Setting up a new business - #5 Legal Issues & Insurance

Legal Issues

Although we would hope your small business would not fall fowl of the law at any stage, there are a number of legal and compliance issues all small businesses should be aware of.

Once of these is compliance with the Data Protection Act. Not only is compliance with the DPA a legal requirement, there are good business reasons for doing so - for example, using out of date or bad data could result in customer complaints. Also, using bad data costs money and time.

Compliance with the Health & Safety act may also be necessary depending on the type of business you are involved in. In general, you should always read the small print when signing any agreements, and if you are an Internet business, beware of spamming - if you're caught, your business could go out of the window!

As a small business, you may well need to employ people. You will then need to know your responsibilities as an employer, and what rights any of your employees may have.

• Legal Issues - Data Protection, Trademarks, Patents, Intellectual Property, Employment Contracts

Some types of small business insurance you may wish to take out for peace of mind (such as contents insurance), others are required by law. If you have employees for example, you must have employer's liability insurance (in case of staff sickness or accidents at the workplace).

Certain professions also require you to take out professional indemnity insurance which will pay out if you've been found to be negligent in your business activities - such as accountants, etc. Other professions often take out PI insurance even if it's not a legal requirements - often in the IT consultancy and IT contracting areas.

The key insurance types are listed below, although many other insurance offerings are available, depending on the type of business you are running.

Legal Liability Insurance Types

1) Public Liability - this type of insurance will protect you against claims from third parties as a result of injury (or death) or harm done to property as a result of any of your business activities. This type of insurance is unlikely to apply to say, a web design company, but would be necessary if members of the public had access to your business premises (e.g. a shop or service centre).

2) Employers Liability - this type of insurance protects your business against claims from any employees you might have, including claims for accidents and sickness.

3) Professional Indemnity Insurance - this covers your business if it acts in a professional capacity in the course of business. In some professions, such as accountancy, taking out PI cover is a legal requirement. In other professions, most notably consultancy of any type, it is ofter recommended and even insisted upon by third party clients if you are working on projects on their behalf.

4) Director's Insurance - even though the nature of running a limited company 'limits' claims against its directors, in some cases (e.g. negligence), directors of limited companies can be sued. This type of insurance protects directors from this eventuality.

You can read more in our small business insurance section, and also have the opportunity to gain online quotations across a variety of insurance products.

• On to Part 6 - Home Workers and Freelancers