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Running a business during Covid? Read this

Closures + pinged staff + loan worries...sound like your average work day at the mo? We tapped the experts at Kitsons Solicitors for how to ensure your business thrives in a pandemic.

It’s one helluva time to be in business so Muddy’s hat is off to anyone who’s working their socks off on their biz right now. But while you might know all there is to know about running a clothes’ store or baking amazing cakes, (just say if you need a taste tester) the legal side is a total mind-bender, and even more so during a pandemic.

So, we’ve enlisted  Corri Pedrick and Jayme Nicholson , both partners at Kitsons Solictors and uber-experts in business and employment law to give their ace advice on getting your business off the ground and keep it flying high when times are tough.

Over to you, partners!

“I want to get my business on a proper legal footing but have no idea where to start.”

The best place to start is with your accountant as they can advise which is the most tax-efficient structure for your business. 

There are a number of choices: a limited company with directors and shareholders (in small companies directors are often also the shareholders as they are owner managed businesses); a company limited by guarantee (ideal for not for profit organisations); a partnership; or an LLP.  Picking the right structure, then allows your legal team to draft the appropriate documents such as partnership agreements/shareholder agreements to formalise and manage the relationships between the individuals involved.

“Is turning into a limited company expensive?”

We can deal with the incorporation of a limited company and the appointment of the relevant directors on incorporation for a flat fee of £450. The costs associated with the documents detailed above will depend on what you’re looking to achieve. We also recommend a redraft of your company’s articles of association. The articles are the company’s constitution and contain key provisions on how the company should be managed. It’s important that any shareholders’ agreement dovetails with the articles. It might seem unimportant now, but they will protect you from future pain if something were to go wrong.  

“Can you skip the legal stuff if you’re starting a biz with someone you trust, such as your partner or a mate?” 

Er, no! Once we stop twitching, we need to tell you how risky that is! Imagine the worse happens and your trustworthy co-shareholder dies – what happens to their share of the business? If their shares pass to their partner, or another member of their family under their will, who knows nothing about your line of work they could have a significant detrimental effect on your business. Imagine someone you have never met before making decisions on your company, employing other family members, entering into unwanted contracts, we’ve seen it happen. If you have no appropriate agreements in place you may not be able to get rid of a rogue shareholder. It can be catastrophic.

Chances are once its agreed, you will never need to look at your shareholder agreement again but it is a useful insurance policy should the worst happen.  Being proactive at the outset will minimise the potential for running a business together to put a strain on your relationship with your partner/friend, because you’ve agreed the boundaries early on and you will both be clear on your expectations of each other. It is a document you can go back to and say “this isn’t what we agreed”.

“My parents want me to take over the family business but it would mean working with my brother, who works far less hard than me – what can I do?”

We have lots of discussions around family business and what succession is going to look like. As with the example of setting up in business with a friend, it’s tempting to think ‘why do I want lawyers involved – it’s a cost’ but actually having someone impartial can really help, in what can be a potentially emotional discussion. Someone who will bring up things you may not have thought of or be comfortable talking about. In some ways, it’s not dissimilar to writing a will.

Having a professional in for that discussion means everything is planned and expectations are managed, particularly where, as is often the case with families, you have imbalanced positions for various reasons and some people who feel they are giving more to the business than others.  We can help provide a forum where these things are raised professionally and in a managed environment. Employment contracts, director’s service agreements are all good ways of setting out expectations and renumeration.

There is also the issue of money. When someone passes away people often put in their articles  an ‘automatic transfer provision’ on death, i.e.: when a shareholder dies, the shares are automatically transferred back to the ongoing shareholders or back to the company at fair value. It’s a provision we understandably see quite often as it prevents shares passing in accordance with the shareholder’s will and stops someone the ongoing shareholders don’t want coming in to the company. It gives them certainty but beware, these automatic transfers have adverse tax implications, so it’s far preferable to have instead what we call a ‘cross option agreement’ as this has significant tax advantages. Your accountant can advise you on this and we can then draft the requisite agreement.

“My business made it through lockdown but I’m really worried it won’t survive another one – is there anything I can do to protect it?”

We are seeing more businesses wanting to protect their assets by setting up a holding company above their trading company. The holding company holds key assets, for example the property from which the business trades, and leases it back to the trading company. Any profits from the trading company can also be passed up to the holding company. You may need to get help from your accountant first to get HMRC clearance for this structure. We work with accountants who are experienced in making such applications. Once clearance is in we can then draft the appropriate documents to give your business its new group structure.

“I’m unsure how to handle staff going off sick, especially with so many saying they’ve been pinged and have to isolate.”

If someone is required to isolate they would have been notified either through their app or through NHS Track & Trace so they should have some form of audit trail – an email or a screen grab from their mobile phone.  As with any other type of absence, it’s reasonable for you to request documents to support.  The email or screengrab will also confirm how long the isolation period is, which allows you to plan covering the absence.  

Managing absence is currently proving very difficult, given the high volume of people being “pinged”.  You shouldn’t feel uncomfortable in asking for further details regarding the isolation. Just remind yourself you are asking a perfectly legitimate question and it doesn’t need to be hostile or combative. It’s just a case of saying, ‘thank you for letting me know, can you provide the following for my records’.

“My shop has gone from being a kitchen table business to bricks and mortar and now back to online due to Covid…”

Then this is a good time for you to look again at your terms and conditions because there are different laws depending on how you trade and your terms will need to be updated to reflect these. Also think about your GDPR policy, Privacy Policy. These are often areas that people neglect and we then see them when there is some form of litigation being pursued against them. A well drafted set of t&cs will minimise your litigation risk.

“My sister lent me money during the pandemic to keep the business afloat – is there anything I need to do?”

If you’ve taken a significant investment from a friend or family member to pivot your business, then it’s a good idea to document it. We can help you formulate  the written agreement while everything is amicable and everyone is in a good place, so everything is clear should there ever be a fallout later. Giving clarity at this early stage will help to minimise the potential for there to be a difference of opinion later, such as whether the investment was in exchange for some form of benefit, what the repayment expectations were etc.

Need a legal eagle eye on your business? Don’t be shy! Get in touch with Jayme on 01392 455533 or Corri on 01803 202043, pronto!

Kitsons Solicitors, Minerva House, Orchard Way, Edginswell Park, Torquay
TQ2 7FA Tel: 01803 20 20 20 advice@kitsons-solicitors.co.uk

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