Senior Legal Advisor (Corporate and Commercial), Ed Manning, and Associate Solicitor (Employment), Tina Maxey, review some common legal mistakes you need to be aware of when starting a business.

Why is it important for a business to ensure their contracts are properly drafted?

The purpose of having contracts in place is to document exactly what each party’s responsibilities and legal obligations towards each other will be. Importantly, contracts also set out the allocation of risks and rewards (whether financial or otherwise) amongst themselves.

Without a properly drafted document, in the event that things go wrong or one party is deemed to be under-performing or in breach, enforcing the contract becomes incredibly difficult (and costly!) as there is nothing written on which to rely when assessing what a party is actually obliged to do.

What issues do companies face if they’re not compliant with employment laws? 

Failure to comply with employment law could have far reaching consequences.  Companies would be exposed to liability for claims and, in some circumstances, for example for breaches of health & safety or the Data Protection Act 2018 (DPA) criminal sanctions, including fines.  For serious breaches directors could face possible imprisonment.  The maximum fine for breaching the DPA is £17.5 million or 4% of a company’s annual global turnover, whichever is greater.   As well as a financial loss to the business, failing to comply with employment law could result in loss of reputation of the business, loss of customers and impact on staff retention and difficulty recruiting.

What are the consequences of choosing the wrong business structure and how can a solicitor advise on the right one?

There are a number of different business structures available, each with their own pros and cons.

Choosing the right structure will depend on a number of factors such as what the business does, what it wants to achieve, and whether there are any restrictions in law as to whether what structures certain businesses can take.

Some of the issues a business could face if they pick the wrong structure are:

  • facing personal liability for acts or omissions of the business;
  • missing out on tax benefits;
  • corporate compliance issues, which can result in hefty fines and even prison time; and
  • making it difficult for future growth and/or investment.

A solicitor will carry out a deep analysis into what your business does and your future vision to advice on the different business structures and advise you on the most suitable structure for you.

With Brexit, is GDPR still relevant for British businesses? How can businesses make sure they’re fully compliant with data protection laws and what happens if they’re not?

The GDPR is an EU regulation and, in principle, it no longer applies to the UK from the end of the transition period (31 December 2020). However, the GDPR has been incorporated in to UK law under the Data Protection Act 2018 (DPA 2018) so, although the name of the law is different, the law itself remains the same.

That said, the EU GDPR may still apply to organisations based in the EU who send you data so businesses should remember that compliance with both the DPA 2018 and GDPR is important.

The consequences of non-compliance with data protection laws are wide. The Information Commissioner’s Office has the ability to fine non-compliant businesses up to £17.5m or 4% of its annual worldwide turnover. Additionally, certain breaches can lead to criminal convictions.

Businesses can seek advice from data protection lawyers who will be able to undertake a review of the data processing the business undertakes and assist with putting in place adequate controls to comply with the legislation.

What are some of the other common legal mistakes businesses often make?

To name a few: not taking into account tax considerations; not having proper corporate documentation (such has a shareholders’ agreement); failing to obtain necessary licenses and permits; not having well-drafted contracts in place for its day to day business; and not carefully considering Intellectual Property issues. These issues will have severe consequences for your business.

At Ellisons, our experienced Corporate and Commercial and Employment lawyers provide a friendly, co-operative and practical service which always looks after the best interests of our clients. For more information, get in touch with the team here.