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IMPORTANT LEGAL REQUIREMENTS YOU SHOULD KNOW BEFORE STARTING YOUR COMPANY

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As an entrepreneur, starting your own business is thrilling. You can take so many different directions once you leave “the man” or decide to go into business for yourself.

Unfortunately, there are also a lot of legal issues that may surprise new entrepreneurs who have never run their businesses before. This is because all companies must observe legislation governing the operation of companies in the United Kingdom. This legislation provides for regulations that concern company formation, registration, and compliance requirements.

By observing this legislation, it will be possible to ensure that all legal requirements are met while protecting both your company and yourself as the director from criminal liability.

Important Legal Requirements

The following are some of the legal requirements you should know about to ensure that your business operates per the law while avoiding repeating mistakes made by less responsible directors in similar circumstances.


Company Registration

To form a limited company under UK law, you must register it with the Registrar of Companies. This registration is conclusive evidence that a company exists. Its particulars also must be recorded in the public records, which the Registrar maintains for this purpose. To register a company in the UK, you need certain documents. They include:

Memorandum and Articles of Association
A form of incorporation (Scheme)
A name for your company

The memorandum contains certain information of the company’s initial shareholders and a record of any restrictions on their shares in terms of numbers or percentages. The articles comprise the rules upon which the company is governed.

Finally, when choosing a name for your company, you should ensure that it isn’t too similar to an existing one. In addition, you should be aware that if it sounds similar, this can lead to problems at a later date when transferring or dissolving it.

Company Naming Issues
You must check to ensure that your business name isn’t too similar to an existing one. If it is, this can lead to problems later when dissolving or transferring the company. This is because your new company could end up having issues with its bank account and credit card account and may even find itself threatened with legal action for infringing the original company’s intellectual property rights (trademark and patent).

Finally, be wary of checking names on the internet – many companies use their trade name as their domain name. So by searching online, you risk running into false results, which will waste valuable time.

Company Compliance Requirements

A company director must comply with specific statutory duties throughout their period in office. Some directors ignore or overlook these requirements and find themselves in trouble, possibly even facing criminal charges. By taking particular care over compliance with the following legal requirements, you can make sure that your business operates legally and protect you from liability:

Duty of Disclosure
A director must provide full disclosure to the company of all material facts which could affect its decision-making and performance. Failure to do this will be a breach of duty that will attract potential compensation claims by members or creditors against any such director who failed to disclose such information. There is also a provision within the Companies Act 2006 through which companies may claim exemplary damages if their directors’ actions are particularly unreasonable or reckless.

Disqualification of Directors
A director may be disqualified from acting due to their conduct, convictions, and bankruptcy. You must be aware of your legal obligations in protecting the company against disqualification to continue to function despite any such change in personnel. The following requirements apply:

No person will be qualified for directorship who has been convicted in the UK or elsewhere of a criminal offense involving dishonesty
Disqualified directors must not use their influence over the company to gain benefits for themselves or others
No undischarged bankrupt should act as a director unless they have obtained formal leave from the court that adjudicated them bankrupt

General Duties
These duties apply to any director who is also a shareholder/member or their close relatives and require that they:

Act within the law;
Avoid conflicts of interest and declare them when they occur; and
Avoid using company funds for purposes other than those required by the business.

Miscellaneous Other Duties
Directors owe additional unforeseen duties such as:

The duty to treat employees fairly; and
A duty not to exploit information obtained through their position as a director (the ‘recruitment’ rule).


Company Memorandum and Articles of Association

Companies must have a Memorandum and Articles of Association that set out their aims and objectives describing the rights and responsibilities of their members, officers, and shareholders. You must ensure that your business has such documentation in place at all times to reduce the risk of disputes arising about company affairs. Furthermore, if there is no formal documentation in place, any decisions are taken (for example, by board resolutions) may be vulnerable to a legal challenge from disgruntled members or creditors.

Certificate of Incorporation
The Certificate of Incorporation is an official document that proves that a company exists. You must keep this Certificate safe and ensure that it is updated if any changes to your business structure or registered address, for example. It contains further details about its formation, such as:

Name
Registered address
Date when it was formed
Name of the company’s first directors
Number of shares issued


Company Books & Records

As with other business structures, companies must keep accurate records that document how they conduct their day-to-day affairs. These include:

Director/shareholder registers
Annual returns filed with Companies House
Financial accounts kept at Companies House
Minutes of board meetings
Membership records if it is incorporated as an LLP

Starting your own company is not only a fantastic feeling but also an exciting one. There is a legal basis for each of the duties as mentioned above. If you fail to comply, the business could be at risk. It is recommended that you seek professional advice from a specialist company compliance lawyer before commencing your new venture to avoid any issues.

Also, by following these steps closely, you can ensure that you do not end up running your business in the wrong way and facing legal action due to non-compliance with any of the legal requirements discussed above.

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