Checklist for starting a small business

Starting a business is an exciting time. It's natural to want to dive right in and start engaging potential customers straight away.

But before you launch, you need to make sure you've checked off all the legal requirements for your small business. You don't want to get a year down the line and discover you aren't properly insured or you have to change your business's name.

It's best to spend extra time now checking that your business meets regulations. That way, you can feel confident that you're starting your business on solid ground – and avoid expensive mistakes in the future.

We've put together a checklist of requirements for starting a business in the UK. This includes how to choose a business structure, where to find out which licences you need and the health and safety rules to be aware of. We've also included comments from Enterprise Nation members who are experts on these processes.

This guide is only meant to provide an overview of the process. Please follow government guidance or seek legal advice or other professional advice when you need support.

1. Choose your business structure

Deciding on your structure is a crucial legal requirement because it dictates whether you'll have sole control of the business or share ownership.

It can also have an impact on how much profit you make and how much time you spend on paperwork. If you aren't sure what's best for you, speak to an accountant.

"If you're choosing an accountant to help, bear in mind that not all accountants are suited for every business. It's important to find out whether an accountant works with small businesses and has expertise in the relevant sector."

Muhammad Solaiman, managing partner of Stan Lee Accountancy

There are lots of different business structures, but early-stage businesses will likely choose to either set up as a sole trader or limited company.

Registering as self-employed (as a sole trader)

Check if registering as a sole trader is right for you

A sole trader is the simplest legal structure for a business, which is probably why it’s the most popular – there are currently around 3.1 million sole traders in the UK.

Being a sole trader (sometimes called sole proprietorship) gives you full ownership of the business. That means you can keep all profits after tax is paid, but you also have personal liability for any losses. Essentially, in the eyes of the law, the business and its owner are the same.

As a sole trader, you'll need to:

• keep records of your business income and expenses for your tax return

• submit a Self Assessment tax return every year

• pay income tax on your profits and Class 2 and 4 National Insurance

Is being self-employed and a sole trader the same thing?

Yes and no. The moment you start working for yourself, you're self-employed. You can be self-employed and not registered as a sole trader, providing you haven't earned more than £1,000 from self-employment in the last tax year.

If you earn more than £1,000, you need to register as a sole trader.

Forming a limited company

Check if registering as a limited company is right for you

A limited company can be set up by one person or a number of people, so there's more flexibility if you're starting a business with other founders.

If you form a limited company, your business exists as a separate legal entity. That means you aren't personally liable for business debts, other than what you've formally put into the company. Also bear in mind that, with limited companies, there are more rules around reporting and management.

There are a number of situations where you as a director can become personally liable, including if:

• your loan account is overdrawn when a business becomes insolvent

• you sign a personal guarantee, or

• you do something that's considered director misconduct

Finally, you normally have to file a Self Assessment tax return alongside the company accounts. For more information on these responsibilities, see the government's website.

Forming a partnership

Check if registering as a partnership is right for you

If you want to be self-employed but team up with a co-founder, think about forming a partnership.

In a partnership, two or more people share the risks, costs and workload of starting a business. Each partner contributes their own skills, resources and money to the business and, in return, shares in the profits (and losses). How this works is typically set out in a legally binding partnership agreement.

Partnerships can be formed as general partnerships, limited partnerships or limited liability partnerships (LLPs), and each type has its own specific legal and financial implications.

Partnerships are a popular business structure because they're flexible and easy to set up and they allow the people involves to use their strengths to their advantage. There's also less admin than with a limited company.

GOV.UK has more information on how to set up and run a business partnership.

Setting up a community interest company (CIC)

A CIC is a type of limited company that aims to benefit the community instead of private shareholders.

GOV.UK has lots of useful guidance on setting up a CIC, but you'll need:

• a community interest statement that explains what you plan to do with your business

• A legal promise known as an 'asset lock', which states that you'll only use the company's assets for their intended purpose

• a CIC constitution – here are some examples

• approval from the CIC regulator

2. Pick a business name

Most people don't realise how tough it is to choose a business name until they attempt it. You can end up sifting through hundreds of possibilities before you whittle it down to your final favourites.

A lot of sole proprietors trade under their own name – after all, what better way to show you believe in your business than by putting your name to it?

However, if you want to go with something more general, it's important to check that you can legally use the name. That way, you'll avoid the time, expense and inconvenience of having to change it at a later date.

Make sure your name isn't too similar to another registered company's name by checking the Companies House register and searching for brand trademarks.

Watch out for 'same as' names too, where company names only differ by adding punctuation or certain characters. For example, 'Innocent' and 'Inno-cent' would both be deemed the same company.

GOV.UK has more useful guidance on your legal requirements and choosing a name.

How to come up with a unique name for your business

Finding the perfect name for your small business is a key part of making your brand memorable and recognisable. Read our blog for insight on how to come up with a name that's unique, and how to get it registered.

3. Check you're meeting the regulations

For some small businesses, the law says you need a licence or permit to trade. This is most commonly the case if your business could pose a risk to members of the public or if you're dealing with hazardous materials.

For example, a new food start-up might need licences to sell alcohol, put tables and chairs on the pavement and display advertising signs on the street.

The government has an online tool that will inform you if you need a licence.

There are other legal requirements you might need to comply with, so do your research on your specific sector. For example, the food start-up mentioned above would also need to meet the standards set out in General Food Law. This sets rules for:

• food safety

• presentation and labelling

• traceability

• imports and exports

4. Follow health and safety guidance

As a business owner, you have a legal duty of care towards anyone your business could affect. This duty of care extends to employees, customers and visitors.

The Management of Health and Safety at Work Regulations 1999 dictate what business owners should do to protect employees and others from harm. This includes:

• identifying what in your business could cause injury or illness

• deciding how likely it is that someone could be harmed (and how seriously)

• taking action to eliminate the hazard or control the risk

Not all self-employed business owners must take steps to assess and manage risk. If you don't employ anyone and your work doesn't put anyone else at risk, you might not need to do anything.

The Health and Safety Executive (HSE) has a useful page that illustrates who the law applies to.

For example:

• A hairdresser who works with bleaching agents or similar chemicals would need to comply with this law

• An artist who produces cards and gifts for sale at markets isn't required to do anything

Of course, it's good practice to be aware of health and safety – whether it's a legal requirement for your small business or not.

"Everyone who works for you needs to know how to work safely and without risk to their health. This includes contractors and self-employed people. Business owners should give any employees clear instructions and information, as well as adequate training."

Ebenezer Anjorin, director of Imago Health and Safety Consultants

5. Get insurance to cover your business

It's not the most exciting way to spend your start-up funds, but it can provide valuable protection if a dissatisfied customer wants to claim compensation or if someone injures themselves on your premises.

Here are some of the most common types of insurance for small businesses.

Public liability insurance

Public liability insurance is something you should consider if the type of business you run involves interactions with members of the public. It can cover you if someone claims compensation for injury or damage.

A lot of small businesses take out public liability insurance, including retailers, restaurants, hairdressers, builders and other tradesmen.

Professional indemnity insurance

Professional indemnity insurance is a common choice if your business will provide advice or offer professional services to another business.

This type of insurance protects you against claims made by clients for any financial losses they’ve experienced after taking your advice or using your service.

Businesses like accountants, architects or surveyors tend to have this insurance.

Employers' liability insurance

You might not be employing someone straight away, but if it's on the horizon then you need to think about employers' liability insurance.

Employers' liability insurance covers compensation claims employees make if they've suffered injury or illness as a result of their work.

Bear in mind you might need this type of insurance if you're working with a freelancer or contractor too. If you're treating them like an employee – say, you're supplying their work materials or controlling where they work – the HSE might deem them an employee. As a result, it would be a legal requirement for you to have this type of insurance.

Download our small business insurance guide

Crucial knowledge and practical advice to help you make informed decisions about protecting your business. Get the guide for free now

6. Make sure you're GDPR compliant

The final step in our start-up checklist is to make sure you're keeping to the data protection law known as GDPR.

Most businesses will hold some form of personal information about customers. When you're first starting your business, you might be collecting customer email addresses to build up a newsletter list.

It's essential to put good data practices in place early on, so you don't have to go back and unpick who has consented to what. Here's what you should do.

Decide how much data you need

Customer data could include names and addresses, financial records and dates of birth. GDPR dictates that you should only hold on to data you absolutely need, and for a short period of time. In short, don't stockpile lots of customer information if you don't need it.

Get people's clear consent

To collect and store customer data, you need to make sure you're getting clear consent from that person. That means explaining what information you're collecting and how you're going to use it.

For example, you'll often see checkboxes on newsletter sign-up forms that ask you for permission to be added to the mailing list.

Don't be tempted to use pre-ticked checkboxes either – these are unlikely to hold up if your data practices come under scrutiny.

Get a privacy policy

It's important to include a privacy policy if your business will be collecting data. Privacy policies explain how your business collects and stores data, and what customers can do if they want you to remove their data. Here's a useful privacy policy template you can use.

7. Hire employees

At some point, there will come a time when running your business is too much for you alone. That's when you'll need to bring someone else on board to share the workload.

When recruiting staff, you do need to be on the right side of the law when it comes to things like pay, having the right to work in the UK, contracts and insurance.

Find out everything you need to consider in our blog, Hiring your first employee: How to get it right.

Read other guides in our Essentials series:

• How to register your small business

• How to raise money for your start-up

• How to come up with a business idea