Business Law: Nature, Formation, and Management of Business Organisations

This report discusses the importance of business law in regulating the activities of business organizations. It covers the legal business structure of UK companies, including sole trader, general partnership, partnership, and limited liability partnership. The report recommends limited liability partnership for IOM Solutions to expand their business.

Nature, formation,
and management of
Business
Organisations

Table of Contents
INTRODUCTION...........................................................................................................................3
.........................................................................................................................................................4
TASK ..............................................................................................................................................4
Business&Organisations in the UK............................................................................................4
The legal business structure of UK companies..........................................................................5
Recommendations for IOM Solutions .......................................................................................8
CONCLUSION ...............................................................................................................................8
REFERENCES..............................................................................................................................10
Books and Journals........................................................................................................................10

INTRODUCTION
Business law commonly know as mercantile or corporate law,wherein collections of rights and
liabilities are consolidated in order to govern or regulate activities of business organisations. It
includes business conduct and business faculties engaged in commerce, merchandising, trading
and sales operations within an organisation (Nsubuga2019). The Company law of United
Kingdom regulates the corporations established under Companies Act 2006. There are other laws
such as insolvency Act 1986, the code of UK corporate, the directives of European Union and
court cases. A company in a business law is a primary legal medium which organise and run
business. The branches of business law includes, law of contact, law of agency, sales of goods
Act and many more. Business law helps in understanding the potential legal issues which may
arise during the course of business, to make reasonable decision and to avail legal assistance to
counter legal challenges. To support this report, a case study is taken wherein, a sole trade
company called an IOM solutions looking for potential business structure with the purpose to
expand their business operations. IOM solutions trades in electric parts and has successfully
covered market which led to increase in demands. Sam who owns a IOM solutions is a single
owner and wants to expand business and therefore seeks recommendations for better potential
business alternatives.
TASK
Business&Organisations in the UK
Business organisations are generally organised for generating huge revenue and profits.
The nature of business includes various activities like, production, purchase, distribution. A
business deals with either goods or services and there is active regularity of transactions which
makes a business vital. The aim of a business is to make profits by fulfilling human wants. The
management of an organisation is a collection people employed to maintain coordination and
structured in a professional formation to attain the goals of an organisation (Oxford
Analytica2019). The management of a company is well organised and bifurcated into different
departments such as, Human Resource department, Marketing department, manufacturing
department, production department, sales department etc. A business is just a structure which
has a legal identity, whereas the owners, stakeholders, directors and managers are the mind of a
business who takes important decision of a business. Business law has many branches which

regulates the conduct of a business such as , contract law, intellectual property law, insolvency
law, anti-trust law, tax law etc. The transaction of business helps in identifying the services and
dependencies of a business by collecting data which gives the clear picture of a business status
and environment which gives the idea of business process and work.
There is a doctrine of a vicarious liability wherein, employer is made liable and
accountable for the misconduct or negligence of third party in an organisation. Where the
conduct of any agent, contractor, employee associated with an organisation is illicit or against the
norms of a company, then the employer is held liable for such misconduct (Naciti 2019). The
other famous principle of companies Act is the rule of separate legal entity which was
propounded in a landmark judgment in a case of Solomon versus Solomon. According to this
rule, a company has its own legal identity in the eyes of law. There is a legal difference
established between the owner and the company. A company can sue or be sued in its own name.
Owner is not liable for the acts of a company and company is not liable of the acts of an owner.
The rights and liabilities of a company and its owner is separated and distinct to each other
(Stauffer 2018).
A company is a artificial legal person, it cannot function or make decision by itself. To make
important decision for the interest of a company important faculties like directors are deployed to
control and regulate the management of a company. The role of directors in a company is very
essential because directors functions as the mind of a company. Therefore, directors are duty
bound to comply with the rules of a company and it is expected from a director to remain
impartial and independent towards the company and its employees. Directors are under an
obligation to ensure health and safety at work place.
Partnership is a form of business structure in which two or more persons signifies their
assent on an agreement to form a business with the view to earn profits. Partners are the owners
in a partnership company, there is equal distribution of profits and liabilities in a partnership. The
Partnership Act of 1890 regulates the concept of partnership business structure in the territories
of UK. Partnership can be dissolved or terminated either on the retirement of a partner or on a
death which ever is earlier.
A document which is commonly know as the Charter of a company is the Memorandum of
association which is required for the incorporation of a company. It is legal document which is
mandatory for a company for getting legal status. There is another document called Article of

Association, which is a collection of rules and regulations to regulate the internal affairs of a
company.
The legal business structure of UK companies
Sole Trader
a sole trade company is a single owner company, the process of constituting a sole trade
company is very easy and simple. It must be register with HMRC. A sole trader is the single
owner which makes him enjoy all the profits of a company including all the liabilities (Mazzarol
and Reboud2020).
Advantage of sole trader
 easy to form because of low startup cost.
 Simple and easy to operate business functions.
 There is an option available to change the legal structure or can be wind up easily.
 Simple accounting
 owner has all the power to make all the decisions of business.
Disadvantages of sole trader
 there is unlimited liability in sole trade business setup.
 There is no liability protection available to the owner.
 Difficult to track expenses due to lack of financial control.
 There is always a difficulty to raise finance in sole trade company.
 burden of responsibility is more in sole trade.
General partnership
It is a legal business relationship which subsists between two or more persons in order to
carry out a business on mutual understanding to earn profits is called partnership which
sometimes refereed as general partnership. Partnership is governed by the UK Partnership Act
of 1890. A partnership does not have a separate legal identity in the eyes of business law (Tvarno
2020). In a partnership company, partners usually have a unlimited liability.
Advantages of general partnership
 To form a partnership an agreement is must to determine rights and obligations between
partners.
 There is a pass-over system,wherein partners are not required to pay tax separately.
 Multiple partners can come together and form a partnership.

 Partners are treated equal before law
Disadvantages of general partnership
 There is a high risk of loosing personal assets of partners.
 Sharing profits between partners are limited .
 In partnership there is risk existed of disagreement between partners which may result
into termination of partnership.
 Disputes personal or business arise more often in partnership.
Partnership
A partnership is a union between more than two persons to manage business operations
and sharing of profits and liabilities arising from such partnership. Whereas , in general
partnership business, each members share profits and liabilities. A partnership company must be
registers with HM revenue and customs to establish legal status (Omar and Fraser2020). Each
partners are required to get registered separately for partnership tax return. Partnerships are
generally of four types, (a) General partnership, (b) Limited partnership, (c) Limited liability
partnership and Limited liability limited partnership.
Advantages of partnership
 partnership brings various opportunities in the form of knowledge and experience which
contributes in the success of a business.
 Partnership attracts potential investors and help in strengthening the business financially.
 Partnership mitigate the workload and pressure,
 partnership welcomes joining of new partners which helps in creating network for
business growth.
 It also provides various tax benefits schemes.
Disadvantages of partnership
 In a partnership,liability pressure and responsibility is much more upon partners.
 Partnership company is less stable because of internal issues.
 No partner have the absolute power.
 There is no rule of separate legal entity in partnership.
Limited liability partnership
The Limited Liability Partnership is a separate legal corporate body, it has a perpetual
legal existence separated from its members. The liability of partners in a limited liability

partnership is kept limited to the extent of their agreed contribution in the company. It is hybrid
form of partnership which is formed under the Limited Liability Partnership Act 2000 along with
many provisions of companies Act 2006 also made applicable in Limited liability partnership.
Limited liability is formed by registering at companies house (Muzio Aulakh and
Kirkpatrick2019). There must be minimum two members as designated members of a
partnership. Tax is levied on each partners income as per share in the profits.
Advantages of Limited liability
 members are protected in limited liability due to separate legal entity.
 It avoids double taxation as income of company is treated as the income of partners.
 There is flexibility in income distribution between partners.
 There is very less legal formalities.
 Members are at liberty to manage business freely.
Disadvantages of Limited Liability
 There is difficulty in raising capital due to equity and debts are not easy to procure.
 There is no perpetual existence, the vitality of a company ends on death of members .
 Limited liability must be registered at company house.
 Limited liability company required to keep updated records in registers for inspection.
Recommendations for IOM Solutions
From the above information, it is recommended to the IOM solutions to opt for Limited
Liability partnership for expansion of their business. IOM solutions is a sole trade company to
which Sam is a owner who deals with electric parts. IOM solutions is active in business for eight
years and from last two years Sam has observed that the business has grown in terms of demand
and employees, due to which Sam is looking for a potential and most appropriate form of
business ownership. Considering the situation of IOM solutions and its business structure, Sam is
advised to go with the option of Limited Liability partnership structure. This will fit most
suitable and appropriate business option for IOM solutions to expand their business because in
Limited liability partnership the liability of partners are kept limited to the extent of their share
and there is no double tax policy . Adding a new partner to the IOM solution will reduce the
work burden of Sam and this approach will help IOM solution to reach their business at higher
level.

CONCLUSION
From the above report, it is evident to conclude that business law is very important to
determine the rights and obligation of a business. Business law enables a person to form a
company to manage and run business. Business law helps in resolving the legal challenges occur
in business and provides the best route to resolve the issues. There are various laws which are
regulated under the companies Act 2006 in the United Kingdom. Further, In this report
recommendations are made to IOM solutions who wants to expand their business by adopting
potential and appropriate business structure. Therefore, the best and suitable business alternative
available for IOM solutions is to go with the limited liability partnership.

REFERENCES
Books and Journals
Mazzarol, T. and Reboud, S., 2020. Franchising and Legal Issues for Small Business. In Small
Business Management (pp. 451-510). Springer, Singapore.
Muzio, D., Aulakh, S. and Kirkpatrick, I., 2019. Professional occupations and organizations.
Cambridge University Press.
Naciti, V., 2019. Corporate governance and board of directors: The effect of a board composition
on firm sustainability performance. Journal of Cleaner Production, 237, p.117727.
Nsubuga, H.J., 2019. Employee rights in corporate insolvency: a UK and US perspective.
Routledge.
Omar, O. and Fraser, P., 2020. Small and medium-sized enterprise retailing in the UK.
In Entrepreneurship Marketing (pp. 202-221). Routledge.
Oxford Analytica, 2019. Future of business in UK territories is uncertain. Emerald Expert
Briefings, (oxan-db).
Stauffer, H., 2018. Corporate Liability: An Alternative Path to Accountability?. In Drones and
Other Unmanned Weapons Systems under International Law (pp. 195-216). Brill
Nijhoff.
Tvarno, C.D., 2020. The Value of the Value for Money Principle: From a Public Private
Partnership Perspective. Eur. Procurement & Pub. Private Partnership L. Rev., 15,
p.282.