A Guide to Business Insurance, Structure, Licenses & Permits
As a startup, you need to think carefully about the type of business insurance you will require.
However, the first step before you go much further is that you will need to decide what structure the business is going to take, and register it accordingly. Your company must be legally registered for you to begin operating.
In the UK, there are four main structures for businesses: Sole Traders, Partnerships or Public Limited Companies or Private Limited Companies. Let’s take a look:
A Sole Trader is a single person business. The owner is responsible for all the company’s profits and debts, and all expenses and income from the business go through the owner’s personal tax return. You can trade under your own name or choose another name for the business. You are not required to register this name. To set up as a sole trader, you must register for Self Assessment and file a tax return each year.
Partnership/Limited Liability Partnership (LLP)
A partnership can be between two or more individuals who share management, profits and debts in the business personally. A partnership is similar to a sole trader but with more people. There are different rules for a Limited Partnership and Limited Liability Partnership (LLP). Both will need to register with Companies House, and HMRC.
An LLP is an alternative to a normal partnership and is the type of structure that accountancy firms, solicitors and dentists frequently choose to have. Partners in an LLP are not responsible or liable for the other partner’s misconduct or negligence. There are no directors in an LLP – but there must be at least 2 Partners at all times. LLPs must make their finances public.
The business is a separate entity from the owner/s, and more rules and regulations apply to this type of business. Owners are only responsible for the business’s debts to the amount they invested in the business. The Company must be registered with Companies House and HMRC. Finances must be made public. There must be at least one Director and at least one shareholder (who can be the same person!) in order to set up a Private Ltd company. Shares can only be sold if all the shareholders agree, and it is limited as to who can buy them.
Similar to a Private Ltd company, but shares can be bought by anyone. Again, the Company must be registered with Companies House and HMRC.
What business licences and permits do I need?
Depending on what your business will do, there may be other rules and regulations that you need to comply with. For example, if you play music, you may need a PRS (music) licence, even if you just play the radio in an office environment. You do not need a licence to play royalty-free music.
Food licencing is particularly strict, and you must register your business with your local council at least 28 days before you start a food business. Registration is free, but the penalties for not registering can be huge!
Selling online, or undertaking any other kind of distance selling, or buying and selling goods abroad, can also require some very specific rules to be followed.
Finally, the location you run your business from may require looking into. If you think you’ll be running your business from home or renting premises, check if any additional permits, licences or insurance may be needed. If running a home based business don’t forget to check the deeds to your house, as these can sometimes contain clauses restricting certain types of business from being run from them.
What business insurance do I need?
For most businesses insurance isn’t just a good idea, it’s a legal requirement. Insurance can help protect the business from unexpected costs/events – but also may be necessary for some clients, partners or suppliers to do business with you at all. There are many different types of business insurance – some or all of which may be applicable to what you will do.
Employer’s Liability Insurance
If you are going to employ people, you are required by law to have Employer’s Liability Insurance. This will cover the cost of compensating your employees should they become injured at work, or become ill because of their work. Substantial fines can apply if you do not have it.
Commercial Motor Insurance
If your business will use vehicles of any type you’ll need the appropriate commercial motor insurance. If employees use their own vehicles for work you must ensure that appropriate checks have been made on both drivers (e.g. checking their driving licence is valid) and vehicles (that they are insured for both social, domestic and business travel, and have a valid MOT certificate).
Professional Indemnity Insurance
Some professions (such as accountants, engineering contractors, IT contractors etc) are required by their regulators or professional bodies to have Professional Indemnity Insurance. This covers the cost of compensating customers/clients for loss or damage resulting from negligent advice or services provided by the company.
Public Liability Insurance
Public liability insurance covers the cost of legal action and compensation claims made against your business if a third party is injured, or their property suffers damage whilst at your business premises or when you are working in their home, office or business premises.
Product Liability Insurance
If you design, manufacture or supply products, it may also be worth considering Product Liability Insurance to cover the cost of compensating someone if they have been injured by a faulty product.
Directors and Officers Liability Insurance
Directors and Officers Liability Insurance cover the cost of compensation claims against the directors and officers of the company.
Personal Injury Insurance
Particularly as a Sole Trader, should you become injured and unable to work for a while, this insurance will cover you for this period.
Commercial Property Insurance (buildings and contents)
This is usually worth getting, as this will cover the costs of any damage or repairs to your premises or replacing your stock or equipment should anything happen (fire, theft, flood). In terms of security, it may be worth investing in a building alarm, as it may bring your insurance premiums down.
Many firms now are paying for Cyber Insurance to cover losses relating to damage to, or loss of information from, IT systems and networks.
If you are working from home, you will need to look at your personal house insurance policy, and ensure that your insurer understands the position that you are in, to ensure that you are still covered – both from a business and a personal perspective.
Business Continuity Insurance
If your equipment or premises are damaged, and you are unable to operate for some time, this insurance will help cover you during this period.
We’ve covered quite a lot here and the information might seem overwhelming. Take it one step at a time and carefully review each of the options available in each section to you.
As someone starting a business, the likelihood is that you’ll be setting up as a sole-trader initially and then change as you expand.
Ensure you have all the permits and licenses you need. Double-check and be thorough, as there are lots of them, you don’t want to get caught out!
The type of insurance you take out will depend on your type of business, however, dependent on your business type, and if you employ staff, there are certain types of insurance that you are legally required to have.
In the next article, we’re going to be looking at something that sounds similar to business structure, but is in fact very different, business infrastructure!
This blog post forms part of our series on how to start a business in 90 days. For an overview of the series and all the blog posts so far click here.
The 90 Day Challenge is also available as a series of free chapters here.