When starting a business you need to take into account the legal considerations. One of your first decisions will be to decide whether to be a sole trader, enter into a partnership or incorporate a limited company. What you decide to do can have a vital bearing on your long-term prospects.

Sole trader is the simplest arrangement but remember you will be personally liable for all the debts you incur.

If you are going into a partnership the terms of the partnership agreement are vital. The agreement needs to cover issues such as the rights and responsibilities of the partners, drawings from the company, dispute resolution and, most importantly, how the partnership can be brought to an end. This is an area where the involvement of an advocate is vital. Guernsey is fortunate in having a good number of expert legal practitioners in this field.

The company alternative provides the protection of limited liability. This means that only the company assets are at risk in the event of insolvency. However it is worth noting that if a limited company is trying to negotiate a lease on a property the freeholder is quite likely to want a personal guarantee from the owners. The limited liability company also has to face running expenses such as annual returns and these ancillary costs must be taken into account when deciding to go down this route.

When looking for premises there are the options of acquiring freehold or taking on a lease. Freehold in Guernsey is expensive and sometimes difficult to find. Acquiring freehold property also involves extra costs such as lawyers’ fees and document duties. For a new business it is more likely that leasehold property will be involved.

The terms of the lease will be vital. What is the rent? What arrangements are there for rent reviews? Are the reviews subject to Retail Price index increases or market rental rates? Is there a get-out clause? You don’t want to be trapped into a long-term arrangement if the business is not going well. What arrangements are there for improvements, alterations or repairs? What repair obligations will you have under the lease? Does the lease allow the activity you wish to carry out? What about extending the lease at the end of the term? You should insist on proper documentation being drawn up but, unlike contracts for the sale of land, binding legal agreements for the granting of a lease can be created orally. Be careful what you say. All these questions need to be addressed.

The object of the exercise is to make sure that you know exactly where you stand and to reduce to an absolute minimum possible areas of dispute in the future. It should be possible to obtain advice from an advocate on a lease for a fixed fee. If the advocate has to get involved in negotiations with the prospective landlord different fee considerations come into play.

As you can see there are many aspects of starting a new business that have significant legal implications. Guernsey’s advocates are well-used to helping people take that first step into business and all stress the importance of getting that homework done first.