5 Legal Tips for SMEs – What to Consider When Starting (or Restructuring) a Business

Starting a business is exciting! At this point there’s a product or service you believe in, people you want to work with and (hopefully) customers waiting! But in the chaos of getting things off the ground, it’s easy to overlook the legal foundations that quietly make or break things down the line.

As corporate lawyers, we’re often brought in once something’s gone wrong. Whether it be when founders have fallen out, a deal’s gone sour, or someone’s asking “did we ever sign that contract?”. We’d much rather help businesses set things up well from day one to future proof the smooth running of your business.

Whether you’re just getting started or considering a restructure, here are five legal tips every SME should consider:

1. Get your shareholders’ agreement in place early

If there’s more than one owner in your business, you need a shareholder agreement. It’s the rulebook that sets out how decisions are made, what happens if someone wants to leave, how new shareholders come in, and what happens if things go wrong, for example:

• What if one of you wants to sell your shares? Do the other shareholders have a right to purchase those shares first?
• Who has the right to appoint directors ?
• What happens if there is a deadlock and the shareholders cannot agree on something?

We know when things are going well, it can feel awkward to talk about fallouts or exits. But that’s exactly when to do it. It’s much easier to agree the rules while everyone’s on the same page than to fight about them later.

If you would like more resources on why a Shareholders’ Agreement is important. 

2. Think carefully about your structure

Your legal structure affects how your business is taxed, how much personal liability you have and how easy it is to grow or take on investment.

Some questions to consider:

• Should you be a sole trader or a limited company?
• If you’re running multiple businesses or offering different services, is it worth having a group structure (e.g. holding company with trading subsidiaries)?
• Are you planning to raise money, incentivise staff with shares, or sell in the future?

We’ve helped clients who started out as one a single company offering a few differentrange of services. As the business grew, we helped themsupported their restructure into a group setup so that each part of the business had its own company under one parent, with each part of the business becoming its own company under one parent. That can make things a lot easier when it comes to managing risk, raising money or planning for the future.

Talk to your accountant and a lawyer before you incorporate (or restructure). It doesn’t have to be complicated, but a bit of planning goes a long way.

3. Set clear terms with clients, suppliers and contractors

Relying on handshakes, emails, or assumptions can put you at risk for future disputes. Having clear written terms in place helps manage expectations and gives you protection if things don’t go to plan.

This could include situations such as:

• What happens if a client doesn’t pay on time?
• Who owns the intellectual property you create for someone?
• How can either party end the contract if things don’t work out?

Having clear contracts or terms of business that reflect how you actually work helps everyone stay on the same page and gives you something to fall back on if you need it.

4. Plan for the long term (even if it’s day one)

You might not be thinking about selling your business or taking on investment just yet, but one day you might. When that time comes, potential buyers or investors will be sure to ask questions such as:

• Is everything in order (e.g. contracts signed, IP owned by the company, employee terms in place)?
• Are you properly documenting big decisions (like director appointments, dividends or share issues)?

Ensuring everything is well run from the outset will make it easier down the line if you don’t have to untangle years of informal decisions or fix rushed paperwork.

5. Don’t DIY everything

It’s tempting to use free templates, ChatGPT or borrow documents from a friend’s business. While those things can be helpful starting points, they’re no substitute for advice tailored to your business and often such documents can be outdated and refer to incorrect legislation.

We’ve seen template contracts that were unfit for purpose and missed key protections just because they weren’t written with the actual business model in mind.

Getting advice upfront doesn’t have to be expensive and it’s almost always cheaper than fixing things later.

Conclusion

Legal stuff doesn’t have to be overly complicated, but it does matter. Getting the basics in place early makes it easier to grow, adapt and focus on what you do best.

If you’re thinking of starting or restructuring your business, we’re always happy to chat. Email one of the team at contact@sumerlaw.co.uk