holding as security for any borrowing. This can put the entire holding at risk if the venture gets into difficulty.
If the bank is agreeable, it may be useful to consider opening a separate folio for the property being used for the new venture, and to only provide these title deeds as the security for the new venture.
Issues with the Revenue Commissioners and taxation
One of the most important things to remember, when setting up your new business venture is that you have obligations at law to file tax returns and to register yourself with the Revenue.
- You must register yourself for income tax, and possibly VAT.
- File your tax returns on time, or you may be liable to prosecution by the Revenue. This can result in substantial fines on each charge even for a first offence.
- It is very important to have a system in place which ensures that you get the necessary paperwork to your accountant in time to enable them to prepare and file the returns on your behalf in a timely manner.
- If you are proposing to employ people, you must also register as an employer for PRSI and making PAYE for your employees.
Limited liability company
- You must register for corporation tax, VAT, employers' PAYE and PRSI, and you must also file your audited accounts with the Companies Registration Office.
Failure to file your company's returns with the Companies Office may result in the company being struck off. It can be a very costly exercise to apply to have the company reinstated.
- You must file the company returns with the Companies Registration Office or there may be fines imposed. Failure to file tax returns on time with Revenue may also result in substantial fines.
Breaches of environmental law provisions
You need to consider whether or not you need to obtain planning permission. A common pitfall made is that sometimes people assume because a premises has been used for a commercial purpose in the past that it will automatically be in order to use it for another purpose. That is not necessarily the case.
Contact the local authority to find out whether or not you need to apply for planning permission for a particular type of use for the premises. Determine whether or not you need to comply with building control regulations or fire regulations.
If you intend building a new structure the same criteria apply. Find out whether or not you may be liable to pay betterment levies and factor these into the set-up costs.
Do your research in advance. Failure to do your research properly could result in the need to pay for an application for retention permission.
This may not be granted by the local authority or it could result in the local authority serving an enforcement notice upon you with possible consequent fines.
You may also need to obtain a licence from the Environmental Protection Agency (EPA) in respect of waste, industrial or other activities.
As you are considering setting up your business, you need to consider what your obligations will be as an employer.
You are obliged to provide a contract for your employees. Failure to have a well-drafted contract of employment that can assist in the smooth operation of your business could have serious consequences.
You are obliged to comply with the many pieces of legislation in respect of your employees.
From trailers to food products, if you are producing goods you will have obligations to the people that you are supplying them to.
You may be liable for dangerous or defective goods produced by you and may be liable to the consumer.
It is important to put good quality control systems in place to ensure that quality is checked and controlled and that you use appropriate recognised standards.
The law of negligence
Personal injury claims can be made against you as an employer if you are shown to have been negligent.
You should provide proper training to your employees to avoid accidents in the workplace.
Ensure that they complete manual handling courses or safe pass courses for example, where appropriate.
Keep a safety statement and review it and ensure that you keep the appropriate insurance policies in place. Comply with health and safety guidelines.
The forms of nuisance are very wide and some examples of these are noise, emissions from property to adjacent properties, discharges of water or fluids onto another property.
It is important to think this through when considering where you are going to locate your business. A person can be guilty of creating a nuisance which affects third parties and it may make the creator of the nuisance liable to payment of damages.
Failing to understand and deal with intellectual property rights
It is important to complete the appropriate searches before you spend a lot of money investing in any new idea or concept. By completing the relevant searches you can find out whether or not someone has already created the item/idea or has already obtained the patent or trademark.
Intellectual property rights take many forms. The most common forms are: trademarks, which are a form of mark that is immediately recognisable to identify the owner or creator of the goods; patents on something you have invented; and copyright and design registration.
It's crucial that you deal with these matters before you start your business. If you have a registered trademark, that can provide a right to sue for an infringement of the trademark. If you have invented something, it may be important to apply for a patent to protect what is a valuable asset.
Adequate insurance, especially in the case of farm-based businesses, is vital.
Do you need to take out public liability insurance to cover accidents to third parties? Do you need employer liability insurance to cover employees, even if they are only part-time? Are you leasing your business premises? Do you need to have an office policy of insurance and insurance to cover business interruption or liability to pay rent in the event of flood damage or fire? Do you need buildings insurance? Do you need directors' liability insurance? Do you need product liability insurance?
You should ask these questions before you set up your business and factor the costs into your business plan.
Helena Boylan can be contacted at 098 29835 or on email at email@example.com
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