As a small business owner in the UK, navigating the legal landscape can be daunting. Understanding key legal terms is crucial for ensuring compliance, protecting your business, and making informed decisions. In this blog post, we’ll explore essential legal terms that every small business owner should know, providing clarity and guidance to help you navigate the intricacies of UK law.

  1. Articles of Association: The Articles of Association is a foundational document for any company registered in the UK. It outlines the internal rules and regulations governing the company’s operations, including shareholder rights, director duties, and decision-making processes. Understanding your company’s Articles of Association is essential for ensuring smooth internal management and resolving disputes effectively.
  2. Director: In the UK, a director is an individual appointed to oversee the day-to-day operations of a company and make strategic decisions on behalf of the business. Directors have legal duties and responsibilities, including acting in the company’s best interests, exercising reasonable care and skill, and avoiding conflicts of interest. Familiarising yourself with directors’ duties is vital for fulfilling your obligations and protecting your company’s interests.
  3. Shareholder: Shareholders are individuals or entities that own shares in a company, entitling them to certain rights, such as voting at company meetings and receiving dividends. Understanding shareholder rights and obligations is crucial for maintaining good corporate governance and managing relationships with investors effectively. Shareholders are not always directors, and directors are not necessarily shareholders. If you are a shareholder and you are not happy with how the company directors are acting, you may have options including derivative actions, claims under a shareholders’ agreement, or unfair prejudice petitions (where the directors are also shareholders). Our commercial litigation team can help!
  4. Company Secretary: The Company Secretary is a key officer responsible for ensuring compliance with legal and regulatory requirements, maintaining company records, and facilitating communication between the board of directors and shareholders. While no longer mandatory for all companies, appointing a Company Secretary can help streamline administrative processes and ensure regulatory compliance. We offer a company secretarial service to help small companies adhere to their annual filing commitments. Get in touch if you would like to know more about this.
  5. Memorandum of Association: The Memorandum of Association is a legal document that sets out essential details about the company, including its name, registered office address, and the company’s objects or purposes. While less significant than the Articles of Association in modern company law, the Memorandum remains a foundational document that defines the company’s identity and scope of activities.
  6. Sole Trader: A Sole Trader is an individual who owns and operates a business on their own, without the protection of limited liability. Sole traders are personally liable for all debts and obligations of the business, making it essential to carefully consider the risks and responsibilities involved in this business structure. Get those terms and conditions properly drafted and incorporated to make sure you are fully protected from claims! Get in touch if you need help with reviewing your existing terms, or drafting new ones.
  7. Partnership: A Partnership is a business structure where two or more individuals carry on a business together, sharing profits and liabilities. Partnerships are governed by partnership agreements, which outline each partner’s rights, duties, and share of profits. Understanding partnership agreements is essential for maintaining clear expectations and resolving disputes among partners. It is really important to have a written partnership agreement rather than relying on the rules in the Partnership Act. Get in touch with our company and commercial team for more information.
  8. Limited Liability Partnership (LLP): An LLP is a hybrid business structure that combines the flexibility of a partnership with the limited liability protection of a company. LLP members are not personally liable for the debts of the business, except to the extent of their investment. LLPs are popular among professional service firms and small businesses seeking a balance of flexibility and liability protection. Our company and commercial team are experienced in preparing LLP agreements to businesses of all shapes and sizes.
  9. Director’s Duties: Directors of UK companies have legal duties and responsibilities imposed by law such as the Companies Act 2006 and caselaw. These include duties of care, loyalty, and disclosure as three examples. Breaching these duties can result in personal liability, fines, or disqualification from acting as a director. Understanding director’s duties is essential for fulfilling your legal obligations and avoiding potential legal consequences. If you have been accused of breaching your director’s duties, or if you have a director who is potentially in breach, get in touch for down to earth commercial advice.
  10. Employment Contract: An Employment Contract is a legally binding agreement between an employer and an employee, setting out the terms and conditions of employment. Employment contracts should clearly outline key provisions, such as salary, working hours, holiday entitlement, and notice periods, to avoid misunderstandings and disputes in the future. Do you need new employment contracts? Our expert employment law advisers can help.
  11. Settlement Agreement: These are contracts used to record the settlement in a dispute (for civil litigation or commercial litigation), or if used in an employment sense, the term usually refers to a legally binding contract between an employer and an employee that resolves disputes or claims arising from the employment relationship. For an employment settlement agreement to be binding, the employee must take independent legal advice from a solicitor who provides a certificate as evidence for the employer. Employment settlement agreements used to be called compromise agreements. Get in touch if you need assistance with an employment settlement agreement.

Navigating the legal complexities of running a small business in the UK requires a solid understanding of key legal terms and concepts. By familiarising yourself with the terms outlined in this blog post, you can help to protect your business, comply with legal requirements, and make informed decisions that contribute to your business’s success. Remember to seek professional legal advice when needed and stay updated on changes to UK law that may affect your business operations. Our company and commercial solicitors, and litigation lawyers at Scott Bailey LLP in Lymington, Hampshire, are well placed to provide sensible commercial advice to help you focus on running your business. Get in touch with Ben Ironmonger, partner, to discuss how we can help you and your SME business with all things legal.