5 Legal Steps Every UK SME Should Take Before Scaling

Scaling a business can take many forms. It might mean moving operations to a larger warehouse. Alternatively, it could mean opening a second store or new location or bringing in investors to fuel growth. Whatever shape it takes, it’s important to understand the legal implications before taking the next step. Proper planning helps your business expand safely and avoid costly mistakes.

Greg Whyte, Managing Partner at Jones Whyte Solicitors, notes: “Legal housekeeping might not feel urgent when things are going well. But it’s what allows you to grow with confidence; you’re prepared for any inevitable legal bumps in the road on your expansion journey.”

1. Review your business structure

What works today may not work tomorrow. For example, let's say you operate as a sole proprietor. Did you know you then couldn't list your business on the stock exchange or bring in partners or shareholders?

The good news is that there is a solution. Businesses looking to scale in this way can “incorporate” a new legal entity by registering with Companies House. And don’t worry about your assets. Property, equipment, intellectual property, and even existing contracts can be transferred to the new company.

While the process may seem tough, there is another benefit to transferring to a company. Most incorporated businesses are “limited”. This means that the company’s assets are separate from the personal assets of the business owners. In practical terms, this means that if the business were to incur debt, the owners would not be personally responsible, as the business is incorporated and is its own entity.

2. Formalise contracts and agreements

If you haven’t already, it may be time to formalise your agreements. Early on, verbal or informal agreements might work, but as your business grows, it becomes so important to have everything clearly written. This means creating contracts with clients, suppliers, and employees.

While this might feel like a lot of work for little immediate reward, formalising agreements ultimately protects you and your business, prevents misunderstandings, and reduces the risk of legal disputes. For example, let’s say you managed a construction company: having clear terms regarding project timelines not only helps prevent costly delays as you take on larger, more lucrative projects, but also minimises disputes since expectations are clearly defined in black and white.

All of this may seem intimidating, especially if you’ve never drafted a contract before. But don’t worry. There are plenty of templates available online that cover the fundamentals. Download a few, compare them, and even use AI tools to help generate drafts. That said, when in doubt, consult a legal professional. Legal “loopholes” do exist, and you don’t want your business to fall victim to one.

3. Protect your intellectual property

This is probably the easiest element of legal protection to overlook. Formal intellectual property protection can seem expensive, unnecessary, or even a waste of time. But this couldn’t be further from the truth. In fact, protecting your IP is important if you want to scale. This is especially true if you’re looking to expand into other towns or cities, or potentially across the UK.

Here’s the thing: unregistered trademarks are protected, but only under what is known as “passing off law.” This prevents others from leveraging your brand for their own goods or services. However, this protection only really applies where your brand is known and has goodwill. This means that anyone can use your name in areas where it isn’t.

Practically, this means that if you’re well known in Liverpool but not Birmingham, and someone decides to use your name, there are little to no real legal options. This may either limit your expansion plans or force you to rebrand, neither of which is ideal.

So if you’re looking to scale, you should seriously consider registering your trademark. And if you have any unique inventions or business processes, these are also important to protect through patents. You don’t want to lose your competitive edge after all.

4. Stay compliant with employment law

As a small business owner, you may have managed your team without any formal HR processes. While this may have worked so far, expanding your business requires several things. Firstly, create clear definitions of employee responsibilities. Then establish legally compliant working conditions. Finally, make sure you understand employee rights under the law.

This is where it can get tricky. Employment law covers every aspect of the “employee experience,” from recruitment to termination. As your business grows, even small oversights can escalate into significant legal issues. This can lead to fines or other consequences.

It may seem difficult, but staying compliant is easier than ever with the resources available today. You can find templates online. You could consult guides from reputable sources. You might also seek professional advice for more complex situations. Some businesses may also consider hiring an in-house HR professional to manage it all.

5. Prepare for regulatory and tax obligations

Finally, as a registered business, make sure you're appropriately registered with the right authorities. This means identifying which authorities apply to your industry and, well, following their regulations.

For instance, if you operate in a high-risk sector like construction or manufacturing, you’ll have to comply with Health and Safety Executive (HSE) guidelines. Non-compliance can lead to consequences. These include legal actions, financial penalties, and even reputational damage. This isn't even mentioning potential harm to employees.

And if your business handles personal data, GDPR compliance is mandatory. This includes processing data lawfully and implementing data security measures. The Information Commissioner's Office (ICO) provides resources to help businesses understand what’s needed.

For food-related businesses, adhering to Food Standards Agency (FSA) regulations is a must. This covers food safety management procedures, allergen information, and proper labelling. The Safer Food, Better Business (SFBB) pack offers guidance on this.

Additionally, don't overlook your tax obligations, which may include Value Added Tax (VAT), Pay As You Earn (PAYE), and Corporation Tax. Staying on top of these things is important. It helps you stay away from penalties and ensure your business is compliant while scaling.

About the author

Joshua Julien Brouard is an experienced content writer with extensive expertise in legal writing and digital strategy. He works for Jones Whyte Solicitors, a client-focused Scottish law firm offering expert legal services across multiple practice areas, including conveyancing, estate planning, family law, personal injury, and more.