Starting a business is exciting. Whether you are a sole trader launching your dream business, a group of friends forming a partnership, or an entrepreneur incorporating a limited liability company, getting the legal foundations right from the outset could save you a great deal of time, money and stress later.

At Paris Steele, we work with businesses of all sizes and at every stage of their development. Here, we set out seven key areas you should be thinking about before you trade.

1. Business Structure and Formation

One of the first, and most important, decisions you will make is how to structure your business. In Scotland, the main options are:

• Sole trader: simple to set up, but with unlimited personal liability for business debts.
• Partnership: two or more people running a business together. Notably, under Scots law, a partnership is a distinct legal entity in its own right, which differs from the position in England and Wales.
• Limited Liability Partnership (LLP): combines the flexibility of a partnership structure with the protection of limited liability for its members.
• Limited company: a separate legal entity incorporated at Companies House, with shareholders benefiting from limited liability.

Each structure has different implications for taxation, liability and governance. Taking professional legal advice before you decide can help you choose the vehicle that best suits your plans and protects your interests.

2. Ownership, Investment and Governance

Once you know the structure of the business, if you have partners or investors, you may wish to put formal agreements in place to govern the relationship.

• For partnerships, a partnership agreement is important. It might include, among other things, the partners’ rights and responsibilities, profit share and the procedure to follow if one partner wishes to leave.
• For limited companies, a shareholders' agreement sits alongside the Articles of Association and deals with matters such as decision-making, dividend policy and exit provisions.

Neither document is required by law, but both can prevent significant disputes and uncertainty in the future.

3. Regulatory and Licensing Requirements

Depending on the nature of your enterprise, you may need specific licences, registrations or authorisations before you can legally trade.

Requirements can range from a local authority licence, for example under the Licensing (Scotland) Act 2005 for businesses selling alcohol, to registration with a professional regulatory body.

The consequences of trading without the appropriate permissions can be serious, so it is important to identify and address your obligations at an early stage.

4. Tax and Finance

Understanding your tax obligations from the outset is essential. As a new business, you will need to consider:

• Income tax or corporation tax (depending on your structure),
• VAT registration if your turnover is likely to exceed the current threshold,  
• PAYE obligations if you are taking on employees, and  
• Non-domestic rates (if applicable)

In Scotland, the Small Business Bonus Scheme and other non-domestic rates relief schemes may assist smaller businesses, so it is worth checking your eligibility with your local authority.

We would always recommend working closely with a qualified accountant alongside your legal adviser to ensure you have a clear and accurate picture of your financial obligations.

5. Risk and Insurance

No business is without risk, and appropriate insurance cover can protect you against many of the most common pitfalls. Depending on your business, you may require:

• Employers' liability insurance (which is usually compulsory if you employ staff),
• Public liability insurance,
• Professional indemnity cover, and
• Key person insurance.

It is worth reviewing your insurance needs with an independent broker to ensure you have the right cover in place from day one.

6. Contracts and Terms

Clear, well-drafted contracts are the backbone of any well-run business. Whether for staff, suppliers or sub-contractors, robust contracts should set out the scope of the relationship, payment terms, liability limits and what happens if things go wrong.

In Scotland, contract law is rooted in Scots law rather than English common law, and there are meaningful differences in how contracts are formed and enforced. Professional advice at the drafting stage can help you avoid costly disputes further down the line.

7. Premises and Property

If your business requires commercial premises, whether you are leasing or purchasing, there are legal considerations you need to be aware of. 

Commercial leases in Scotland are governed by Scots property law and are often more complex than their residential equivalents. Key issues include lease length, rent review clauses, repairing obligations and rights of assignment. If you are purchasing commercial property, Land and Buildings Transaction Tax (LBTT) will apply.

Our commercial property team can guide you through the process from beginning to end.

How Paris Steele Can Help

Starting a business involves a great many moving parts, and legal advice is one of the most valuable investments you can make at the outset. At Paris Steele, our business team has extensive experience advising new and growing businesses across East Lothian and beyond. 

From partnership agreements and commercial leases to buying an existing business or helping you understand your governance obligations, we are here to help you get off to the right start.

If you would like to speak to someone about your business needs contact us today.