Types of Business Organisations and Legal Consequences

This report discusses the different types of business organisations, including partnerships, limited liability businesses, business corporations, and companies. It explores the advantages and disadvantages of each structure and the legal consequences associated with them. The report also recommends converting a sole trader business into a company with limited liability for expansion purposes.

Business Law

INTRODUCTION
Business is an activity which is done for the purpose of gaining profits by selling their
products or providing services. The government of United Kingdom regulates the formation of
companies by the Companies Act, 2006 and many other minor Acts. These act helps the
company to attain the objective of business. The law governs the rights and duties of the
shareholders, stake, employees, creditors and debtors. The board of director of a company is
having a major authority to manage the affairs of the company. This is provided by the
memorandum of association of the firm. The dissolution of the firm is also specified in a
prescribed manner. The company use to raise funds by issuing the shares in the market. When
the profit is enjoyed by the organisation then that will be distributed by the organisation as a
dividend to the company's shareholders (Apriliyanti and Kristiansen, 2019). This report deals
with the case scenario in which sole proprietorship company wants to enlarge their business so
that it will be easy for them to conduct its operations.
MAIN BODY
Case Scenario
This report talks about the case scenario in which, Sam is a sole trader (IOM Solutions)
he use to sell electric parts in their local stores. He is engaged in this business since eight years,
but from the last two years he has grown his business at large and for this he has facing many
problems in conducting his affairs of company (Ashley, 2017). This makes difficult for Sam to
manage the operations of the business, as he is alone responsible to manage everything. For this
he has planned to expand his enterprise by using IOM solutions. IOM solution stands for
Inventory Operations and Marketing. It helps the organisation to assess the risk of inventory and
helps in developing the unique majors for the benefits of the company. It acts in long term
business to cut the cost and helps clients in achieving efficiency in their operations. It provides
logistic measures in providing efficient works. For this Sam wants to expand it business for
which he has many options which can be adopted by him which are as follows:
The types of business organisations
Business is the conduct which aids in generating the revenue of the firm. There are many
kinds of business organisation which helps the owners to conduct their businesses and these are
as follows:

Partnerships: This is a kind of partnership, which can be done by two or more
individuals (Bergman, 2018). This should be registered under the Companies Act, 2006. In this
partners agree to be co-owner, responsibilities are distributed between them, and share the profits
and losses among themselves. The agreement between the parties should state the amount of
shared risky and profits between them. In the absence of sharing ratio, then it will be treated as
equal equal. Each partner will be treated as the agent to a partnership firm. It can be formed by
the oral or written agreement. Mostly an written agreement is considered before the law of
justice (Zeng, 2019). It helps in easy to star and run the enterprise.
Advantages of partnerships:
 It is easy to formulate the partnership firms.
 They have more amount of resources which will be helpful for the growth of the firm.
 Its easy to change in the terms and conditions of the firm to attain the desired gaols of the
company.
 They have a number of skills, talent, experience of different partners together. The risk is shared between all the partners that will not made any burden on any
individual.
Disadvantages of Partnership firm:
 They might face the lack of communication between all the partners.
 The act of one partner will effect the other partners.
 It is difficult to deal with the issues arises between the partners. The power of making decisions is divided among the partners (Chepurenko, 2018).
Legal consequences in Partnership Firms:
 The partners are liable for the wrongful act of the other partner.
 In the absence of an agreement it is difficult for the firm to resolve the disputes.
 When they are not disclosed the information then this might leads to fraud, cheating etc.
Limited liabilities Business or LLP: It is also a kind of the partnership when partners
agreed on the ratio of their profits and losses. It is a separate legal entity which is governed by
Limited Liability Partnership Act 2002. in this partners are liable up to the extend on which they
are agreed(Keller, 2019) (Khan and Arafa, 2021). Sometimes in this, the partners are not liable
for the act or negligence of the other partners. In this the organisation has to file an annual report.
Benefits of Limited Liability Business:

 it majorly protects the personal asserts of every partners.
 The operations of this kind of firm is smile as all is specified in the written agreement. It will be treated as a legal person which can be sue or sued, comes into and contract and
many other.
Disadvantages of Limited Liability Business:
 There is no disclosure of the firm.
 The tax liability of the partners are counted under the of personal tax. There must be two members in the LLP if any one has quit from the firm then they have
to dissolve it.
Legal Consequences of Limited Liability Business:
 The dispute may arise when they are not agreed upon the agreement.
 When the company fails to comply with the provisions mentioned in memorandum of
associations (Khanlari, 2019).
 The limited liability companies makes limited liable to their partners.
Business Corporations: the most complex form of enterprise is this. In this the firms
formations and internal functions are governed by the law of state. It is organised to gain profit
from the marketplace according to the established procedure of state laws.
Pros of Business Corporation
 In corporate obligations the investors are not liable for it.
 It will be treated as the single entity.
 The firm can raise the capital by issuing shares. It is easy for the company to raise capitals (Kranich and Wald, 2018).
Cons of Business Corporation
 It is very expensive form of business.
 Its hard to operate because it is regulated by the state.
 There is the provision of double taxation. In this the shareholders and corporation has to
pay the taxes individuals. It is bit costly for the firm to attain their objectives.
Legal consequences of business corporations:

 The functions under this are governed by the states so they have to work according to the
established procedure of law if they failed in doing so then they will be penalised
according to it.
 If the shareholders fails in giving their tax liabilities then they will be company will also
bound to do so (Marcacci, 2017).
Company: When the individuals come forward to make an organisation which has the
separate legal entity which is governed by the Companies Act, 2006 .
Advantages of company:
 It is a separate legal entity which enjoys the rights and liabilities like an individual.
 The life is not dependent on the lives of the partners. They can limit the liability by an agreement (Trad and Kalpić, 2017).
Disadvantage of Company:
 there is lack of secrecy in the company as they have to disclose some important
information in the registrar during the process of registering the company.
 It is difficult to manage the company's resources because of the misuse of it by the
managers and directors. There is no direct coordination between the owners and the managers of the company.
Legal Consequences of company:
 In this the employer will be liable for the acts of their employees.
 Wrongful act of the company makes liable the directors to compensate it.
In Andrews versus Gas Meter Company (1884) it was held by the apex court that the
company has the right to amend their constitution to enhance the issuing of shares of the
company (Murphy and Smolarski, 2020).
In Foster Bryant Surveying Limited versus Bryant (2007) it was help by the supreme
court that the directors of the company has an fiduciary duty towards the company to avoid the
conflicts in their affairs. They must maintain the standards of loyalty in the organisation and
works in good faith which helps the company in it smooth working of their operations and helps
in managing the affairs in a better and efficient way.
From the above analysis, it is recommended to Sam to to convert his sole trader into an
company with limited liability (QC, 2020). This helps Sam to regulate his company along with
IOM Solutions. IOM Solutions helps in reducing the cost of training and wages to their

employees (Tippett, 2018). This helps in enhancing the profit of the enterprise. There are many
benefits to forming the company for his managing its operations, these are as follows:
 They will be beneficial in tax liability. A limited liability company mostly take all the
majorly amount under non taxable amount. Which is beneficial for company. They have
to 19% of profits and in sole proprietorship they have to pay 20% to 45%.
 The owner of the enterprise are liable up to the one extend on which they are agreed.
 The company will be treated as the separate legal entity. It has an power to come under
an contract, may sue anyone in their breach of conditions of it and may be sued by the
other individual or company.
 The company majorly helps in the expansion of it business and this helps them in
achieving their goals in a prescribed and effective manner.
 The risk is divided among the directors of the company . They will liable on the bases of
their agreement with the enterprise (Rosenbloom, 2018).
 They can easily raise the finds by issuing shares of the company. The shareholders doe
not play any role in the day to day functioning of the company.
The above mentions are the benefits of the company which may be enjoyed by the Sam in
expansion of his business for achieving their goals. It helps the Sam in growing it business and
aids in employing the staff at large. This aided him shifting the work load from sole to the
company. In forming the company he may adopt any of the business organisational structure for
effectively working of it. They also adopted this for IOM Solutions which helps them in
reducing the wages and cost to company. This reduces the training of their employees
(Schrempf-Stirling and van Buren, 2020).

CONCLUSION
From the above report it can be concluded that, Business law regulates the functioning of
the business enterprise. It talks about different acts which regulate the functioning of those
business organisations. Sam is an sole trader (IOM Solution) and dealing with the supply of
electric goods which is enhanced their business. For which he has to expand it. From the above
discussion on Types of Business Organisation, it is recommended that he can expand it into
company with limited liability. This helps him in enhancement of his business at large in
territorial aspects. Company helps him in maintaining the affairs efficiently and provides major
guidance to enhance their functions.

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