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Legal Needs of Small Businesses

In order to keep up with the changing needs of small businesses, the legal world also needs to adapt. Given the recent recession, traditional solicitors’ work, such as conveyancing and probate, has not been in such great demand. Along with every other player in the UK economy, law firms have been forced to consider how they can best serve their existing clients, and how to generate new areas of business.In light of this, the Legal Services Board conducted research into the legal needs of small businesses. In May 2013, the findings were published in a report titled, “In Need of Advice? Findings of a Small Business Legal Needs Benchmarking Survey”. Some of the findings are detailed below.ReportThe report analyses the survey responses from 9,703 small businesses (fewer than 50 employees). Of those, 4,389 (45%) were single-person businesses, 4,266 (44%) were micro businesses (2 to 9 employees), and 1,048 (11%) were other small businesses (10 to 49 employees).There are around 4.8 million private sector and 81,000 not-for-profit enterprises in the UK, and around 99% of these are small businesses. Therefore, this sample of 9,703 represents a huge section of the UK economy, which generates one third of the turnover and accounts for one half of the jobs outside the public sector.The findings detailed in the report are broadly categorised into small businesses’ experience of legal problems, the impact of those problems, and the response of that business.Legal issuesOne point of note is that a large proportion of small businesses do, in fact, encounter legal issues. During the 12-month study alone, 38% of the small businesses experienced at least one legal problem. Moreover, it seems that the larger the business, the more likely it is that legal issues will arise, with 77% of businesses with 10 to 49 employees facing legal issues.The impact of these problems was also extensive. 45% of legal problems were reported to have had a tangible effect on the business, with the mean cost of problems being £6,700 (and the median cost being £1,200). Across the UK as a whole, the Legal Services Board estimates that the annual loss to small businesses as a result of legal issues could be in excess of £100 billion.Business responsesIn fact, very few small businesses were equipped to deal with these issues themselves. Only 6.4% employed a qualified lawyer, and only 9.1% had retainer agreements for legal services. Nevertheless, the businesses surveyed opted to deal with the issue themselves in 52% of cases. 29% obtained some form of independent legal advice, but only 14% chose to seek out a solicitor or barrister.This final statistic does not appear so surprising given that only 13% of small businesses agreed that “lawyers provide a cost effective means to resolve legal issues”, with 45% disagreeing. It would be interesting to find out how many of this 13% were also among those that had taken advice from a solicitor or barrister.Clearly, however, the Legal Services Board, and the legal profession as a whole, has a lot to do to change how it is perceived by small businesses, and possibly then to begin to better meet the legal needs of those businesses.If you would like legal advice in relation to any legal issues faced by your small business, please contact Salim Mansoor at This email address is being protected from spambots. You need JavaScript enabled to view it.
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Company versus Partnership

Introduction If you are planning to set up your own business, you will want to consider your options carefully. You can operate your business either as a sole trader, as a limited company, or as a partnership. There are advantages and disadvantages to all three methods, some of which are set out below. Given the different legal implications of this decision, it is worth consulting your solicitor for advice about which option would be best in your particular situation.Trading as a sole traderBeing a “sole trader” means running your business as an individual. The business is not a separate legal entity, which means that the business cannot earn profits or be responsible for anything itself. You keep all of the profits of the business, and pay income tax just as you would if you were employed. However, you are also personally responsible for paying for the costs of running the business, as well as any business losses.The benefits of trading as a sole trader are that it is simple to register as self-employed with HM Revenue and Customs, and that it imposes only minimal business obligations, such as to keep records of your sales and spending. However, it offers you no legal protection, since your business is not a separate legal entity.Trading as a company Setting up a “limited company” means setting up a separate organisation to run your business. The business is a therefore a separate legal entity, which is responsible for its own actions and finances. Any profits are earned by the company, not by anyone personally, and the company pays corporation tax, rather than income tax. The company may then share its profits with other companies or individuals who own shares in that company.The advantages of trading as a limited company are, firstly, that corporation tax is currently significantly less than income tax, but also that your legal responsibilities are limited to, for example, the value of your unpaid shares in the company. However, if you are a director of the company, you will be liable to fulfil various legal obligations, including keeping copious financial accounts.Trading as a partnershipTrading as a “partnership” means running your business with one or more partners. Unlike a limited company, your business is not a separate legal entity, which means that you share the profits of the business with your partners, paying income tax on your share. However, it also means that you are personally responsible for your share of any business losses. You can limit this liability by setting up a “limited liability partnership”, where you are only responsible to pay debts up to the amount you invest in the business.Therefore, although trading as a partnership is inherently less risky than trading as a sole trader since you are only liable for your share of the business, it does not put you in as secure a legal position as setting up a limited company. Nevertheless, it avoids the onerous obligations that are imposed on directors of limited companies.If you would like advice about setting up a business or partnership, or about any other area of business law, please contact Salim Mansoor at This email address is being protected from spambots. You need JavaScript enabled to view it.
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Directors’ Duties

IntroductionIf you are a company director, or you are considering becoming a director and are curious as to the obligations imposed upon them, you would be best advised to read the guidance from Companies House, and to consult a solicitor. In addition, you could review the Companies Act 2006 (“the Act”) for yourself, in order to gain an overview of the main requirements.The general duties of directors are set out in section 171 to 177 of the Act and are largely a codification of the common law. This means that the obligations on directors have not substantially changed since the Act came into force, but simply that they are now set out clearly in a single piece of primary legislation rather than in various court judgments.Duty to act within powersUnder section 171 of the Act, a director must act in accordance with the constitution of their company, and must only exercise their powers for the purpose for which those powers are conferred. This means that a director’s powers can only be used for their proper purposes, replacing the common law principle that directors should act in accordance with the company’s Memorandum and Articles. Whether or not a power has been used for its “proper” purpose can be deduced from previous cases.Duty to promote the success of the companyA director must act in good faith to promote the success of their company, in accordance with section 172 of the Act. In particular, he must take into account various considerations, including: the likely long-term consequences of a decision, the interests of the company’s employees, the need to foster the company’s business relationships, the impact of the company on the community and environment, the desirability of maintaining a reputation for high standards, and the need to act fairly between members of the company.Duty to exercise reasonable care, skill, and diligenceUnder section 174 of the Act, directors must exercise reasonable skill, care and diligence. The standard expected is at least that of a person with the general skill and experience a director would reasonably be expected to possess. However, if a director has particular expertise in a given area, he will be held to a higher standard in that area, in accordance with the level of his expertise.Other dutiesDirectors are also bound by the Act to exercise independent judgment, avoid conflicts of interest between their business and personal interests, not to accept any benefits (i.e. bribes) from third parties, and to declare any interest (direct or indirect) in a proposed transaction involving the company. These provisions are aimed at promoting business transparency and preventing corruption.In addition, directors are responsible for preparing and delivering documents to Companies House, again in accordance with the provisions of the Act. Such occasions include annual returns and accounts, notifications of any changes to the company’s officers or their personal details, notification of any change to the company’s registered office, the allotment of shares, and the registration of charges.If you would like advice about your obligations as the director of a company, or regarding any other company law issues, please contact Salim Mansoor.
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Issues Arising in a Commercial Lease

IntroductionCommercial leases are leases of premises for business use, and are governed by the Landlord and Tenant Acts. Each lease involves two parties: the landlord (or “lessor”) and the tenant (or “lessee”). A landlord may choose to lease a property as a commercial investment, whereas a tenant may choose to rent a property in order to carry out its business.Therefore, the landlord will usually seek to reduce the risk of his investment by negotiating less onerous lease terms, whereas the tenant will seek to reduce his business overheads by doing the same. However, any negotiations are subject to the provisions of the Landlord and Tenant Acts, some of which are explained below.Right of renewalWhen an existing lease expires, the tenant has the right to extend the lease, known as the “right of renewal”. The landlord does not have a corresponding right (i.e. the landlord cannot force the tenant to continue renting the property). The law assumes that the tenant wishes to extend the lease; if neither party does anything, the lease will continue to run.If the landlord wishes to terminate the lease, he must give the tenant between 6 and 12 months’ notice. He must specify the date that he wishes to terminate the lease, so long as this date is not before the lease is due to expire, and the grounds for termination. There are only limited grounds, including: failure to repair; persistent delays in paying rent; and substantial breaches of other lease obligations.Therefore, it is advisable for any tenant to avoid undermining their right of renewal by fulfilling all of their obligations under the lease.TransferPrior to 1996, the tenant remained liable to fulfil particular obligations (or “covenants”) under the lease for the entire term, regardless of whether the lease was transferred (i.e. sold) to another party. However, for leases agreed after 1996, the tenant is no longer liable after transfer.Therefore, if a new lease says nothing, the tenant is able to transfer the lease and free himself of any obligations under the lease. But this situation is not necessarily in the best interests of the landlord as, for example, the risk of his investment increases if a financially strong tenant transfers the lease to a company that is financially weak.Hence, it is advisable for any landlord to prevent the tenant from transferring the lease, or require consent to do so, providing that consent is not be unreasonably withheld or delayed.SubleaseA sublease is a lease between the tenant and the subtenant. Subleasing is different to transferring a lease, as the original tenant remains liable to the landlord to pay rent and fulfil any other obligations under the lease.Since the landlord will not necessarily have any direct relationship with the subtenant, it is crucial for the landlord to make sure that any sublease between the tenant and the subtenant does not undermine the lease between the landlord and the tenant. For example, the obligations under the sublease should not contradict those under the lease.Hence, it is advisable for any landlord to prevent the tenant from subleasing, or require consent to do so, providing, again, that consent is not be unreasonably withheld or delayed.If you would like legal advice about any of these issues, or any other issues relating to commercial lease disputes, please contact Salim Mansoor.
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Prevention of Illegal Working Consultation

IntroductionIf you an employer, you are no doubt already aware of your obligation to check the immigration status of your employees. The introduction of the Asylum and Immigration Act 1996 originally imposed this requirement, and is now entrenched in employee induction procedures across the country.However, the government has decided that the details of these obligations, and the associated enforcement procedure, should be assessed and revised. Therefore, the Home Office has published a consultation paper regarding these provisions, and requests responses by 20 August 2013. Some of the salient proposals are outlined below.Current lawSince 1997, it has been a criminal offence to employ illegal workers, with infringing employers liable to a fine of up to £5,000. However, an employer has a full defence if he retains a copy of the relevant documentation, even if that documentation turns out to be a forgery.From 2008, the Immigration, Asylum and Nationality Act also introduced a civil penalty of up to £10,000 for employing illegal workers. A new criminal offence was introduced for employers who did so knowingly, subject to imprisonment for up to 2 years, a fine, or both.In accordance with the Code of Practice, the value of a civil penalty is determined by taking four factors into account: any partial checks completed, whether the workers were reported by the employer, cooperation with the Home Office, and any previous offences within 3 years. There are also various grounds for objection, including that the employer has complied with his obligations, or that the penalty is excessively high.ProposalsThe government’s proposals obviously aim to reduce the employment of illegal workers, as it “undercuts legitimate business and is often associated with other labour market abuses, including tax evasion and exploitative working conditions”.The proposals relate to the civil penalty inaugurated in 2008, and consider increasing the maximum, simplifying the way penalties are calculated, improving their enforcement, reducing the range of acceptable documentation, and removing annual follow-up checks on employees with time-limited permission to work in the UK.The government suggests increasing the civil penalty from £10,000 to £15,000 for first-time offenders, and to £20,000 for repeat offenders. These penalties are awarded for each illegal worker, meaning that some employers could face total penalties far in excess of this amount. The increase is aimed at providing a greater deterrent, protecting illegal immigrants and legitimate employers, and reducing the cost of illegal working to the British taxpayer.The process for calculating the value of the penalty is also up for review. The Home Office propose removing any mitigation for a partial check on workers, since employers should be aware of their obligations now the provisions are well-established. For the same reason, the current procedure for simply sending a warning letter women Dual Lane Modular Combo to cooperative first-time offenders may be abolished. In addition, the effect of reporting workers and actively cooperating with the Home Office may be condensed into a set £5,000 reduction for each.Along with reducing the number of acceptable documents for right-to-work checks, and using a biometric residence permit as the main acceptable document for most non-EEA nationals, the government also plans to remove annual checks for non-EEA national employees. The removal of annual checks will apply only to employees with time-limited visas, with a subsequent check required on the expiration of their initial permission.If you would like advice in relation to your obligations to conduct right-to-work checks on your employees, or regarding any other area of employment or immigration law, please contact San Chima in the first instance on This email address is being protected from spambots. You need JavaScript enabled to view it. 
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