Running a business is already incredibly demanding, and we understand that drafting or signing a formal contract may not always feel urgent — especially when there’s trust between the parties. However, this can leave important legal risks unaddressed until problems arise.
Below are five common pitfalls we see across businesses of all sizes, along with practical tips to help you plan ahead.
1. Not Considering the Right Business Structure
Starting lean with a sole trader or informal partnership setup is common — and often practical in the early days. But as your business grows and you want to bring in new people, acquire property, or secure financing, that initial structure may no longer serve you.
Your legal structure affects your exposure to risk, tax position, funding options, and long-term sustainability.
For example, if your plans involve borrowing from banks or scaling up, a limited company is often the most appropriate structure. If you’re setting up a property management company, it’s common to use a company limited by guarantee. And if you’re running a charity, a charitable incorporated organisation (CIO) offers charity status and a formal structure without the administrative burden of company law compliance.
Using a formal legal vehicle can also support tax and estate planning, such as facilitating wealth transfer to the next generation.
The law offers a range of business structures, each with its own pros and cons. That’s why it’s important to regularly review your setup as part of your strategic planning and seek professional advice — not only to manage risk, but to futureproof your business and reduce long-term costs.
2. Relying on Informal Business Arrangements
Many business relationships begin with trust and often just a handshake — and in the early stages, that may seem perfectly sufficient. However, as the business grows or circumstances change, the absence of formal agreements such as shareholders’ agreements, partnership agreements, or investment terms can leave the business exposed. Disagreements about contributions, decision-making, or exit strategies can quickly lead to disputes that are difficult — and costly — to resolve.
Having clear, well-drafted agreements in place from the outset helps establish a shared understanding of roles, responsibilities, and rights. These documents provide not only legal protection but also a practical framework for communication and dispute resolution. In our experience, setting these terms early on doesn’t just protect against risk — it also fosters trust, transparency, and stability, helping businesses build strong foundations for long-term relationships.
3. No Tailored Terms and Conditions (T&Cs)
We have come across business owners who rely on unchecked templates, adopt the other party’s terms without review, or operate without any formal T&Cs at all. While this may seem convenient at the outset, especially when time and resources are limited, it can create significant risks down the line.
Your T&Cs should do more than just exist — they should be tailored to your business model, aligned with how you operate, and fully compliant with current legal requirements. This is especially critical if you deal with consumers, where the legal landscape is evolving rapidly. Notably, the Digital Markets, Competition and Consumers Act 2024 has strengthened consumer protection and the Competition and Markets Authority (CMA) has significant enforcement powers, including fines of up to £300,000 or 10% of global turnover, whichever is higher.
Even when dealing with other businesses, it’s important to have properly drafted T&Cs that cover key issues like payment terms, liability, cancellation rights, product specifications, and service standards. Recording any bespoke commercial arrangements in writing not only helps manage expectations but also protects your position in the event of a dispute.
Well-drafted T&Cs aren’t just legal paperwork — they’re a crucial tool for risk management and building trust in your business relationships.
4. Mismanaging Employee and Contractor Relationships
We understand that in the early stages of a business, things need to stay flexible — especially when you’re working with family members or close friends. Formalities can feel unnecessary when there’s a strong foundation of trust. However, as soon as you have staff or contractors contributing to the business, it’s important to put clear, written contracts in place.
Having contracts that define roles and responsibilities, address ownership of intellectual property (IP), and ensure compliance with employment law is not just about ticking legal boxes — it’s about setting up your business for long-term objectives. These documents become even more critical as you scale, take on external investors, or consider a potential sale of the business. A buyer or investor will want to see that your team is properly engaged and that your business isn’t exposed to legal risks, especially relating to employment claims or IP ownership disputes.
Taking the time to formalise these relationships early can save significant cost, stress, and uncertainty later on — and will help build a stronger, more sustainable foundation for your business relationships.
5. Overlooking Intellectual Property
Many businesses underestimate the value of their IP or assume that they automatically own any work created by their employees or contractors. However, under English law, that’s not always the case — and failing to take the right steps early on can result in costly disputes or lost opportunities down the line.
Without appropriate legal documentation and protections in place, your business may not legally own key assets like branding, software code, website content, product designs, marketing materials, or other creative output. This can pose a serious risk, especially if you rely on those assets to deliver your services or attract investors or buyers.
Legal support isn’t just about compliance — it’s about laying the foundations for sustainable, positive business relationships. Whether you’re just starting out or scaling up, taking the time to understand and address legal risks early on can save you time, cost, and stress in the future.
How Can We Help?
If you need help setting up your business, or advice regarding any business-related matter, please don’t hesitate to contact our Business Law Team at business@hatchers.co.uk.
