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Starting a limited company, entering a business partnership or becoming a sole trader comes with certain legal obligations. Some tasks take time, while others are quick, but all need your attention during the startup phase. Here are nine legal requirements to help you through this critical stage of your business journey.

1. Choose a business structure

The first thing you need to decide is your business structure. The three most common business structures are:

• Sole trader: You and the company are a single legal entity, meaning you take personal responsibility for the business. 

• Limited company: The business is a separate legal entity, meaning there are limits to your personal liability

• Partnership: Like a sole trader set up, the company is not a separate legal entity, but with this structure two or more people share the responsibility and profits of the business

Each structure has pros and cons, with some better suited to certain business types. A sole trader is generally considered the easiest structure to set up and use, while a limited company is often seen as the safest due to the company’s status as a separate legal entity. This protects your personal assets if the business fails. A partnership lets you share responsibility with other partners, limiting the liability for each individual. 

If you don’t first establish your business structure, it’s very difficult to remain legally compliant when setting up the rest of your business. Take time to understand which structure suits you best.

2. Register the business

Once you decide on your business structure you can begin the registration process. The steps vary depending on your structure, so let’s break down each option.

Register a limited company 

• Choose your company name: Coming up with a name for your company can be fun, but it may take some time. You must check that no one else has taken the name. It also can’t be offensive or suggest an unwarranted affiliation with the government or other authority 

• Choose a company address: You can use your private address, but it will be displayed publicly on your Companies House record. If you’re unhappy with this, consider using alternative postal details, such as an accountant's address

• Appoint directors: Directors manage the business on behalf of shareholders. You may be the only director, or you can appoint others

• Set the share structure: A limited company consists of shares. Decide how many shares your company has, along with the share type and price

• Choose a SIC code: A Standard Industrial Classification (SIC) code identifies your business type. Find the appropriate code(s) for your business

• Register with Companies House: Once you have the information above, pay the formation fee and officially register your new limited company

Register as a sole trader

The process for registering as a sole trader is mainly focused on meeting tax obligations. Unlike the multi-step procedure used for registering a limited company, the key task when registering as a sole trader is choosing a business name. You can trade under your personal name, as many sole traders do, but remember that the name you choose appears on business documents like invoices and purchase orders, so you might prefer a name that’s more memorable or that helps define your business.

Register a partnership

A partnership structure is more like a sole trader setup than a limited company, so the registration process is similar to the former. After deciding who will be part of the partnership (there’s no upper limit as long as there are at least two of you), the next step is to choose a name for your partnership.

3. Register for tax

One thing you don’t want to get wrong is your tax obligations. Failing to register for tax, file your tax return, or pay on time can lead to fines and penalties from HMRC. Each business structure has different tax requirements, so the registration process varies. 

Sole traders: You must register as self-employed with HMRC as soon as you start trading, and no later than 5 October of the second tax year in which you trade. For example, if you started trading in 2024, you must register by 5 October 2025. This lets HMRC know to expect a self assessment tax return and ensures your tax status is correct. Once you register as self-employed, HMRC sends your Unique Taxpayer Reference (UTR), which you will need in order to file your tax return.  

Limited companies: A limited company is a separate legal entity, so tax is due on its profits. You must register your limited company for corporation tax within the first three months of trading. Don’t forget to do this, as HMRC can impose penalties and take legal action against your company if you don’t. Good record-keeping is also essential. 

Partnerships: Choose one individual in the partnership as the nominated partner. They are responsible for submitting the partnership tax return to HMRC. Additionally, each partner must register with HMRC and submit their own individual tax return at the end of the tax year.

It’s also a legal requirement to keep all financial records, such as expense receipts and invoices, so developing good record-keeping habits is crucial. Accounting software can help.

Every business must register for VAT when it reaches a certain turnover threshold, which is currently £90,000. If you expect to reach this threshold in the next 30 days or have already reached it in the past 12 months, you must , regardless of your business structure.

4. Apply for licences and permits

Many industries and local authorities require different business licences and permits. Not all businesses need these, but for some, they are a legal requirement. Trading without the necessary licence can result in fines, prosecution and criminal convictions.

Here are a few examples of the more common types of business licence:

• Personal licence: Required by at least one person on-site to serve or sell alcohol

• Premises licence: Required to serve or sell alcohol from a premises 

• Pavement or street display sign licence: Required to display a business sign

• PPL PRS: Required to play music in your establishment

• Food business registration: Required to sell food, whether from home, a stall, a van, or online 

• Financial Conduct Authority (FCA) registration: Required to advise about regulated financial services

• Driving licence: Required to drive on UK roads

5. Understand data protection and GDPR

Data protection is important because it protects people’s data from hackers and other malicious third parties. If you handle any personal data, whether from customers or employees, you must familiarise yourself with the guidelines set under the General Data Protection Regulation (GDPR). 

Key regulations to be aware of include the need to:

• Obtain consent before storing anyone’s data

• Use the data only for the purposes you specify when getting consent 

• Delete the data as soon as it is no longer necessary

• Ensure the security of the data

If you handle personal data, it’s also a legal requirement to register with the (ICO).

6. Comply with health and safety regulations

Health and Safety Executive (HSE) regulations are in place to keep you, your customers and your employees safe. With so much to consider, it can be difficult to know where to start. 

The crux of HSE regulations is to guide businesses in creating a safe working environment through risk assessments and ongoing employee training, ensuring everyone contributes to workplace safety. 

A good place to start is by conducting a risk assessment of your premises. This helps identify potential risks, allowing you to plan how to mitigate them. Each business has its own risks; for example, the risks for a scaffolder differ from those of a private tutor.

The HSE can help you determine what you need to do for your specific type of work and any additional requirements you may have.

7. Set up business insurance 

Business insurance can be more than a financial lifesaver; for some businesses, it’s a legal requirement. 

Business insurance is an umbrella term for various policies that cover a business in different circumstances. If you have employees, whether temporary or permanent, you must have employers' liability insurance by law. This insurance protects your employees if they become ill or injure themselves due to their work for your business. The only exception is if your employees are all close family members. 

Other types of insurance, while not legally required, can help cover significant costs arising from different incidents. This includes public liability insurance to shield you from compansation claims made the public, professional indemnity insurance to protect you if your advice causes financial or reputational harm, and tool insurance to protect your tools. 

8. Separate your finances 

It’s good practice to separate your personal finances from your business finances. But, if you own a limited company, it's a legal requirement.

A limited company is a separate legal entity, meaning the money that moves through the company isn’t yours. By having business bank accounts and business savings accounts, you can easily keep your personal and business finances separate, thereby avoiding legal issues. 

You should also consider this approach if you’re a sole trader or in a partnership. It makes tax returns easier and provides a clear picture of your business’ finances, helping you spot and address cash flow issues.

9. Understand employment law

This only applies if you employ staff. However, it’s worth familiarising yourself with employment law even if you don’t have employees initially, as you may expand your business later on.

The first step if you have employees is to with HMRC. This lets you track what you owe, pay bills, view payment history, and access tax codes and notices about your employees. 

Once you’ve done that, you need to understand the basics of employment law to ensure you treat your employees fairly under UK law. Key things to understand include:

• Paying at least the , currently £12.21 for anyone over 21

• Keeping the maximum weekly under 48 hours

• Offering at least 5.6 weeks’ paid holiday (the number of days will differ for full-time and part-time staff)

• Offering Statutory Sick Pay (SSP) as a minimum when an employee is ill for more than four consecutive days 

• Paying or pay to your employees

This is far from an exhaustive list. If you're unsure how any of this applies to your business, consider speaking to an employment law expert.