Legal Basics for New Business Owners

An introductory guide to the key areas of law you need to be aware of when running a business

Legal Basics for New Business Owners


Make sure that your advertising is accurate, truthful and doesn’t unfairly disparage the competition. If you make a claim in your advertisement that is untrue, the Advertising Standards Authority may order you to withdraw it. Also, Trading Standards Offices have wide-ranging powers to investigate and prosecute.

  • You may compare yourself with the competition, either by implication or explicitly, but it must be in a way that is clear and fair. The various restrictions imposed by law are set out in the British Code of Advertising and displayed on the Advertising Standards Agency website:
  • Slander of goods occurs when someone maliciously makes a false statement (written or oral) to a third party that disparages a trader’s goods or services, and the trader loses money as a result.
  • Trade libel occurs when you make a statement that disparages the trader as well as their goods and that statement is shown to be false.

Refunds and returns

The Consumer Protection (Distance Selling) Regulations 2000 give certain rights to remote buyers (e.g. customers buying via telephone, internet or direct mail), such as the right to cancel an order within seven days. You must make this clear to each customer in writing, at the latest, by the time the goods have been delivered.

There are certain exceptions, which include holidays, perishable goods and personalised goods. Tapes, CDs, videos and computer software are also excluded unless they are returned unopened.

If requested, you must provide a refund within 30 days, whether the goods have been returned or not. There is no deadline for customers to return goods. You can charge for the cost of returning the goods but you must make this clear in writing at the time of purchase.

Agreements and contracts

Contracts form the basis for business relationships. Such agreements can be oral or even implicit, but for clarity it’s best to have them in writing. If you breach a contract, the other party will be entitled to damages.

A binding contract must:

  • Include an offer and an acceptance.
  • Include an obligation to pay or a promise to provide something in return.
  • Be clear about what all parties are expected to do.
  • Include an intention by both parties to be bound by the contract – even if it is an oral agreement.

Taking finance

If someone wants to invest in your business, make sure that you get the agreement in writing and have it checked by a solicitor.

  • Be clear about the terms of this investment. Is it intended as a gift? Or is it a loan which will need to be repaid – and if so, will you need to pay interest?
  • Make sure that you are aware of the consequences of accepting this investment. If, for example, a relative lends half the money you need to start a business, you may find that you have unwittingly created a partnership and your relative is then entitled to 50 per cent of your business’ profits.
  • Read loan and overdraft agreements carefully and ensure you understand all the terms and conditions. Think about the implications before signing personal guarantees, especially if you are putting up property as collateral.

Intellectual property

Copyright exists to protect creative works like articles, poems, photographs, designs, songs and sculptures. You do not need to register copyright, but you should be very careful when you copy material. Remember to seek permission to use other people’s photographs or drawings.

  • Copyright only applies to the original works, not copies, and only to the means of expression, not the concept itself. So if someone writes an article, only the words, not the ideas in it, are protected.
  • To protect an invention, you must apply for a patent. It is essential you do this before you have made details public anywhere.
  • To protect a logo or a slogan, you must register it as a trademark.
  • Consider taking out intellectual property insurance to help pay for the cost of defending your intellectual property rights.

Employing staff

If you employ staff in your business, you have certain legal responsibilities and obligations. Failure to meet these could result in legal action being taken against you.

  • Make sure that all new employees are entitled to work in this country, or you could face heavy penalties. For a list of the documents you can inspect to prove this – together with general guidance for employers on employer workers from overseas – see the Border and Immigration office website:
  • Have a contract of employment in place from the day all employees start work. A solicitor can supply a sample contract.
  • To avoid leaving yourself open to claims for unfair dismissal, discrimination and breach of contract, take legal advice before altering terms and conditions of employment, making people redundant or dismissing them.
  • To protect yourself, you should warn employees that any discrimination, sexual harassment and other illegal acts will not be tolerated.
  • If your business employs five or more people (whether part or full-time) you may need to offer staff access to a pension.

For more information on these and other legal issues around taking in staff, see Employment law: a checklist for employers

Health & safety

As a small business owner, you have serious legal obligations regarding health and safety issues. If you fail to carry out these responsibilities, you may face prosecution, your insurance premiums may rise, and you may find it hard to buy insurance altogether.

Information for businesses is available from the Health & Safety Executive website:

Business insurance

If you employ anyone, even on a casual, part-time basis, you are legally required to have employer’s insurance.

Other insurance can also be useful as a sensible business precaution:

  • If you sell products, product liability insurance will protect you if someone is injured by a defect in your product.
  • If you offer services or advice, consider adequate professional indemnity insurance. The effects of a mistake in a service or product you have provided can be out of all proportion to the initial error. Indemnity cover may be needed for years after the work has been done, because it has to be in place when the claim is made.

Many professional bodies actually require their members to take out adequate professional indemnity cover. For peace of mind you may want to consult an insurance broker and the relevant professional body about any legal insurance requirements.

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