The decisions you make in the first few weeks of a business tend to be the ones that are hardest to unpick later, and here’s what to get right before the trading starts.
The weeks either side of the new year are traditionally among the busiest for new company registrations, and a good number of the businesses that will open their doors in January are being planned right now, in the quieter weeks before Christmas. If you are one of the people doing the planning, the legal side probably feels like something to sort out once the business is up and running and there is money coming in.
In our experience it works the other way round. Most of the disputes we see between business owners, and most of the problems that surface when a business comes to raise money or sell, trace back to decisions that were made, or quietly avoided, in the first few months. Who owns what, and what happens if one of you wants to leave, are questions that are cheap to settle at the start and expensive to argue about later.
This article walks through the foundations we would want any new business in Manchester and the North West to have in place, from the choice of structure through to the paperwork Companies House now expects, and it finishes with a few points from last month's Budget that are worth knowing about before you decide how the shares are split. The tax side is a conversation for your accountant, and we work alongside them. Our focus here is on the legal structure and the documents that hold it together.
Choosing the right structure
Most new businesses end up as a limited company, and for good reason. A company separates your personal finances from the business, it makes it straightforward to bring in a co-founder or an investor through shares, and customers, suppliers and lenders tend to expect it. It also comes with obligations, including public filings at Companies House and the legal duties that come with being a director, which we explained in our practical guide to directors' duties.
A sole trader set-up is still the simplest option for a one-person business with limited risk, and a partnership or limited liability partnership can suit professional practices where the owners want to share profits directly. The right answer depends on what the business does, how much risk it carries, whether you expect to take on partners or investors, and what you want to happen when you eventually step back. It is worth having that conversation with your accountant and your solicitor at the same time, because the answer to one question tends to shape the next.
It is also a good deal easier to start as a company than to become one later. Moving an established trading business, with its contracts and its staff, into a company after the event can trigger tax charges, and every customer and supplier agreement has to be looked at again. Our legal checklist for growing businesses covers the ground that tends to get missed when a business grows faster than its paperwork.
Why the model articles are rarely enough
When a company is formed online it is usually given the standard "model articles". These are the company's basic rulebook, and they are perfectly adequate for a company with a single owner. They were written for the general case, though, and they are silent on the things that matter most once there is more than one shareholder.
They say nothing about what happens when two 50:50 shareholders cannot agree. They do not require a departing shareholder to sell their shares or set a price if they do. They do not stop a shareholder selling to an outsider, and they do not give the others first refusal. They do not allow a majority to bring the minority along when the business is sold or protect the minority by letting them join in on the same terms.
A shareholders' agreement fills that gap. It is a private contract between the shareholders, so unlike the articles it does not sit on the public register, and it usually deals with:
- Which matters need every shareholder's agreement, such as taking on debt, issuing new shares or changing the nature of the business, and which can be left to the board or a simple majority.
- What happens if the shareholders are split down the middle, so that a disagreement has a route to resolution other than the courts.
- Whether a shareholder who leaves has to offer their shares to the others, how those shares are valued, and whether the price differs depending on the circumstances of their departure, which is the "good leaver, bad leaver" distinction.
- First refusal rights for existing shareholders, and drag-along and tag-along provisions that govern what happens when a buyer comes along for the whole business.
- Dividend policy, how further funding will be raised, and what happens if one shareholder cannot put in their share.
- Confidentiality, and restrictions on a departing shareholder setting up in competition or taking customers and staff with them.
We have written before about why every business needs a shareholders' agreement. For a sense of where a company can end up without one, our note on petitions to wind up a company on just and equitable grounds describes the last resort for deadlocked owners: asking a judge to close a business that may be perfectly profitable because the people who own it can no longer work together.
Deciding who owns what, and when
Splitting the shares equally feels fair on day one and is often the source of the trouble later. Two founders rarely contribute the same thing. One may be putting in money, the other their time and contacts, and one may be giving up a salary while the other keeps a day job for the first year. If one of them leaves after six months, an equal split with no leaver provisions means they walk away with half of a business the other founder then spends years building.
The usual answer is to write down what each founder is contributing and to link part of the shareholding to staying the course, so that shares are earned over a period rather than handed over in full at the start. If you expect to raise money from outside investors, particularly under the SEIS or EIS schemes, the share structure also needs to be set up with that in mind from the beginning, because it is much harder to re-engineer once shares have been issued.
Make sure the business owns the business
A surprising number of companies do not own the things that make them valuable. The brand name, the logo, the website, the software and the product designs are often created by the founders before the company exists, or by a freelance designer or developer afterwards. Unless something is signed to say otherwise, work created before incorporation belongs to the person who created it, and work done by a contractor belongs to the contractor. Work done by an employee in the course of their job generally belongs to the employer, which is one of the reasons the distinction between an employee and a contractor matters.
This rarely causes a problem while everyone is getting along. It becomes a problem when a founder leaves, or when an investor or buyer carries out due diligence and asks to see the assignment. The fix is simple at the start: short written assignments from the founders and from any contractors, together with a trade mark application for the name and the domain names and social media accounts registered to the company rather than to an individual.
The same discipline applies to contracts. Your terms of business should be in the company's name, and they need to be properly brought into each contract rather than sitting unread on your website.
Our article on the incorporation of terms of business explains why that matters.
The Companies House admin has changed
Setting up a company has long been quick and cheap, and it still is, but the checks that come with it have tightened considerably over the past year. Since 18 November 2025, every new director has had to verify their identity with Companies House before they can be appointed, and anyone with significant control over a company, which for most small companies means anyone holding more than 25% of the shares, has to do the same. Existing directors and people with significant control have been brought into the system over a twelve-month transition, and that period finishes on 18 November 2026. If you are already a director and have not yet verified, it needs doing now.
Verification is done through GOV.UK One Login, or through an authorised agent such as a solicitor or an accountant, and once it is done you are given a personal code that stays with you for every company you are involved with. Acting as a director without verifying is an offence, and in practical terms an unverified director can hold up filings for the whole company. That is the kind of loose end that surfaces when a lender or a buyer looks at the company, as we described in last month's article on what your lender will ask for when refinancing.
A few other points of housekeeping are worth building in from the start. The company's own register of members, rather than the Companies House record, remains the legal evidence of who owns the shares, so it needs to exist and be kept up to date. The confirmation statement and the annual accounts have fixed deadlines that are easy to miss in a first year, and from April 2027 accounts will have to be filed through software, with small companies filing a profit and loss account for the first time, so more of your figures will be public than before.
Thinking about the end at the beginning
It may seem premature to think about selling a business you have not yet started, but the Budget on 28 October made a number of changes that reward founders who structure their shareholdings carefully from the outset. In brief, and subject to the detail your accountant will take you through:
- Business Asset Disposal Relief has been cut again. The rate on qualifying gains rose to 18% in April 2026, and from 6 April 2027 the lifetime limit halves from £1 million to £500,000 per person. For a pair of co-founders, how the shares are split between them, and between them and their spouses, affects how much of a future sale is covered.
- A new Founders' Relief arrives in April 2027. This will charge a 10% rate on up to £10 million of lifetime gains for founders and significant early investors in qualifying high-growth, innovative companies. The conditions are detailed and still being finalised, and whether you can meet them will depend in part on how the company and the shareholdings are set up from day one.
- Share options for staff are getting more generous. The Company Share Option Plan is being relaunched as EMI2 from April 2027 with an individual limit of £120,000, which is useful for a new business that wants to attract people it cannot yet afford to pay in full.
- The rules on taking value out of a company are changing in 2028. The Government is reforming the way company distributions are taxed from April 2028, which is expected to affect share buybacks, capital reductions and demergers. Those are the routes most often used to buy out a departing shareholder or split a business in two, so an exit route planned on today's rules may work differently by then.
Alongside all of that, your will needs to say what happens to your shares. Our article on whether your will actually covers your company explains the gaps we most often see, and our summary of what the Budget means for you covers the wider changes.
A checklist for the first ninety days
- Agree the structure with your accountant and your solicitor before you register anything.
- Write down what each founder is contributing, and decide the share split and any vesting on that basis.
- Put a shareholders' agreement in place before the first customer, while everyone is still on good terms.
- Verify the identity of every director and significant shareholder with Companies House and keep the personal codes somewhere safe.
- Get the intellectual property into the company: assignments from founders and contractors, a trade mark application, and domain names and accounts in the company's name.
- Set up your terms of business and check they are actually incorporated into your contracts.
- Make or update your will so that it deals with your shares.
- Diary the confirmation statement and accounts deadlines for the first year.
Speak to our corporate and commercial team
None of this needs to slow down the launch. Most of it can be done in the same few weeks as the branding and the bank account, and it costs a fraction of what it costs to put right later.
Our corporate and commercial team in Didsbury advises founders and owner-managed businesses across Manchester and the North West on company structures, shareholders' agreements, commercial contracts and the sale and purchase of businesses, and we work alongside your accountant so that the legal and tax pictures fit together.
If you are planning a launch in the new year, or you have a business that has grown faster than its paperwork, please get in touch and we will be happy to talk it through.