Forms of Business Organization: Advantages and Drawbacks

This assignment discusses the different forms of business organization, including sole proprietorship, partnership, limited liability company, and corporation. It explores their formation, management, funding, and legal requirements. The advantages and drawbacks of each form are also discussed. Case studies are provided to illustrate the application of these concepts.

Unit Number & Unit Title Unit 7: Business Law
Title Business law

Introduction
The aim of this assignment is to discuss the different forms of the business and how they can be
managed and funded. Companies need to follow legal requirements at the establishing stage so
that it can legally manage and operate the business. The assignment also provides legal advice as
a solution to the different case studies provided.
ACTIVITY 1:
ENCLOSED IN PPT
ACTIVITY 2:
2.1 Formation of different forms of business organization
Business enterprises consist of some very common forms that are generally used in UK such as,
limited Liability Company, a general partnership and sole proprietorship.
The Sole Proprietorship
This is the simplest form of business which is being operated by a single person. Overall
business is the responsibility of that person and is the one who is responsible for all debts and
profits of the business. A fictitious name can be used for running the business or otherwise the
owners name can also be used. The fictitious name is basically a trade name with help of which
the business can be known but it is not separate from its owners (Beatty, Samuelson and Abril,
2018)
This form of business is popular because of its ease of set-up, simplicity and nominal cost. The
major registration requirement for the owner of the business is that they just have to secure local
license and register his/her name and just by doing these several steps a sole proprietor business
can be established. There is no specific legal classification of the company and no individual
identity of the company. Drawback of this form of business is that all debts of the business are
liability of a single owner. So, if financial trouble is faced by the business, lawsuits can be
brought by the creditor against owner of the business and if that suit turns to become successful,
then business debts will have to be paid by the owner with his/her personal money (Kubasek and
et.al, 2020)

The Partnership
Partnership is a form of business that is automatically developed when more than one individual
engages together in a business with the aim of generating profits. In various forms, partnership
offers flexibility to multiple owners along with simplicity in operations of the organization. The
types of partnerships are the limited liability partnerships and limited partnerships wherein the
amount of liability is assessed by the type of partnership.
Those partners, who are responsible, strive to develop a memorialized agreement of partnership
in their agreement, possibly with an attorney’s assistance. As it is not difficult to form a
partnership, often they are formed accidentally on the basis of an oral agreement. Formation of
partnership relies on the joint engagement of two or more individuals in order to perform
activities of business to pursue revenues.
Partnerships must consist of a written agreement of partnership due to its ease of formation and
informality (Cameron and Pagnattaro, 2017). The registration process of the partnership firms
includes registering with the HM revenue and customer including information relating to all the
partners within the partnership firm along with their profit sharing ratio.
The Limited Liability Company (LLC)
Limited Liability Company is basically a new type of business organization. Such companies are
basically referred to as hybrid form of business. It combines a corporation’s liability protection
with ease of partnership administration and tax treatment. Similarly, liability protection is offered
by it to its owners regarding liabilities and debts of the company.
Limited liability is basically a structure of business which is integrated in company’s house as
person who is legal. Owners and Limited Liability Company are completely separate from one
another, contracts can be formed by using the name of the company and the company is fully
responsible for its liabilities, finances and actions. Limited liability is not the responsibility of
owners of the company, which states that owners are only responsible for those debts of the
business that are equal to the amount of investments that they have made or the guarantees they
have given to the company.
Registration must be done of limited companies at company’s house that is the UK registrar of
companies as “limited by guarantee” or “limited by shares”. Shareholders amounting to one or

more than one own the companies that are registered as “limited by shares” and directors
amounting to one or more than one manage these companies. A single person can act as a
director and owner of the company, so it can either be formed by a single person or by adding
other people (Jones, 2019)
The Corporation
Corporation consists of a group of individuals who by law are authorized to act as single person,
consisting of the liabilities and rights that are different from individuals by whom the
organization is formed.
Corporations are basically legal entities developed by common law, state or Royal charter.
Establishment of these entities is done as separate legal bodies consisting of their own distinct
liabilities and features.
These corporations can be formed in many ways, but they are mostly used to operate the
business. Type of corporation that is most significant is the common law or registered company
statute. In UK, corporation tax is also paid by the corporations.
Limited liability is an important feature of these corporations. This states that if the corporation
fails, then only the investments will be lost by the shareholders and in the same way only jobs
will be lost by the employees.
Corporations, by law are recognized as consisting of the responsibilities and rights as natural
people. This states that human rights can be exercised by the corporations against the state and
real individuals, and if they violate the rights of humans then they will be considered as guilty.
They can also be considered guilty for making a criminal offence like manslaughter or fraud
(Beatty, Samuelson and Abril, 2018)
2.2 Managing and funding of the different forms of business organization

In businesses, funds are referred to as pooling resources that are financial and available for short
time period.
Sole proprietorship
Personal Savings
Equity or personal savings must be considered in the first place while searching for money.
Personal resources can consist of cash value insurance policies, real estate equity loans, early
retirement funds or profit sharing.
Friends and Relatives
owners of the business might consider private sources for financing such as friends or parents. It
will also be a kind of equity financing due to the reason that interest in ownership will be
received by the relative or friend in the business. Same formalities must be followed while
receiving investment from a relative or friend that are to be followed while receiving investment
from an outside investor.
Partnership
Debt Financing
Debt financing is referred to as borrowing of funds from the creditors on the terms of repaying
them within specific time period that is decided in addition with the amount of interest.
Generally, it can be said that interest is received by the creditors on the amount of money that
they give in the form of borrowing.
Banks and Other Commercial Lenders
Commercial leaders and banks are major sources that are popular for financing businesses. But,
most of these lenders demand a solid plan regarding the business along with plenty of collateral
and positive track record. It is not easy to take such loans while starting up a new business. But
while the business is running successfully and profit & loss statements are being maintained
along with net worth statements and cash flow budgets than it becomes easy to achieve these
loans through providing all the documents (Jan and Harm, 2019)
Limited liability partnership
Government Grants
State and federal government often gain financial support in the form of tax credits or grants in
order to expand a business or start a new business.

Commercial Finance Companies
These companies are considered when commercial sources are not lending finance for the
business. Business profit projections, track record and ability to pay back the loan are mainly
considered by these companies.
Government Programs
Several programs are designed by local, federal and state government to resolve the financial
issues that are faced by small businesses and new ventures. This support is generally in a

government guarantee form regarding loan repayment from a lender who is conventional.
Repayment assurance is provided to the lender in form of a guarantee for repayment of loan that
is gained by the business that consists of limited amount of assets (Snyder and Maslow, 2018).
Bonds
For a particular activity, finance can be raised through using the bonds. They are some kind of
special debt financing because the company issues the debt instrument. There is a difference
between other instruments of debt financing and bonds due to the reason that interest rate is
specified by the company and when the principal amount will be paid by the company is not
decided.
Lease
Lease is a basic method of gaining assets that can be used in the business without availing equity
or debt finance. It is an agreement that is legal and made between two parties in order to specify
the conditions and terms for using an asset on rent such as equipment’s or building (Halbert and
Ingulli, 2020).
Corporation
Equity Financing
Equity financing is referred to as exchanging some part of business ownership in order to gain
financial investment for the business. The part of ownership that is gained by the investor
through investing into the business allows him to share profits of the company. Equity includes
an investment that is permanent within a company and the company is not liable to repay it after
some time (Bambara and et.al, 2018)
Venture Capital
Venture capital is referred to as financing that is gained from individuals and companies in the
businesses that are held privately and are young. Capital is generally provided to businesses that
are young in exchange for share in ownership of the business. These firms are usually not willing
to invest in those businesses that do not consist of a proven financial track record. Whereas,
companies that are already profitable are likely to achieve investments from these firms (Batlan
and Bass, 2018)
Angel Investors

These are businesses and individuals who provide support to businesses that are small so that
they can grow and survive. So they are not just focused towards the economic returns. These
investors also consist of a mission that is to be focused, security and profitability is still wanted
by them against the amount of investment they are making. So, their demands are in some way
same as those of the venture capitalist.
2.3 Advantages and drawbacks of different forms of business organization
Sole Proprietorship
Advantages Disadvantages
 Inexpensive and easy to establish the
business.
 No or little formalities are there.
 The business is not forced to pay
unemployment tax.
 Personal and business assets can be
mixed by the owner of the business.
.
 Unlimited personal liability is there
for the owners regarding the business
liabilities, losses and debts.
 Capital can be raised by the owners
through selling business interest.
 These businesses cannot survive in

case if the
(Miller, 2016).
owner is unavailable
Partnership
Advantages Disadvantages
 Inexpensive and easy to start the
partnership.
 Few formalities are there and annual
meetings are not required.
 Smaller businesses are offered
favorable taxation from partnerships.
 They are not forced to pay heavy
amount of taxes.
 Unlimited liability is there for every
owner regarding the liabilities, losses
and debts of the business.
 Responsibility is beard by individual
partners regarding actions that are
performed by all partners.
 Oral and poorly organized
partnerships can result in creating
disputes among the owners.
Limited Liability Company
Advantages Disadvantages
 Few formalities and no annual
meetings are required.
 Protection is gained by owners from
obligations and debts of the company.
 Partnership-style is enjoyed by these
companies
 It is not an appropriate medium for a
business that strives to become public.
 Large amount of investment is
required
 Periodic filing and annual fees are
required by the companies.
 Certain professional vacations are not
allowed to LLC companies from the
state (Conley, 2016)
Corporation

Advantages Disadvantages
Protection is gained by owners from
personal liability of obligations and
debts of the company.
 Easy to become public companies.
 Securities can be sold in order to raise
capital.
 Ownership can be transferred easily
through transferring the securities.
 Unlimited life can be availed by the
corporation (Cosens and et.al., 2017)
 Annual meetings are required and
certain formalities are to be fulfilled
by the directors and owners.
 It is expensive to form a corporation
 Periodic filing and annual fees are
required from the corporations.
2.4 In the context of each case study below, undertake the following activities
Case A: Thomas and JVC Plc
ISSUE
The issue here is that Thomas was appointed a board of director in JVC Plc and is wondering
whether will be given the pay which he is entitled to. Also, in addition to this he has thought that
what will happen when JVC Plc will be struggling to survive.
RULES
Appointment & Remuneration of Directors
A director can only be paid if she/he contains a contractual payment right. The contact can take
place in any form. Written agreement of service between the company and director can be stated
as a major example that is provided expressly for payment of salary or wage, probably with some
other benefits as well. Subject to the article of the company, power is there in the board to award
the directors with service contracts, like the powers of all directors, a service contract should be
offered completely for the company’s benefit (Erickson, 2018)
Remuneration of directors
such remunerations should be entitled to the directors as the company through an ordinary

resolution might determine.

Insolvency
Insolvency is referred to as inability of an organization or individual to fulfill its financial
obligations such as paying back the amount of money to the lenders as debts. Before a company
becomes insolvent or insolvency proceedings are faced by an individual, an informal agreement
will be made with the creditor, such as making using alternative ways in order to make the
payment. Insolvency can result due to poor management of cash, increase in expenses or
reduction is inflow of cash.
APPLICATION
The appropriate legal solution for the case are as follows in case of situation wherein JVC Plc is
struggling for surviving-
Informal agreement with creditors
An option might be available with JVC PLC to develop informal agreement with the recipient so
that on various terms the debt can be paid. This usually takes place when temporary financial
difficulties are being faced by the company and an immediate threat is not there that a formal
action will be taken by any of the recipient. Informal agreement is not referred to as a legal
binding as it can be withdrawn by the creditor at any time (Gower.Morley, 2016)
Company voluntary agreement (CVA)
Company voluntary agreement is basically a binding between the creditor and the financial
company for making overall payment, or some part of the debts of the company in a specific
time period that has been agreed. Trading can take place during the time period of company
voluntary agreement and after than period as well. Director of the company can propose a
company voluntary agreement and not its creditors or shareholders.
Administration
The process of administration states that the company is handed over to a practitioner who is
insolvent known as the administrator. While charge is in the hands of administration, any legal
action cannot be taken by the creditor to recover the amount of debt or begin compulsory
liquidation without taking court’s permission (Hansmann and Kraakman, 2017)
Administrative receivership

An administrative receivership company is also known as in-receivership. Receivership is
initiated through a floating charge holder, generally a bank. An administrator receiver is
appointed by the holder to recover the amount of money that is owed. Any court is usually not
involved in it. Administrative receiver is basically private insolvency practitioner.
Closing a company (liquidation or ‘winding up’)
Legally, liquidation winds up or ends up a company that is limited. It will stop employing people
and perform any kind of business activity. It will be stucked off or removed from the companies’
house of registrar, which states that it ultimately exits. For a company that is insolvent, the
process will be carried out by a compulsory liquidation or creditor’s voluntary liquidation (Klin
and Nachyla, 2015)
CONCLUSION
All these legal solutions will be effective for Thomas as with assistance of all these solutions the
company can survive the situation of the struggling or the situation of insolvency.
Case B: Augustine and Smart Equipment Ltd.
ISSUE
Here the issue is that Augustine was working in Smart equipment but was dismissed and also the
company leaked the personal information of Augustine to some individual. In turn after 10 year of
dismissal of Augustine he registered a company by using the logo and symbol of Smart
Equipment.
RULES
Data protection act 1998
Data protection act is basically an Act of parliament of UK passed in 1988. It was formed in
order to control how customer or personal information can be used by the government or
organization. People are protected through this law and rules are defined regarding how data
regarding people can be brought in use.
Data breach is suffered by organization that consists of Augustine data; he might be forced to
pay compensation if some loss is suffered by him. Data breach is referred to as lost, accessed or
destroyed personal data disclosed in a way that is not authorized whether that done deliberately
by someone from outside or within the organization or by accident (Kubasek and et.al, 2020)
Compensation for breach of data protection

Compensation might be claimed by Augustine. Typically, data breach claims and GDPR claims
are settled outside of the court. Damages that are awarded in cases of employment discrimination
may provide some amount of guidance and into three bands it can be put.
1. 900 dollars to 8600 dollars for cases that are not very much serious where one off is the
incident.

 1000 dollars to 1500 dollars for Disclosing name of an individual, e-mail address,
address of home and date of birth
 2000 dollars to 5000 dollars for disclosing records those are medical.
 3000 dollars to 7000 dollars for disclosing information that is financial relying
on the impact of breach (Beatty, Samuelson and Abril, 2018)
2. 8600 dollars to 25,700 dollars for a breach that from first brand is much more serious.
 25,700 dollars to 42,900 dollars if the default has been made through a protected pattern,
due to which illness or depression is caused. This will be supported is any medical
evidence is available
Copyright, designs and patent act 1988
It is the present copyright law of UK. It provides the developers of artistic, musical, dramatic and
literary works the responsibility to manage the ways according which their materials can be
brought into use. The rights consist of providing copies to the general public, renting, issuing,
adapting, copying, public performance and broadcasting. Copyright occurs when an organization
or individual develops a work & applies it some work (Beatty, Samuelson and Abril, 2018)
1. Contact the infringer
For Smart Equipment Ltd the initial step is to enable Augustine to be aware regarding objection
& place forward a time scale and reasonable settlement so that the settlement can be reached.
In letter Smart Equipment Ltd must consist of the following:
 Work’s name that is being objected by the company.
 The reason due to which this is infringement, such as adaptation, unauthorized
copy etc.
 State that which must stop and is not acceptable.
 Define actions that must be taken in order to solve the issues, withdrawing overall
work copies will usually be requested.

 Specify a deadline before which the conditions must be met for which a typical
period is normally 28 days.
 State that a legal advice is being strived by you and the case will be carried
forward if the requests are not complied within the given time frame (Jones,
2019)
Generally, withdrawal of overall infringing work is just a simple request as an initial step
towards taking an action, however, if it is believed that financial remuneration is titled like
royalties or damages, then solicitor must be contacted on immediate basis.
APPLICATION
The legal solution in this case is the arbitration which is referred to as resolving the dispute
outside the court or without any legal framework. This is essentially a legal solution as the both
the company and Augustine are wrong. As in case of company it is wrong because they have
dismissed Augustine on wrong basis and leaked personal information of Augustine. On the flip
side Augustine is wrong as he has started the company by using the logo and symbol of Smart
Equipment. Thus, for this arbitration is the best solution.
2. Further action
If the dispute is not settled by the company within the given time frame, or if royalties or
damages are entitled by the company, then evidence must be given by the company to the lawyer
or solicitor in order to carry on with the proceedings (Halbert and Ingulli, 2020)
CONCLUSION
In the end it can be concluded that with help of arbitration the situation can be solved among
Augustine and Smart Equipment.
Case C: Daniel and Smart Equipment Ltd
ISSUE
Constructive dismissal is referred to as when a job is resigned by an individual because of the
conduct of employer or because of the action due to which a feeling develops in the individual
that he is being forced out. Here without prior consultation of employee’s company made
compulsory for all the employees to start overtime. But Daniel did not support this and
resigned from the company.
RULES

Employment Tribunal
If an employee thinks that he/she has been dismissed constructively, then a claim can be brought
for unfair dismissal against the employer in employment tribunal. In tribunal claim the initial
step is to submit early notification form of Acas conciliation and it is compulsory to perform this
step. Tribunal claim cannot be brought without reference number of early conciliation certificate
from Acas. And the only exception that can be claimed against it is the interim relief (Jan and
Harm, 2019)
Statutory award is the basic award that consists of multiplying factors that are relevant regarding
the time for which the service was continuous and that can be 20 years max. pay per week and
your age, such as the original termination date as defined below:

 Pay of 1 and a half weeks for every employment year after the age of 41.
 Pay of 1 week for every employment year between the age of 40 and 22.
 Half of 1 week’s pay for every employment year before 22 years of age.
APPLICATION
The basic award can be reduced by the tribunal if conduct before dismissal is found such as it
will be equitable and just to lower it- even if the dismissal is not contributed by the conduct.
In this case Daniel can go with the option of mediation as in this case a mediator will be
hired who will not favor any of the party. Further the mediator will analyses the situation
unbiased manner and will reach to a fair and justified solution. Hence, Daniel must go with
the option of mediation to reach to a mutually agreeable solution.
CONCLUSION
In the end it is concluded that mediation is the best wat of dealing with the situation of
Daniel.
Case D: Jarret & Janet and Italian Restaurant
ISSUE
Jarret and Janet went to a restaurant and ordered red wine. After consumption of the red wine
Janet noticed decomposed snail and because of which her stomach got upset resulting in
diarrhoea.
RULE
Negligence and Essential elements or requirements of Negligence in law
Negligence is referred to as failure to responsibly take care so that loss or injury can be avoided
of other individual. Negligence can be proved in four steps. It must be proved by the plaintiff
that:
 In several circumstances a duty is there to take care of the duty.
 In the circumstances, inaction or behavior of the defendant did not fulfill the required
standards that were required to take care and that would be followed by a person who is
responsible in the same circumstances.
 Loss or an injury is faced by the plaintiff and a person who is reasonable might foresee in
the circumstances.
 Breach of duty is the reason behind the damage.

Negligence claims
Remedy can be strived by Janet under 1987 consumer protection act for the damages according
to section 41 that is available in the act. If she has suffered some loss than damage can be
claimed by her. Since the bottle does not consist of any identification mark, the first importer can
be claimed by her as those goods were imported under section 2 of the country’s act.

 If the drink is manufactured by the restaurant, then, manufacturer of the products will be
sued by Janet according to act’s section 1 (2).
 Under section 5 (1) and 45 (1), remedy can be demanded by the buyer whereas, under
section 4, remedy can be demanded by the seller depending on the available defense.
APPLICATION
The major solution to Janet for the incident is negotiation as this will assist Janet in discussing the
problem with the restaurant owner. Thus, here Janet can mutually discuss the compensation and
negotiate with the hotel so that they can have the compensation which they deserve.
CONCLSUION
In the end it can be said that with the help of negotiation Janet can get justice and can also claim
for compensation from the restaurant.
Conclusion
Sole Proprietorship form of business is popular because of its ease of set-up, simplicity and
nominal cost. In various forms, partnership offers flexibility to multiple owners along with
simplicity in operations of the organization. In limited liability partnerships and limited
partnerships, an amount of liability protection can also be offered by the partnership. Limited
Liability Company is basically a new type of business organization. Such companies are
basically referred to as hybrid form of business. It combines a corporation’s liability protection
with ease of partnership administration and tax treatment. Corporation consists of a group of
individuals who by law are authorized to act as single person, consisting of the liabilities and
rights that are different from individuals by whom the organization is formed. In businesses,
funds are referred to as pooling resources that are financial and available for short time period.

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