Legal Solutions for Business Organizations

This report discusses the different types of business organizations and how they can be legally formulated and regulated. It also explores the legal management and funding options for different types of organizations, as well as obtaining legal advice and support for disputes. The effectiveness of legal solutions is evaluated, and comparisons are made between different legal remedies. Expert guidance on business law is provided at Desklib.

BUSINESS LAW
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Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Explanation and breakdown of three different types of business organisations..........................1
Critical business assessment of different business organisations................................................2
Legal management and funding of different types of organizations...........................................3
Obtaining legal advice and support of disputes arising in a range of areas.................................4
Comparison of legal solutions.....................................................................................................5
Evaluation of effectiveness..........................................................................................................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................1
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INTRODUCTION
Business Law is a very vast field governing many intricate aspects and parts of trading
and conducting business in a normal manner (Schiller, 2019). Clifford Chance is an international
law firm and the quality and Excellency of the legal solutions that are provided by this UK based
law firms are unravelled and unchallenged. In this report, the different types of business
organisation and how they can be legally formulated and regulated will be discussed in detail.
Further, this report will also recommend appropriate legal solutions that can be achieved if there
is any dispute amongst two or more parties in business setting.
MAIN BODY
Explanation and breakdown of three different types of business organisations
Business Structure defines the manner in which the company is formulated and operates
and the legal manner and steps in which they are formulated is different for different types of
business structures. There are three major classifications in the types of business organisations
that can be differentiated on legal basis as well:
Sole Proprietorship: As per the UK law, this is the easiest form of a business structure that can
be adopted and involves a single person as an owner of the entire proprietorship. The first step is
registration with the HM Revenue and Customs and then after choosing appropriate name, an
individual can begin trading.
Advantages Disadvantages
 These are not heavily regulated
 Tax filing is an easier process
 Less Capital requirement
 Solely liable for all the business
liabilities
 Lack of financial control since all
personal and business wealth is linked
 Difficult funding options
Limited Companies: LLC i.e. Limited Liability Company is a private company where the
liability of the director is limited i.e. business itself is responsible for its liabilities (Schwidetzky,
2018). First Directors of the company need to be appointed and then it needs to be registered
with Companies House. There should be at least one director and one shareholder along with
articles of association mandatorily. The company then needs to be set up for Corporation Tax.
Advantages Disadvantages
 The liability is limited without any  The rules are complex and restrictive.
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claim on personal wealth
 Separate legal entity
 Tax only on profits i.e. @21% as
compared to that of sole proprietor and
partnership where it is 40%
 The raising of capital is restricted and
funding through shares becomes
difficult (Knoll, 2019).
 The personal and corporate information
needs to be on record.
Partnership: The partners of the company are personally responsible for all the liabilities and in
order to register for a business partnership, first the partners must be registered for self-
assessment tax, then the business name should be formulated as per the designated rules. After
this business is run as an individual and profits are shared between the partners.
Advantages Disadvantages
 Legal obligations are limited and fewer.
 Ownership and control lies with the
partners.
 The profits are shared directly between
the partners.
 The liability of the partners is
unlimited.
 The access to capital is limited and
various options of long term financing
are closed.
 The exit strategies or options for the
partners are extremely complicated
Critical business assessment of different business organisations
Sole Proprietorship: Setting up business structure as per the sole proprietorship is a very easy
task and there is minimum legal requirement or legislations that are to be followed. It is very
easy to enter into business as a sole proprietor and therefore, it is treated as a great starting point
(Schiller, 2019). The control for decision making regarding each and every aspect lies solely
with the owner of the business and the control regarding the financial decision also remains with
the owner only.
However, this simple form of business structure has additional complexities as well.
There is no distinction in the personal wealth and business income thus making him personally
liable. Further, they gave to pay income tax on personal income as well as in National Insurance
Contributions. Additionally, as a sole proprietor it is difficult to get funding from investors
unless the business is extremely sound.
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Limited Companies: LLC is the best option when the person intends to limit his liability towards
the business and thus opt an easier way out of the otherwise huge liability. It is easy to gain
membership since there is no boundation regarding the number of members in the company and
additionally it is relatively much easier to generate funding in an LLC since it is treated as a
more credible source.
However, the cost and investment involved in setting up an LLC is huge and after the
formation as well, there are many additional charges. Although, there is no personal
responsibility, yet the ownership in the company is also diluted since the shareholders of the
company have an additional right in decision making.
Partnership: Creating and formulating a business partnership is relatively easier as the legal
requirement is much less and limited. It is easier to get the business started without any further
delay and there is no legal requirement to disclose the terms of partnership to the public (Yin and
Burke, 2016). This can give a sense of privacy and confidentiality to the company that can assist
in easier and quicker decision making as well.
But despite so many additional benefits, there are many additional requirements as well
that need to be complied with in partnership business and the most important barrier in effective
decision making is that there must be consent of all the partners i.e. the active partners in order to
proceed further and in case of any argument it might even lead to dissolution of the firm
altogether.
Legal management and funding of different types of organizations
A business needs to regularly grow and nurture and in order to do this, the most effective
way is to insure regular incoming of finance so that it can be used in effective places that would
help the business to grow. These sources of finance through which funds can be raised are
different for different business structure and can be differentiated. In case of Sole
Proprietorship, there is only one major source of raising finances is through using the
proprietor’s own personal finances. There is an option available for raising money through
investors or by taking a loan but it is extremely difficult for a sole proprietor since they have to
be credible and reliable with their businesses earning a fair share of profit in the business or trade
activities that they are carrying out. Even in such case, venture capitalists or shareholders do not
invest in sloe proprietorship since they demand a portion of business in return and this is not
possible when the business is 100% owned by the owner himself (Carroll and et.al., 2017).
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However there are other better alternatives such as crowd funding, personal loans, business
grants etc. that can be used. The management of the entire business is done by the sole proprietor
himself and all the decisions as well are taken by him alone.
Similarly in an LLC, there are variety of attractive options through which funds can be
raised and these are angel investors, venture capitalists etc. who present funding’s at much better
terms and claim a stake in the company only when they are sure about the trade deals and
business practices of the firms (LLC vs. Sole Proprietorship, 2019). Apart from this, all
traditional methods like raising capital through equity, taking business loans, private loans are
some of the options that can be used in order to raise capital or funds for an LLC. The directors
collectively manage and take all the decisions for an LLC by themselves.
For a Partnership business on the other hand, it is easier to raise fund through external
sources as the liability is much more secured as partners are liable personally as well and
therefore chances of recovering a debt are much higher (Gilson, 2019). In partnerships, funds can
be raised through equity share capital, business loans, crowd funding, small business grants etc.
In case of partnership the business is maintained entirely by the partners.
Obtaining legal advice and support of disputes arising in a range of areas
There are three major methods in which all business type can get legal advice and support
regarding the dispute resolutions strategies that they can adopt:
Mediation: In this type of dispute resolution technique, a third party is appointed by the afflicted
business parties that help in resolving the dispute in an unbiased manner. As per this technique,
the third party motivates both the conflicting parties to discuss the problem with each other and
compromise so that they can reach a common middle point. Here, the mediator explores the
points of interest of both the parties and try to achieve a common ground. The mediator helps
them in resolving confliction and still be in a win-win situation for both the parties and thus gain
meaningful advice for dispute resolution in the appropriate business structure.
Arbitration: An arbitrator is another source of dispute resolution and rather than giving a
decision that would take into consideration, the interest of both the parties, an arbitrator who is
acting as a judge gives a binding decision that can either be in favour of one party whom the
arbitrator deems as correct or can be impartial to both the parties (Rosen, Carroll, Holtz-Eakin
and Rider, 2018). The decision taken by the arbitrator is usually confidential and all the aspects
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can be disputed by the parties before final decision is taken by the arbitrator and this final
decision cannot be challenged.
Litigation: Litigation is an official term for a court case which is filed by one party over another
acting defendant and protestant (Razak and Bidin, 2019). The case is fought over between both
the parties in front of a judge and after hearing to booth the sides and weighing down the pros
and cons of all the evidence that is presented before them, the judge gives a final ruling as his
decision. This is an extremely costly and time taking process and involves a number of trials and
hearings before reaching a financial decision.
Comparison of legal solutions
If the business faces any kind of disputes, there are different remedies that are available to the
parties and in different situation different remedies have various pros and cons:
Financial: In order to resolve the financial disputes that might arise in a business, there are a
variety of legal solutions that can be approached:
Financial Dispute Resolution Alternative Dispute
Resolution
Litigation
This is used for gaining a
financial remedy where the
dispute is related to some kind
of financial settlement or
claim.
It is an out of court settlement
and helps in saving the time
and cost of both the parties
where they reach a common
point (Yin and Burke, 2016).
This is a normal court
procedure where the two
parties claim and
counterclaim against each
other until one final party
wins.
In financial disputes, the best method in FDR where they get a pre formulated idea
regarding what the ruling will be and thus helps in taking correct financial decision.
Additionally, if the company is heading towards insolvency then it can use other tactics as well
such as CVA which is Company voluntary arrangement and it can be implemented only by
the insolvency practitioner who drafts a proposal for the creditors. CVA helps the company in
debt to formulate an agreement with its creditors and repay the amount in agreed instalment
amount. This can be used as a dispute resolution tool in settling the amount to be paid.
Contractual: In such kinds of disputes, following remedies are available:
Contractual Dispute Resolution Litigation
Under contractual disputes, this kind of Litigation i.e. court case can be done here as
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dispute can be solved by exercising legal
remedies involving monetary damages or
equitable remedies involving non-monetary
remedies.
well where the party who has breached the
contract can be sued by the other party.
The most suitable strategy is to go for contractual dispute resolutions where it is agreed
beforehand that what will be the penalties if one party does not perform designated duty.
Evaluation of effectiveness
Legal Solutions: The legal solutions are an effective measure of obtaining solution to a problem
that could not be resolved otherwise easily and was creating complications in conducting
business activities (Schwidetzky, 2018). Legal solutions are generally achieved when the
afflicted parties have already filed for dispute resolution and another third party, after taking an
elaborate review of the entire case, presents an appropriate solution. This is an effective
technique in formulating a solution to the problem and proceeding ahead so that business
functions can be completed in a normal manner.
Legal Advice: Legal advice is given to those parties who do not intend to obtain a legal solution
i.e. they are given a clear idea of what the legal solution must be, if they wish to go for it, so that
they can pre formulate an idea regarding what would be the decision legally to their problem.
Further, legal advice is also taken on other matters so that any king of legal complicacy can be
avoided in the future. Solicitors, Lawyers and many other advisory and consultancy services
offer these kind of services to the companies or individuals who demand it and thus assist in
gaining appropriate legal advice.
Support for Dispute Resolution: This involves out of the court settlement which can be done
through various methods and saves a lot of cost, time and energy of the people (Schiller, 2019).
Here a third party acts as a decision making body which is entitled to make the decision that they
deem fit.
CONCLUSION
The research conducted in the report helps in concluding that the terms of business law
are very essential in governing day to day operations and dealing of the business. In this report,
three different business types i.e. Sole Proprietorship, LLC and partnerships were chosen to
study and various aspects such as their legal formation, advantages and disadvantages,
management and funding etc. were discussed and evaluated. Further, in this report, the dispute
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resolution techniques were presented where the various mechanisms for dispute resolution were
identified and the effectiveness of legal solution, legal advice and dispute resolution body was
identified and discussed.
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REFERENCES
Books and journals
Carroll, R., and et.al., 2017. Personal income taxes and the growth of small firms. Tax policy and
the economy. 15. pp.121-147.
Gilson, R.J., 2019. Unlimited liability and law firm organization: tax factors and the direction of
causation. Journal of Political Economy, 99(2). pp.420-425.
Knoll, M.S., 2019. The Tax Cuts and Jobs Act’s Incorporation “Incentive”.
Mancuso, A., 2016. LLC Or Corporation?: Choose the Right Form for Your Business. Nolo
Razak, R.A. and Bidin, Z., 2019. Factors Influencing Tax Compliance Intention Among Sole
Proprietors: A Proposed Model. Indian-Pacific Journal of Accounting and Finance, 3(3),
pp.14-26.
Rosen, H.S., Carroll, R., Holtz-Eakin, D. and Rider, M., 2018. Personal Income Taxes and the
Growth of Small Firms. NBER Working Paper Series, 7980.
Schiller, Z., 2019. Closing the LLC loophole. Policy Matters Ohio, May, 29.
Schwidetzky, W.D., 2018. The Pros and Cons of LLCs: This Popular Entity Choice Serves a
Wide Variety of Purposes. Journal of Accountancy. 226(6). p.52.
Yin, G.K. and Burke, K.C., 2016. Partnership Taxation. Wolters Kluwer Law & Business.
Online
LLC vs. Sole Proprietorship. 2019. [Online]. Available through: <
https://www.legalzoom.com/articles/llc-vs-sole-proprietorship>
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