Key Sources of Laws for Business Organizations in the UK

This report discusses the different types of business organizations recognized by law in the UK, including sole proprietorship, partnership, limited liability partnership, and limited company. It also covers the legal business structure of UK companies, employment law, contract law, and more. The report concludes with a recommendation for IOM Solutions to expand their business through a Limited Liability Partnership.

Business Management
BMP4002 Business Law
Assessment 2
Report describing the key sources of laws
as the legal context for business
organizations in the UK
Submitted by:
Name:
ID:
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Contents
Table of Contents
Introduction ...............................................................................................................................3
Businesses & Organizations in the UK...................................................................................3
The legal business structure of UK companies......................................................................5
Recommendations for IOM Solution.....................................................................................8
Conclusion..................................................................................................................................8
References .................................................................................................................................9
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Introduction
A company is the primary structure which is required to carry out commercial
activities in order to make profits and run business. The law that governs the formation of
different types business organizations is the Companies Act 2006. There are other laws and
statutes such as, Employment law, contract law, partnership etc. The legal jurisdiction of UK
is spread in three division which includes England and Wales, Northern Ireland and
Scotland. These jurisdiction are regulated by common laws (Nilufer von Bismarck2021).
Business law also commonly applies to all these jurisdiction. Business laws are important for
regulating the business conducts and practices. There are many form of business
organizations having recognized by law namely, Sole proprietorship, partnership, limited
liability partnership and limited company. All these organizations have distinct
characteristics, advantages and disadvantages. In this report, all the relevant facets relating to
business law and their types and how they are legally formed will be discussed.
Businesses & Organizations in the UK
A Company is formed to administer all the functions relating to manufacturing of
goods, production, sales of goods etc all these activities are commercial in nature and such
transactions and activities must be regulated to prevent misuse of resources and human capital
by such organizations. For any company its nature and management is its identity and the
objectives of a company must be certain, therefore the company Act 2006, imposed certain
obligations on the companies to prepare their objective resolutions and nature of company
(McGaughey, 2021.). A company is a separate legal entity after its lawful incorporation and
registration which is operated by its key faculties and such companies needs to comply with
the business laws.
The functionality of a company is determined by its management which helps in running the
day to day activities of the company. Management keeps the company well organized and
update. A company is divided into several departments like, Human resources, marketing,
financial, sales and production department. All these departments collectively function to
keep the functionality of a business. The management plays very significant role in applying
the policies and keeping work culture healthy at work place.
A registered company is under an obligations to follow the rules and regulations
established by laws in order to carry out business lawfully. The purpose of business law is to
prevent misconduct by employer to ensure safety towards business faculties who are workers
and employees in an organization. There is an Employment law, which imposed statutory
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duties on employer towards its employees to protect them against the arbitrary acts of an
employer, it imposed absolute prohibition on any form of discrimination at workplace, right
to claim against wrongful and unfair dismissal by employer. Further, employment law also
provides various rights and benefits to employees working in corporations like, leave benefits
including paternity and maternity leave allowances, extra pay for extra work, minimum
wages, bonus, compensation and many more which ensures employees to live with dignity
and respect (Ting and Gray2019).
The rule of separate legal entity is propounded in a landmark judgment Salomon
versus Salomon&Co Ltd 1896. In this case famous principle of Corporate Veil was laid
down, according to which a corporate is a separate legal entity which resulted that the
shareholders are not personally liable for the loss of the company. As per this principle, a
company is given certain rights and liabilities same as natural person like a corporate
company can sue or be sued, can owned property or assets in its own name, can enter into
contracts etc.
There is another principle which is commonly called as vicarious liability. As per these
principle if any mistake, negligence or a misconduct happens by any employee than the
accountability of such acts shall be on the employer. It means an employee is not made liable
for their mistakes or misconduct rather, employer is held liable for their mistakes, such
liabilities are called as vicarious liability, the same vicarious liability is also recognized as
tortuous liability in a company law.
Company law also imposed certain duties and responsibilities on directors of a
company to which they must obey to uphold the objectives and principles of a company. Role
of directors is significant for the functioning of a company. It is the duty of directors to
perform their duties with honest in the interest of the company. Directors must not misuse
their positions in order to gain personal interest in the name of the company. A directors must
act as reasonable prudent person and performs their duties with honest (Esendirov,and
Inozemtsev2021).
Among the other types of business organization, there is a unique from of bushiness
type which is commonly known as partnership. It is a form of business arrangement in which
two or more person mutually under a partnership agreement decides to carry out a business
with a common intent to earn profit. Partnership is regulated by Partnership Act 1890. In this
form of business partners shared profits and liabilities. The partnership can be terminated
anytime if a any partners leaves, retires or dead or it can be terminated by the agreement.
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A company to obtain a legal status under the companies Act 2006, required to fulfill certain
terms and conditions. A company needs to prepare its charter which contains the principle
objective of a company at the time of incorporation. Such charter ate in the for of documents
and are of two types, namely Article of Association and Memorandum of Association.
The internal rules and regulations of a company's are mentioned in Article of Association
(Nicholls2020).
The legal business structure of UK companies
Sole Trader
It is a type of business arrangement which is owned by single person, sole trader is
also known as sole proprietorship. Sole trade business type is relatively small in size. It is the
most famous business type which is being practiced largely. Sole trader is not a separate legal
entity which makes it more risky in sense of liability which completely falls on the owner at
times of loss. As the sole trade is easy to establish as it does not required huge capital nor
human capital. It is mostly operated and controlled by the singe person who is owner. Such
business can be terminated or shut down at anytime (Izawa2022). The owner is entitled for all
the profits from the business and tax is levied on such income after deducting all the expenses
of business.
Advantages of Sole Trader
 easy and simple process to establish sole trade business.
 limited investment and human capital is required for its formation.
 owner alone is entitled to enjoy all the profits of business.
Disadvantage of Sole Trader
 High risk of liability against the owner.
 In sole trade business no tax benefits are avail.
 There is a pressure of administration and management on owner alone.
General Partnership
The general partnership business type is governed by the Partnership Act 1890. IN
this type of business two persons signifies their assent in a partnership agreement to carry out
a business with the view to earn and share profits and liabilities from business. The process to
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form a partnership is relatively easy as their only requires a partnership agreement between
partners and a common intent to carry out a business together. Partners are required to bring
their share of capital in general partnership (Kusumawati and Syamsuddin2018). A
partnership can be dissolved either by the agreement or at the death or retirement of partner.
Advantages of General Partnership
 In general partnership its registration with Companies house is not essentially neede.
 Income tax is levied on partner's separate income from profits out of business.
 Partners are not required to file separate tax liability in general partnership.
Disadvantages of General Partnership
 The big disadvantage in General partnership is that partners are personally made
liable for business liabilities and loss.
 In case the partnership fails, there is no protection avail to partners.
 The rule of separate legal entity is not apply in partnership.
Partnership
Partnership is no other than general partnership, partnership also governed by the
Partnership Act 1890. The basic requirements of partnership is akin to general partnership in
which two persons agrees on partnership terms to carry out a business having common
intention to earn profits out of partnership. Partnership is a form of legal relationship between
two living persons constructed by an agreement. In this no limit of partners is prescribed to
form a partnership (Ennis 2018.). Like general partnership, here also no rule of separate legal
entity is applied.
Advantages of Partnership
 Easy funding as partners contributes their share of capital and assets in the compnay
at time of business set up.
 Partnership offers more flexibility unlike other business types in terms of
management and administration control.
 Due to more than one owner it brings potential solutions and opportunities for
business growth.
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Disadvantages of Partnership
 Having more than two owners often creates disagreement among partners regarding
decisions.
 Like sole trader, in partnership also there is unlimited liability on partners towards
business.
 Partners are required to submit tax return annually.
Limited Liability
It is a unique and hybrid form of business arrangement, which contains characteristics
of all the other business types. In this the rule of separate legal entity is apply, which means a
limited liability partnership firm is a separate legal entity entrusted with certain rights and
obligations like natural person. LLP can enter into contracts, owned assets or property in its
own name, can sue or be sued. Unlike other partnerships, LLP is governed by the Limited
Liability Partnership Act 2000 of the United Kingdom (Mundhra 2021). The tax levied on
partners separately only to the extent of their share in the profit.
Advantages of LLP
 The rule of separate legal entity is applicable in LLP.
 The personnel assets of each partners are protected against the liabilities of the
companies.
 In this all the sharing between partners are determined by the terms of an agreement.
Disadvantages of LLP
 It must have two members, leaving any members results in dissolution of partnership.
 LLP is subject to public disclosure
 Income of partners in LLP is their personal income, the tax is levied on such income.
Recommendations for IOM Solution
From the above explanation and considering the situation of IOM solutions, a sole
trade company which sells electric parts at local garages whose owner is Sam who is facing
pressure and challenges in terms of demand and employees as the business is doing well but
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its needs expansion. Therefore, Sam is looking for a potential and most suitable business type
for IOM expansion. The best and appropriate business alternative for IOM solution
recommended is Limited Liability Partnership. LLP will offer many fruitful opportunities to
IOM for its business growth as it will bring more funding to their business and new partners
will reduce the pressure of Sam regarding management and administration of a business.
Therefore it recommended to IOM solutions to go ahead with the Limited Liability
Partnership.
Conclusion
From the above report it can be concluded that, business law plays significant role in
managing, governing and controlling the conducts of a businesses. Law is essential for
regulating business, without law no business will perform fairly. There are different types of
business organizations provided by Companies Act 2006, which regulated the formation of
different types of business organization, like sole proprietorship, partnership, general
partnership and limited liability partnership. In this report, all the relevant extract relating to
business law, types of business organization, their management along with their advantage
and disadvantages and other important principles are explained. At last, recommendation is
made to IOM solutions which is a sole trade company to with the option of Limited liability
partnership in order to expand their business in terms of demand and employees.
References
Ennis, C., 2018. Partnership for 21st Century Skills.
Esendirov, A. and Inozemtsev, M., 2021. The Role of the Directors’ and Officers’ Insurance
Contracts in Corporate Governance. In Technology and Business Strategy (pp. 275-
284). Palgrave Macmillan, Cham.
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Izawa, R., 2022. Corporate structural change for tax avoidance: British multinational
enterprises and international double taxation between the First and Second World
Wars. Business History, 64(4), pp.704-726.
Kusumawati, A. and Syamsuddin, S., 2018. The effect of auditor quality to professional
skepticsm and its relationship to audit quality. International Journal of Law and
Management.
McGaughey, E., 2021. Competition and labour law in the United Kingdom: history, theory
and practice. The Cambridge Handbook of Labour in Competition Law (Cambridge
University Press 2022).
Mundhra, M., 2021. Short-Comings and Pitfalls of Registering Corporate Guarantee as
Charge. Issue 4 Int'l JL Mgmt. & Human., 4, p.2463.
Nicholls, J.A., 2020. Integrating financial, social and environmental
accounting. Sustainability Accounting, Management and Policy Journal.
Nilufer von Bismarck, O.B.E., 2021. Corporate Acquisitions and Mergers in the United
Kingdom. Kluwer Law International BV.
Ting, A. and Gray, S.J., 2019. The rise of the digital economy: Rethinking the taxation of
multinational enterprises. Journal of International Business Studies, 50(9), pp.1656-
1667.
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