Business Organizations in the UK: Types and Legal Formalities

This report discusses the different types of business organizations in the UK, including sole trader, partnership, general partnership, and limited liability. It also covers the legal formalities and regulations that businesses need to follow to operate legally in the country. The report provides a recommendation for IOM solution and Sam to select the best type of structure for expansion.

Business organization
TABLE OF CONTENT
INTRODUCTION...........................................................................................................................2
MAIN BODY..................................................................................................................................2
Business & organization in the UK:............................................................................................2
The legal business structure of UK companies:..........................................................................3
Sole trader:...................................................................................................................................3
General partnership:.....................................................................................................................4
Formation, liability, dissolvent and advantages, disadvantages of limited partnership type......5
Formation, liability, dissolvent and advantages, disadvantages of limited liability type............6
Recommendation to Sam for IOM solution:...............................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................9
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INTRODUCTION
Business organization is wide term which include sales and purchase activity, every business
is a type of structure. There are four main type of business in the UK, these are sole trader,
partnership, general partnership and limited liability. Every business have to complete legal
formalities to run fairly in the country. This report will discuss business organization in the UK
and understand different type of laws and legislation to run an business. Later this report will
discuss different type of organizational structure and understand legal formalities. Later this
report will provide recommendation to IOM solution and Sam to select best type of structure for
expansion.
MAIN BODY
Business & organization in the UK:
Every country have their own rules and procedure to start and run an business
organization, these law help entrepreneur to drive business legally in the country and try to trade
fairly. To form a business in UK, an sole trader have to decide which type of business they want
to adopt. There are mainly four type of business organization in the UK, these are sole trader,
partnership, limited liability partnership and limited company (Ndzi,2017). According to
Companies Act 2006, business needs to follow every guideline and complete legislation process,
there are different type of business law in the UK, these are:
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Companies Act 2006: Companies Act 2006 cover every essential details to start, run and chose
type of business structure, this act provide clear vision to sole trader or partnership firm to
operate legally in the country and try to maintain high level of standard by following these rules.
There are many section of Companies Act 2006, for example: section 1200 highlight process of
sole proprietorship.
Commercial law: Businesses who indulge in sales and purchase activity have to follow every
guideline of Commercial Law, this legislation body drive every business to trade fairly in the
country (Clarke and et.al., 2017). Commercial law is very wide which include every details and
process that company need and perform while dealing in general public. For example;
commercial law regulates employment law which means every company have to follow
guidelines of Employment Right Act 1996.
Liability in business: every business have debt which occur due to purchasing activity, liability
means owes or debt of company. Sometimes liability become biggest challenge for company
result in failure, there are certain type of liability in business such as current liability, non current
liability, contingent liability and vicarious liability. Vicarious liability occur due to irresponsive
behaviour or action of an employee, this liability leads to loss to company (Milanez, 2017).
Liability in negligence is one of the most challenge liabilities of company which occur due to
carelessness of employee resulting in harm or damage to other people.
Memorandum of Association: MOA is legal document which highlight registration process of
company and other formalities such as relationship with shareholder. This document ensure
every objective which an business have to perform in their process.
Article of Association: AOA is document contain purpose of company and highlight regulation
in their operation, this document is one of the most important element of business because this
ensure every management process and activity which should take place in the company.
The legal business structure of UK companies:
Sole trader:
Sole trader is one of the most common type of business organization in which self
employed person start and run business, every sole trader is individual who is responsible for
business start to wound up. Entrepreneurs who want to establish their own company need to
register their self assessment at HMRC (Her Majesty’s Revenue and Customs), this is official tax
collection department of UK which tend to collect both income and business tax. Sole trader
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need to grab their insurance and minimum wage right from HMRC (Dungan, 2017). There legal
requirement to run as sole trader in UK for example; sole trader have to send tax return every
financial year to tax collection agency, they need to pay income tax and have to register their
business name and entity and type of ownership to HMRC. According to Company law 2006,
sole trader have to register their business under Companies Legislation. Sole trader of UK do not
have to complete heavy legal formalities because government always promote business growth
in the country.
There are certain advantage and disadvantage of sole trader, these are:
Enjoy surplus profit: sole trader alone enjoy profit of company as there is no partners whom
with sole trader have to share profit, this type of business organization is very common and
adopted because of profit sharing process where all profit is solely enjoyed by owner. Sole trader
have direct control over business process which means they can take decision by their own
without concerning stakeholders.
Responsibility: sole trader alone mange business operation which means they have
responsibility to mange business fairly avoid any kind of cheating, sole trader enjoy profit alone
which means they even have to bear losses of company which can affect their personal financial
wealth. It can be seen that sole trader have more person debt due to sole proprietorship, this is
biggest drawback of this type of business organization.
General partnership:
General partnership is another most common type of business organization which can be
seen in UK, this means two or more than two partner form business together, manage business
process and share profit & loss equally or according to their agreement. According to Partnership
Act 1890, forming a business by two person is not a separate legal entity, partners may have
unlimited liability. Partnership can be quite complicated because one of the partner have to
become nominated partner and have to register with HMRC for further tax payment process
(Badgett, 2016). Partnership type of business can be very beneficial because both partner bring
enough investment and strategy to make a business successful, two sole traders can form
partnership with same product or belong to same industry. Same with, two company can form
partnership because they are separate legal entity and this can be partner with others. There are
certain advantage and disadvantage of partnership, these are:
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Fewer legal formalities: unlike sole proprietorship, partnership also does not have too many
legal formalities because partnership can be formed with legal concern as well, in this trust play
vital role. Partnership type of organization does not have to even form legal agreement unless
they wish to perform legal, partnership do not have to maintain statutory books.
Unlimited liability: partnership is not separate legal entity which means partners have to bear
company’s debt and losses. It is very clear that partnership only can be formed if both the partner
agreed to share profit & losses equally which means both the partner have to bear losses. The
biggest disadvantage of partnership lies in when personal assets of partner falls in danger.
Formation, liability, dissolvent and advantages, disadvantages of limited partnership type
Meaning: There are two types of partnership: General and limited partnership. Limited
partnership is also being formed by 2 and more than 2 partners and limited partners do not
contribute on managing business (Mikalonienė, 2020). Unlike general partners, limited partners
have limited liability up to the amount of their investment in this type of business.
Liability: Limited partners have liability to up to the amount that has been invested by
them. This is pass through entity that offer whether little or no reporting requirements.
Formation: Limited partnership needs to be registered under the limited partnership act
1907. Partners need to send an application to get their registration done or a form and needs to be
signed by all partners. Partners need to create partnership agreement in order to have information
about specific rights and responsibilities of both general and limited partnership. Most of the US
states govern limited partnership type that all require registration with the secretary of state.
Dissolution: As like general partnership, this limited partnership cannot be dissolved by
the death of one of the partners and bankruptcy (Cooper, 2020). By taking vote of partners and as
per the process in partnership agreement, by filing a certificate of dissolution and by winding up
all partnership businesses it can be dissolute.
Advantages
 As with name itself, it can be said that in this type, partners have to face limited liability
for losses.
 Capital amount in this type is quite generous.
 There are share responsibilities between partners.
Disadvantages
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 Sometimes, partners made this partnership without written agreement and there are
chances to breach in agreement.
 Limited partners cannot say much in decision making process as like general partnership.
Formation, liability, dissolvent and advantages, disadvantages of limited liability type
Meaning: Limited liability is a type of legal structure where a corporate loss will not
exceed the amount, invested in Limited Liability Company (Reiser, 2018). In other words, it can
be said that in this type of legal structure and type of company, owners’ and investors’ private
assets are not at risks when company fails.
Formation: The form that is being used in formulation of this type of company is: form
for incorporation of limited liability partnership (FiLLiP) that need to be filled with the register
who has jurisdiction over the state in which registered office of the Limited liability is situated.
Liability: Limited Liability Company is a separate legal entity that is liable to the full
extent of its assets but liability of owners and investors is limited to their agreed contribution. It
is a legal protection for owners and it can prevent individuals from being help personally
responsible for financial loss and debts.
Dissolution: All members can dissolve this type of company voluntarily and for this, they
need to pass resolution of all partners and all must sign an affidavit, bond and other documents.
Then they need to file for striking off this type of legal structure (Ivkošić, 2020).
Advantages
 Limited liability company is more flexible when it comes to treatment of different tax and
tax policy of the government.
 Limited liability company is more protected from external force as compared to any other
type of business.
 Due to separate legal entity, limited liability company make sure their investor and owner
remain safe during any market challenge or problem.
Disadvantage
 Limited liability company have to face various regulation of government, sometime,
certain laws of government become complex for the business.
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 Fees and other policy become biggest disadvantage of limited liability company which
means they have to provide certain fees to government through legal process. Limited
liability company have to face certain hidden fees of government.
Recommendation to Sam for IOM solution:
Partnership: Sam is sole trader of IOM solution looking for best type of business to expand
their branches over the country, being an sole trader, Sam can grow with existing type of
business for example; with sole proprietorship, Sam can be more effective in the market but it is
recommended for Sam to chose partnership as main type of business structure for IOM solution.
Partnership is one of the most successful form of business that have certain benefit, for example;
Sam will get enough investment from these new partner (Bennett, 2016). Partnership is more
flexible than any other type of business which means both partners can change and modify their
business process as per their requirement. Partnership type of business may have certain
disadvantage but this is most suitable type of business for Sam for IOM solution.
CONCLUSION
This report has discussed business organization and its types, there are different type of business
in the UK, these are; sole trader, partnership, general partnership and limited liability, this report
as provided clear understanding of different type of legal business structure in the UK. Later this
report has discussed every aspect of business running process in the country, including
Companies Act 2006 and Partnership Act 1890. This report has discussed memorandum of
association and article of association and its importance in an business organization. At last this
report has discussed recommendation to IOM solution and Sam in their expansion process.
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REFERENCES
Books and journals
Badgett, K., 2016. School-Business Partnerships: Understanding Business Perspectives. School
Community Journal, 26(2), pp.83-105.
Clarke and et.al., 2017. Commercial law: Text, cases, and materials. Oxford University Press.
Dungan, A., 2017. Sole Proprietorship Returns, Tax Year 2015. Statistics of Income. SOI
Bulletin, 37(2), pp.2-28.
Milanez, A., 2017. Legal tax liability, legal remittance responsibility and tax incidence: Three
dimensions of business taxation.
Ndzi, E., 2017. UK company law and precarious employment contracts. International Journal of
Law and Management.
Mikalonienė, L., 2020. Individual Owner Compensation in a Hybrid Limited Liability Entity in a
Comparative Context: LLC (the USA), LLP (the UK) and the Small Partnership
(Lithuania). European Business Organization Law Review, 21(4), pp.915-936.
Cooper, A.H., 2020. Geological hazards from salt mining, brine extraction and natural salt
dissolution in the UK. Geological Society, London, Engineering Geology Special
Publications, 29(1), pp.369-387.
Reiser, D.B., 2018. Disruptive philanthropy: Chan-Zuckerberg, the limited liability company,
and the millionaire next door. Fla. L. Rev., 70, p.921.
Ivkošić, M., 2020. Limited Liability Company in light of the 2019 Corporate Law
Amendment. Zbornik radova Pravnog fakulteta u Splitu, 57(2), pp.551-583.
Bennett, R.J., 2016. Interpreting business partnerships in late Victorian Britain. The Economic
History Review, 69(4), pp.1199-1227.
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