Forms of Business Organization: Advantages and Drawbacks

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