Business Organizations: Types, Legal Structures, and Recommendations for IOM Solutions

This report discusses the different types of business organizations, their legal structures, and recommendations for IOM solutions. It also covers the roles of company directors, vicarious liability, and professional negligence in organizations.

Business organizations

Introduction
Business is known the entity which is engaged in any of the commercial, professional
and industrial activities. Organization can be both profitable non- profitable. Business growth
and profit is differentiated by organizational size and nature. An organization earn profit in
order to maintain owners and employees cost of living. Business is an entity which produce
and sells good and services to earn profit and expand their business. The nonprofit
organization work for fulfilling the needs of needy which involves trustees and charity firms.
There are various kind of businesses with different legal formalities and policies that involves
hybrid, merchandising and manufacturing and producing services which comes under the
forms of business-like sole traders, partnership which individually divided in two forms
limited partnership and limited liability partnership. This report involves the various types of
business and their nature. It also described the professional negligence, vicarious liability in
the business. This report involves the duties and responsibility of a company director in a
company involving memorandum of association and article of association. It also involves
the suitable recommendation of business type for Sam to choose for IOM solution. The
analyzation of report is explained below.

Businesses & Organizations in the UK
Business is known as manufacturing, producing, buying and selling of goods and
services to maintain the cost of living. It is known as the entity which expand and make profit
by entering into a competitive market. Organization is itself a structure which are ruled and
managed by the countries policies and laws. In UK mostly four types of organization have
been seen, first type of company is Public Limited Company which sells shares and
debentures to the general public (Staniškis, 2022). Second type of company founded in UK is
private limited company which usually limits the liability amount of the guarantor in the case
of company wounding. In these kinds of companies there are no share capital or shareholders
involved. Nonprofit organization also comes under this organization which involves charity-
based organization and student unions. Next company which are commonly found in UK are
Private limited company by shares. These companies always have to add ‘Ltd’ and ‘Limited’
at the end of company’s name. Private Limited Company are the other type found in UK
which no amount has to be paid by owners in case of company debts. There are some special
types of companies found in UK are the Right to manage and community interest companies.
Business transactions is process of exchanging anything from one enterprise to another,
Transaction can be any form it could be in exchange of products, services, information or in
monetary terms. Transactions are recorded in the form of bookkeeping for better scalability,
cost and reliability in the computer. Business transactions also includes purchase share
agreements, non-disclosure agreements, letter of intent and acquisition from administration.
Vicarious liability is within the organization in which the company members are itself liable
for their actions, words and deeds. Vicarious liability is considered as a offense which also
includes mental abuse, physical abuse, harassment, breach of copyright, slander, breach of
confidentiality and libel (Oh, 2018). In organizations professional negligence creates a
negative impact on the employees’ profile and nature. It happens in the organization when an
professional employee fails to fulfill their responsibilities and duties up to company standards
which causes dissatisfaction of employees, financial loss, and physical damage to the
organization. In an organization company’s director plays a vital role in managing and
organizing the firm which determine the success and profit rate in an organization. Company
director performs various duties which involve decision making and managing each
department in the organization. Company’s director promotes the growth and success of the
organization by using it’s designed power to make strategies and decision for long term. As
they independently perform all the roles so they have to possess reliable skills, care towards
employees and diligence. If company has involved in a partnership agreement, then to
dissolve that agreement it requires mutual consent of both the partners which are involved in
the agreement (Rüsen, Kleve, and von Schlippe, 2021). The partnership agreement can also be
dissolved by mental instability of any one partner, court, notice and any mis conduction of
agreement. Article of association is the written rules and regulation legal file which by all the
top management of the company that involves directors, shareholders, guarantors and
company secretary. Memorandum of association is known for a legal agreement which is
signed by shareholders and guarantors which agreed to form an organization in UK.

The legal Business structure of UK companies
Sole Trader
Sole trader is known for simplest and easiest way to form a business as name says it all sole
means one, it has one single owner. It is also known as sole proprietorship, in this kind of
business the business operations are owned, runed and managed by one single person with no
legal paper work or formalities. This business and the owner are considered as one single
identity. Every fund, supply and investment are the owner’s responsibility. This type of
business is inexpensive and flexible in nature with no legal formalities. The business name
can be decided by the owner and the funds investment is also up to owner’s will. It is the
oldest, common and easiest form of business. In this type of business owners has to bear all
the risk and loss alone but also enjoys all profit alone. In this type of business, it has
unlimited liability of business (Ahmad, and Murray, 2019). In which creditors can not only
claim the business assets but the personal property of the owner in case of company wound
up. Owner can dissolve their company whenever they wish to. The advantages of having sole
trader is inexpensive to establish and easy to start with no legal formalities. In this type of
organization owner has the control over the decision making, financial department, policy
making and managing the organization. In this owner satisfies with maximum profit, does not
have share any part to anyone in the company. Sole traders should not to be considered about
double taxation. There are also some disadvantages of having sole trader that owner is not
expertise in each department in organization which sometimes occur to business failure. The
unlimited liability can sometimes be considered as a serious weakness to the owner as for
recovering the debts owner gets loss in business assets as well as his personal property.
General Partnership
General partnership is when two or more people collaborate together to perform business
activities, it has the simply designed legal structure. It also includes the involvement of two
entities which can be any corporation or trustees. In this type of business profit and loss are
shared equally, for this proper partnership agreement has been created between the partners
which also equally distributes the rights, responsibilities and duties in the business
(Bencivenga, Marchegiani, and Marchiori, 2019). As each partner distributes profit equally also
faces the risk and debt equally. The taxation process is performed individually by each
partner involved in the business. This type of organization is easy to establish with less legal
paperwork involvement for forming and balancing the business. In General partnership the
decision and management procedures are performed equally in an organization. They also
decide the firm structure which involves the salary of employees, income, expenses of firm
and marketing strategies (Beynon-Davies, 2019). All partners have equal right in the
organization and equal reputation in the industry. General partnership also has some
disadvantages, as if any one partner wants to dissolve the company it can be dissolved easily
if no legal formalities or agreement has been made, therefore suggested to make legal
agreement without facing any hassle later. This type also requires license for opening an

organization in the company with proper documentation and certification procedures which
sometimes delay in establishing.
Partnership
It is the official relationship between two or more partners who agreed to come
together to form and run a business for the expansion and to earn maximum profit. Then all
partners should be considered as owners and equally liable for the company’s loss and profit.
All the partners equally share the risk, responsibilities, cost and benefits which the
organization faces. All of them are personally and equally responsible for the losses and debts
in an organization. If an agreement is misconducted and comes under professional negligence
than other partners also responsible for that as all partners are representing their business in
the industry. In partnership partners have limited liability (Nielsen, 2018). Partnership is also
divided in three partnership agreements that are general, limited and limited liability. In
general partnership the partners share equal share in the company’s profit, debts, assets and
liabilities. In partnership limited agreement, it creates the proportion between the partners of
distributing profit and loss and also involves the ratio of investing capital. In limited liability
agreement. Any one partner can limit their liability but shares the profit equally. Every
organization creates partnership agreement according to their type and size which reduces the
conflicts and confusion between the existing partners in the agreement. There are advantages
of creating partnership agreements that are companies only have to keep records of there
expenses and income, as it has simpler taxation polices it is not needed to complete
corporation tax return. It is easy to establish as partners only have to create legal formations
in written and do not have to register it in company’s house (Berg, Davidson, and Potts, 2018).
Partnership is considered less in formal and legal formalities terms. In these partners can
easily shares their burden or managing and organizing the company. Business in partnership
is also the individual development as each partner uses their skills, experience and knowledge
to earn maximum profit. Partnership in business also has some disadvantages it sometimes
creates conflict between the partners which leads to differences between there bond and can
affect the organizational growth. In this business type sometimes, the decision-making delays
the business operations in the organization.
Limited Liability
This type of partnership is in which two or more than two partners agreed together to
earn profit and balance their cost of living in effective and efficient way. This partnership can
be in both formal and informal terms. This kind of business partnership does not require and
contract or written agreement (Gupta, 2021). This liability owners can offer is limited to the
business, if in case business are in debt then creditors are not liable to cover the loss from the
owners or partners personal property. There are some advantages of having limited liability
partnership agreement that are company can be establish with minimum capital contribution
invested, owners can also contribute their intangible, immovable and tangible benefits as a
capital investment. The registration cost is less as compared to private limited company and
public limited, audits are not compulsory in these kinds of agreements (Beynon-Davies, 2021).

The disadvantages of having this agreement is it suffers high income tax turnover rate and
company can be dissolved by one partner’s consent.
Recommendations for IOM solutions
Sam sells electronic part to the local garages which is now leading in the growth in
customer and market base. For more growth and expansion in the business Sam should
switch his organization from sole traders to partnership. It is easy to switch from sole traders
with less cost and legal formalities. If it will divide the profit into partners, it will also divide
the loss and risk between the existing partners. The work load will also reduce and
responsibilities will be divided rom more than one person. Partnership will make business
expand more easily and Sam will also get some new experience, knowledge and skills.
Partnership is the best legal form to switch from sole traders it maximizes the profit and also
makes a goodwill and increases customer base.

Conclusion
This report concluded that every type of organization should be according to their
legal form which is decided by the size and nature of the organization. It also concluded that
there are some mentioned vicarious liability and professional negligence terms in the
organization to maintain the decorum or the organization and for employee’s personal
growth. Company director posses and distributes all the role and responsibilities to the
employees and manages each department in the organization for the proper functioning of
business operations. Other than this there are some written rules and regulation for the top
management and employee which is specifically mentions in article of association and
memorandum of association respectively. Sam has been suggested to switch from sole traders
to partnership agreement for the better growth and to earn better profit.

References
Books & Journals
Staniškis, J.K., 2022. Sustainability Challenges in an Business Organisation. In Transformation of
Business Organization Towards Sustainability (pp. 3-14). Springer, Cham.
Oh, I., 2018. Mafioso, Big Business and the Financial Crisis: The State-Business Relations in South
Korea and Japan. Routledge.
Rüsen, T.A., Kleve, H. and von Schlippe, A., 2021. The Dynastic Business Family as Family,
Organisation and Network. In Managing Business Family Dynasties (pp. 7-18). Springer,
Cham.
Ahmad, M.U. and Murray, J., 2019. Understanding the connect between digitalisation, sustainability
and performance of an organisation. International Journal of Business Excellence, 17(1),
pp.83-96.
Beynon-Davies, P., 2019. Business information systems. Red Globe Press.
Nielsen, P.B., 2018. The puzzle of measuring global value chains–The business statistics
perspective. International economics, 153, pp.69-79.
Berg, C., Davidson, S. and Potts, J., 2018. Outsourcing vertical integration: Distributed ledgers and
the v-form organisation. Available at SSRN 3300506.
Gupta, M., 2021. Organisation structure of family-owned and controlled business groups in India:
Some reflections on theories and policies of corporate governance. In Theory, Policy,
Practice (pp. 241-266). Routledge India.
Beynon-Davies, P., 2021. Designing Organisation. In Business Analysis and Design (pp. 53-73).
Palgrave Macmillan, Cham.
Bencivenga, R., Marchegiani, L. and Marchiori, M., 2019. A Process Toward a Good
Organisation?. Business Ethics and Care in Organizations.