This toolkit can help you understand the legal requirement needed to start a new business.

It is important to make sure the legal aspects of your business are in order before starting up, as this will save time and money later on down the line.

The most common business structures are sole trader, partnership, company limited by shares or public limited liability companies. Each structure has its own set of rules that need to be followed when setting it up. This guide explains what each type of entity involves and how they work. It also provides information about which types of businesses may operate under each form of ownership.

You are encouraged to use this toolkit only for educational purposes. Ensure you have complied with all local laws before setting up your own business by seeking professional legal advice.

Sole Proprietorship:

A sole proprietorship means one person owns all assets and liabilities associated with their business. The owner must file an income tax return for every year he/she operates his/her business. If the business does not have any employees, then there is no payroll deduction required from the owner’s account. However, if the business employs more than two people, then the employer must withhold taxes at the source. In addition, the owner must pay self-employment tax on wages paid to himself/herself.

Pros:

• No formalities – You don’t need to register anything; however, you do need to keep records of transactions related to your business.

• Low cost – There are no ongoing costs involved except for filing annual returns.

• Flexibility – You decide where to run your business based on your needs.

Cons:

• Limited scope – Your business activities are restricted only to those things that you want to pursue. For example, if you plan to sell products online, then you cannot open another store selling similar goods.

• High risk – As mentioned above, you are solely responsible for paying all debts incurred by your business. Therefore, if you fail to meet obligations such as rent payments, creditors might take action against you.

Partnership:

A partnership is formed between 2 or more individuals who share profits and losses equally. Partnerships do not require registration but partners must sign a Partnership Deed stating that they intend to run the business together. There are many benefits to operating through a partnership including lower costs, greater flexibility and better control over finances.

For example, partnerships cannot sue or be sued individually; however, they can enter into contracts and agreements without needing everyone’s consent. They can also buy property jointly.

Positives of partnership business include:

Lower costs – A partnership requires less paperwork compared to other forms of business ownership.

Greater flexibility – Unlike in a corporation, a partner can leave the firm whenever s/he wants. Also, unlike a sole proprietor, a partner can change jobs without having to close the business first.

Negatives of partnership business include:

Higher risks – Because partners are liable for everything done within the partnership, they could end up losing their entire investment if something goes wrong.

Company Limited By Shares:

Companies are incorporated entities owned by shareholders. Shareholders usually include family members, friends or other trusted associates. When a shareholder buys stock in a company, s/he becomes part owners of the company. As such, the shareholder receives dividends based on the amount of equity invested.

Pros: Low initial capital requirement – The minimum starting capital needed to set up a limited company is very low. This means that it is easier to get started with this type of business.

Limited liability – If a shareholder loses money due to his/her negligence, he/she will not lose any assets because the company has limited liabilities.

High growth potential – Companies have high growth potential since new investors can easily join them.

Cons: Lack of independence – Since companies are controlled by their shareholders, there is no way to protect the interests of minority shareholders. In addition, some states may limit how much an individual can invest in one company at once. 

Public Limited Liability Company:

Public Limited Liability Companies are similar to corporations except that PLLCs don’t have shareholders. Instead, they have members who contribute capital to the company. Members receive dividends based on the total value of the company.

PLLC membership allows members to participate in decisions made by the board of directors. For instance, members vote on whether to increase salaries or reduce staff numbers.

Pros:

Easy access to financing – Many banks offer loans specifically designed for PLLCs. These types of loans allow you to borrow more than what your credit rating would normally permit.

Better tax treatment – Some countries give favourable tax treatments to PLLCs. For example, Canada gives 50% tax breaks to PLLCs while Germany offers 100%.

Cons:

Lack of control over management – Although PLLCs do provide opportunities for member participation and involvement, they lack direct control over the day-to-day operations of the company. Difficulties in recruiting employees – It’s difficult to recruit qualified people when most employers prefer hiring individuals rather than groups.

The following documents should be considered:

Business Plan – A detailed plan outlining all aspects of the proposed business including financial projections, marketing strategy, product development, etc. You can learn more about business plan and download the template from our business plan toolkit.

Operating Agreement – An agreement between partners regarding ownership rights, responsibilities, duties, profits, losses, etc.

Shareholder Agreements – Documents detailing the terms under which each partner owns shares in the company.

Partnership Agreement – Similar to a share purchase agreement but used within partnerships instead of buying stocks.

In addition to the company formation, you must also consider other legal issues such as intellectual property protection, trademark registration, copyrighting material, licensing agreements, employment contracts, insurance policies, and so forth.

Contracts are essential tools used to ensure fair dealings between parties. Contracts define expectations, obligations, rights, duties, liabilities, remedies, and other aspects of relationships among contracting parties. A contract is an agreement made verbally or written which has been signed by both parties involved.

The most common type of contracts include:

Employment Contracts

Employment contracts are legally binding agreements between two parties where both sides agree upon certain conditions. The main purpose of this type of contract is to ensure that both parties will follow through with their obligations. This includes paying wages, providing benefits, and complying with laws governing minimum wage, overtime pay, child labour, discrimination, sexual harassment, and so on. Employment contracts can vary depending on the industry sector, employer size, employee position, and many other factors. You must check your local regulations before issuing any employment contract.

Sales Contract

This document specifies the terms and conditions under which a buyer purchases goods from a seller. Typically, sales contracts specify the price, delivery dates, payment methods, warranties, guarantees, return policies, and other pertinent information.

Service Contract

This document describes the services provided by a service provider to another party. It includes the scope of work, pricing structure, quality standards, warranty periods, and other important factors. A service contract is important because it defines a particular project. If there was no written documentation about what was agreed upon during negotiations then disputes may arise later down the road.

Intellectual Property Protection

You may want to protect your ideas from being stolen by others. Intellectual property refers to anything created by an individual or group of individuals. To prevent someone else from using your idea without permission, it needs to be registered with the government. There are different ways to register your IP; however, the best way is to hire a lawyer who specialises in intellectual property law.

Trademark Registration

A trademark is a word, phrase, symbol, design, logo, colour combination, sound, smell, shape, packaging, or some combination thereof that identifies goods or services offered by one party and distinguishes them from those offered by another party. Trademarks help consumers identify products and companies. They’re often protected by federal and provincial governments. If you have a good idea for a new brand name, slogan, tagline, or advertising campaign, then you need to get it trademarked first. Otherwise, anyone could use it and claim that they own it.

Employment Contract outlines the terms and conditions under which an employee will perform his/her job. An employment contract may be verbal but must contain certain provisions such as notice period, salary, termination date, vacation time, benefits, and so on. In addition, this document defines the relationship between employer and employee.

Copyrighting Material

If you create something like music, art, software, video games, books, movies, or even websites, you’ll probably want to make sure that no one steals your work. Copyright protects creative works against copying and distribution without consent. It’s important to understand how copyrights work because if you don’t, you might end up losing money due to unauthorized usage.

Licensing Agreements

If you plan to sell physical items, then you should know about licenses. Licenses allow people to buy things at wholesale prices and resell them at retail prices. For example, when you purchase a license to produce widgets, you can manufacture more than what was originally purchased. However, there are limits to how much you can sell per year. To avoid getting into trouble, always consult a lawyer regarding these types of agreements.

Insurance Policies

Business owners usually carry liability insurance and general commercial insurance. Liability insurance covers damages caused by accidents involving employees or third-party contractors. General commercial insurance provides coverage for damage done to buildings, equipment, inventory, vehicles, etc. Insurance policies also cover legal fees incurred during the litigation. Make sure that all necessary documents are included in your policy.

Open a Business Bank Account

You must separate your business and personal finances before you start collecting money from clients. You should choose a bank that is convenient and serves your needs. Maybe the banks with low banking fees can serve your needs better. Once you’ve chosen a bank, you’ll need to fill out some paperwork to open an account. You may be asked to provide information about your business.

Data Protection Policy

You must be aware of the laws around data protection in your local area. If you are marketing your services to Europe, then you must meet the European Union’s General Data Protection Regulation. This regulation was introduced in May 2018 to protect citizens from privacy breaches.

The GDPR applies to any organisation processing information relating to EU residents regardless of where their headquarters are located. You will need to comply with this law if you want to market your products or services online.

What is GDPR?

GDPR stands for General Data Protection Regulations which were implemented across the whole of the European Union to protect individuals’ rights over their private data. The regulations came into force on 25th May 2018 but they have been enforced since 2016. They apply to organisations that process the personal data of anyone within the EU. These include companies based outside the UK too.

Who does GDPR affect?

Anyone who processes the personal data of someone living in the EU has become subject to the new rules. That includes businesses such as retailers, hotels, restaurants, airlines, financial institutions, healthcare providers, social media platforms, search engines, email service providers, mobile phone operators, cloud storage providers, advertising networks, credit reference agencies, public transport systems, government bodies and many others.

How do I prepare my company for GDPR compliance?

There are three main areas covered under GDPR: 

Privacy

What happens to your customers’ data once you collect it? How long do you keep it for? Who has access to it? Are you allowed to share it with other parties? Do you delete it after using it?

Security

Is your website secure enough so that hackers cannot get hold of sensitive customer details? Can someone else use our site without us knowing? Does your IT system store confidential information securely?

Consent

You need consent from users whenever you ask them to give up their data. It’s not just websites either; apps and social media platforms like Facebook and Twitter also require people to agree to share their data when signing up.

Do I need to change anything now?

Yes! There are many changes needed to make sure your company complies with GDPR. 

Here are five things you need to consider right away: 

1. Update your terms & conditions page. Your T&C’s should clearly state what kind of data you’re going to gather from visitors and how you intend to use it. For example, if you sell goods through your website, you might say something along these lines: “We only collect payment card numbers as part of providing a service.”
2. Set up a dedicated email address for handling complaints. People often complain via social media sites such as Facebook or Twitter. But there’s no guarantee that those messages reach the correct person at your company. So set up a separate email address specifically for dealing with grievances. Make sure all staff know exactly what to do with emails sent to this address.
3. Create a clear policy explaining why you’re collecting user data. Explain why you’re doing it and what you plan to do with the information. Also, explain whether you’ll pass it onto third-party suppliers. If you don’t explain then you could be breaking the rules.
4. Get permission before sending marketing communications. Before you send out promotional material, check first if you’ve got permission to contact each recipient. This means asking them directly by phone or email. Don’t assume that because you can see their name and postcode on a web form that they permitted you to contact them.
5. Keep records of every time you request consent. You must record any requests made in writing and any verbal agreements given verbally. The law says you must retain these documents for six years.

Having a website is part of launching a tourism business, complete with a privacy policy. The purpose of having a privacy policy is to inform visitors about how they can protect themselves while visiting your site. 

Your privacy policy should include details about who owns your company, whether personal information collected through your website is shared with other parties, and how long you keep records before deleting them.

You can use a service like iubenda to create an effective privacy policy. We will talk more about this in our web building toolkit.

You need to make sure that these legal matters are taken care of before starting your business. Otherwise, you could face problems later down the road. Ensure that you go through the information in this guide and consult a legal professional before you launch your torism business.

Branding Essentials

The next toolkit walks you through the business branding checklist.