Legal Eagle Column: ‘Would you fly a plane without taking a single flying lesson?’

Setting up in business without advice might end in a nasty crash, according to Fasil Hussain in Neves Solicitors’ latest column…

Imagine you’ve saved enough to fulfil your lifelong dream – owning and flying your very own plane.

You’ve never flown in a small aircraft before, let alone piloted one. You take delivery of your shiny new Cessna at the local airfield.

The engine purrs effortlessly to life. You accelerate along the runway, pull back the joystick and you’re off … alone!

Is this you? Would you invest in an aircraft, and without a single flying lesson, take off on a maiden flight, solo?

Let’s transfer this analogy to business. You have a business idea and some savings. You incorporate yourself with £1 million shares, employ a couple of staff, and you’re off … alone!

Is this you? Would you invest in a new company, and without taking any advice, start trading?

It’s amazing how many aspiring entrepreneurs do… often to their cost.

Back to the perilous solo flight. You’ve been airborne for 20 minutes and doubts are creeping in. The plane doesn’t behave as you’d hoped – descending at a worrying speed.

No worries. You’re wearing a parachute, so out you jump, landing safely. Your Cessna hasn’t been so lucky, but no real harm done. And your business?

After a few months trading, things aren’t going to plan. There are no customers and the bills are piling up. It’s all been a mistake, so you leap out with your ‘parachute’. You ‘strike off’ your company, releasing yourself from all obligations.

You manage to trade a bit, but your employees aren’t happy with how their jobs have been terminated, and creditors are demanding payment, but surely, with the company now ‘struck off’, you’ll be fine.

The bad news is that you won’t be in the clear. You can’t strike off a company in this way. To do this means making false declarations about liabilities.

There’s every chance that the consequence would be prosecution. This scenario is typical of businesses, set up without due care.

So many enthusiastic would-be entrepreneurs start a business without consulting an expert. And ‘striking off’ your business from the Company Register isn’t a quick and easy way of winding it up.

Unless you follow the procedure carefully, you could still be liable in any number of ways. The big mistake was to incorporate the business with £1m of shares.

It might, on paper, look good. The problem is – it leaves the shareholders with £1m of liability when, if they’d sought proper advice, they would have set it up with just £1 allowing the company to be wound up and enjoying the intended benefits of limited liability protection.

Deciding whether to opt for Self-employment, a Partnership, a Limited Company or a Limited Liability Partnership, is critical.

You’ll need advice on Company Commercial Law. We’ll help you too with all aspects of Company Formation, helping you to avoid the many pitfalls that lie in your way.

Contact Fasil Hussain on 01908 304560 if you need commercial legal advice.

This column was published in the October 2018 issue of Celebrate:MK lifestyle magazine. Read the full magazine above or by clicking on this link.

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