Commercial Law 7, University: Kinds of Organizations Report

This report analyzes three types of organizations within the realm of commercial law: sole traders, partnerships, and charities. It details the formation and funding of each, including the requirements for registration, and explores their respective advantages and disadvantages. The report also addresses employment and other types of disputes that may arise within each organizational structure, and it evaluates the effectiveness of different dispute resolution methods, such as arbitration, mediation, and court proceedings, for resolving these issues. The report emphasizes the legal aspects, obligations, and protections afforded to each type of organization, offering insights into their practical operations and legal considerations. The report also includes details about setting up charities in the United Kingdom.

University
Commercial Law
Kinds of Organizations
Student Credentials
3/23/2020

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Question 1: Types of Organizations
Organization
Few of the kinds of organizations that shall be discussed here are: Sole trader, Partnership
and a Charity. There are different laws and processes to follow through in each country to
incorporate any one of the above mentioned organization.
Question 2: About these Organizations
Sole trader
In any country, becoming a sole trader is the easiest way one can become self -employed.
This kind of business provides all the independence and full share of profit to the individual
running the business. It is all in the hands of the sole trader to carry out the business on its
own or hire a person to do it for them.
Formation and Funding of a Sole trader
In order to become a sole trader, the funds have to be invested by the sole trader himself also
he holds the right to gain and keep all the earnings and profits from the business. There are
two options for the sole trader while investing, either he/ she can invest all his own
investments or take a loan from the local bank to assist him /her with the finances. Individual
opting for a sole trading business is personally liable for all the losses and responsibilities
incurring in this kind of business (Gov.UK, 2020).
Requirements for registration
In order to proceed with idea of sole trading in United Kingdom, one needs to fulfil a certain
criteria as in he needs to have an NI or the National Insurance, along with which he needs to
register with the HM Revenue and Customs (HMRC) for a self –assessment, for tax purposes.

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Apart from this, name of the business needs to be chosen. Now this name can be the sole
proprietor or trader’s own name in order to incorporate a sole trading business (Mygov.scot ,
2019). One can opt for a name that individual has or anything but, it cannot include, LLP,
Limited Liability Partnership, Limited, LTD or PLC , Public Limited Company or even any
kind of offensive names or anything identifying the trademark or symbolizing government or
nation or demeaning religious intent or as such (Korchak, 2019). If any of the following
conditions apply, one can set up a business as a sole trader in United Kingdom; when an
individual’s earning amount to a rough 1,000 British Pound in the last financial year through
any kind of self –employment; or one proves to be a self –employed person through any
document or as such; or one wishes to make the Voluntary Class 2 National Insurance
Payment so as to get assist the individual opting for sole trading qualify for the benefits
(GOV.UK, 2020).
Partnership
There are various types of partnerships that can be opted for as per the convenience or the
goal of the people who are going to be partners. A partnership is a kind of business in which
the members or the partners have the authority to take decisions as well as responsibilities of
the business according to their own choice, for instance, if a partner wants to handle
management and the other wants to take care of the financial aspects, then they mutually can
agree on the same and get that mentioned in the agreement of partnership as well. In
partnership, funding is done by the partners as in the partners bring in the finances on their
own and these partners can also invest an amount they took as loan from a bank as well.
Some governmental organizations also provide assistance with the finances if required for
setting up a business in order to promote a certain kind of business. Partners in a partnership
can distribute the losses as well as all the profits amongst them based on the profit sharing
ratio they have decided amongst them. In scenario, where no profit sharing ratio is decided,

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then it is assumed that the partners have agreed on equal profits sharing ratios (Entreprenur,
2020). In a partnership, the taxes on the profit earned are paid just once, when each partner
pays off their taxes over the profit each of them has earned through the organization. This is
why partnership firm does not need to pay the taxes again.
Setting up a partnership
In order to set up a partnership firm in the United Kingdom, there are a certain aspects that
need to be taken care of, as in the partner or the partners have to share the responsibilities
personally for the business which includes, any of the losses that have incurred in the
business or any of the bills or expenses regarding the business that have been made such as
any kind of equipment purchased for better functioning of the business or any kind of stock
for the same purpose (Fox Williams LLP, 2019).
Charity
Charity is a non -profit organization that has been formed not for earning profit but for social
welfare. The funds that are obtained or keep a charity running are all gathered from various
sources as in through people funding them, or the cause that the charity supports or even
when a few people or trustees come together for a particular goal to be satisfied. Apart from
trustees, funding for charity can be obtained through various options such as grants, or fees
that are being charged by the members or even individual or in –kind donations people make
on their own level and also areas like corporate sponsorships help charities out in order to
assist them.
Setting up a Charity in United Kingdom
In United Kingdom, when a charity is to be formed, there is a need for at least three trustees
who can fund the charity. Apart from this, a goal or purpose needs to be made sure behind the
whole thing.

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Governing Document
A governing document needs to be created so that the rules regarding how the charity is
going to be run. It is basically the rule book or the guide that provides each and every detail
regarding how the charity is going to be governed as in related to the expenses or
involvement of the trustees, their payments or appointment as well as how it is going to be
closed, everything is mentioned in the governing document (Gov.UK, 2020). A charity has to
be registered as well if the annual income of the same is 5,000 British Pounds or above that.
In case, the individual that is setting up the charity has already set up a Charitable
Incorporated Organization or the CIO, even this can help with the setting up of a charity
(Community Southwark, 2020).
Structure creation
Another major aspect is opting for the name of the charity as well as creating a structure.
Structure here refers to how or who going to run the charity or what it can do as in if it can
own a property or not or employ people, aspects like these are discussed in the structure.
Different kinds of charities have different kinds of structures as well. In order to register a
charity, certain documents such as the recent accounts, proof of income, detains of the
trustees as well as governing document, things like these are very necessary (GOV.UK,
2020).
Question 3: Advantages and Disadvantages
Advantages and Disadvantages of Sole Trading
Advantages:
1. Low start -up cost

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2. Sole trader is the only boss and business can be directed any way the sole trader
wants.
3. Sole trader is the only person who can enjoy all the profits.
Disadvantages:
1. There is no clear distinction between the assets of the business and the assets of the
sole trader which is why there is unlimited liability.
2. Where limited scope to raise the capital if needed.
3. All the responsibilities need to be taken -care by one sole person that is the sole trader
hence making it an exhaustive process.
4. It can also become very difficult to retain the staff making things difficult for the sole
trader (Company Bug, 2020).
Advantages and Disadvantages of Partnership
Advantages:
1. Very few legal obligations.
2. Better decision making since burden of responsibilities is being shared.
3. Skills and knowledge are easily accessible.
Disadvantages:
1. There is no independent legal status given to the business.
2. Profits have to be shared amongst several partners.
3. There is a potential for future conflicts or issues between the partners that might affect
the business (Korchak, 2017).

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Advantages and Disadvantages of Charity
Advantages:
1. Relief is provided from filling taxes to an extent.
2. Noble cause
3. There a sense of trust amongst the public (NCVO, 2020).
Disadvantages:
1. There are a certain set of requirements and restrictions as well that need to be taken
care of.
2. There is no equity investment.
3. No benefits from a charity can be provided to the trustees (MHA, 2017).
Question 4: Employment Disputes
Sole trader:
Under sole proprietorship, disputes arise mostly related to contractual issues as there are not
many people sole traders employ and in these cases; alternate dispute resolution methods
such as arbitration or mediation can be opted in order to resolve such issues. Commercial
arbitration is one such method that can be opted as it is much cheaper and convenient way in
comparison with traditional method (Legal Information Institute, 2020). As far as
employment disputes are concerned in sole trading, there are a very few instances where it
happens and these can be discussed with the sole trader, while in scenarios where no proper
action is taken in regards with the situation, then it can be taken up with the court or the
labour union if the issue is serious.

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Partnership:
There are incidences of contractual and financial issues amongst partners. These generally
arise due to change in profit sharing ratios or due to personal understanding. Certain issues
also arise amongst the partnership due to third party involvement as well as decisions related
to financial issues such as investments as well as adding or revoking of capital and as such.
Charity:
When any kinds of disputes arise within the charity regarding financial issues or any other
between the trustees, the charity commission needs to be addressed and issues then shall be
discussed with them so as to make it easier to resolve. Misunderstandings between trustees as
well as third party legal breach can also lead to eruption of issues in case of a charity.
Question 5: Effectiveness of certain organizations in dispute resolution
Dispute Resolution in Sole Trading organization:
Complaints regarding the discrimination or non -payment or any such other issue can be
taken up and complaint concerning the same can be filed with any of the trade unions or the
Citizens Advice bureau (Citizens Advice, 2020).
Since, sole trader firms or businesses do not have to comply with the regulation of registering
their business with the authorities as a sole trading firm, they do not receive a level of
protection when disputes arise or winding up of this kind of firm takes place. Therefore, the
firm just dissolves and all the losses are borne by the sole trader himself. These can take
actions and assist with the dispute to get resolved.
Dispute resolution in Partnership:
Any of the contractual issues or disagreements is easy to be resolved through ADR’s. ADR’s
are the Alternate dispute resolution methods that can resolve the issues within a short

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duration of time as well as at a much cheaper rate as compared to the traditional method of
going to the court. Arbitration as well as mediation are two different processes under the
category of ADR’s that are beneficial in issues where partnerships are concerned, due to their
convenient method. But, in situations such as the issues arising between the partners
themselves, the traditional method of the court can be opted and the decision by the court
shall be considered final and binding (Gov.UK, 2020).
Dispute Resolution in a Charitable Organization:
On another such organization that can be involved if the issue is not able to be resolved is
ACAS. ACAS assists both the parties as in by providing apt advices as what best can be done
in the situation and tries to resolve the issue through conciliation. If it also does not work; the
ACAS then tries resolving the issue through other ADR’s as well such as the Mediation or
Arbitration or the individual parties can follow through the ADR method on their own as
well. Apart from these, solicitors are the ones that can assist and provide the best advice too.

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Bibliography
Citizens Advice, 2020. Citizens Advice. [Online] Available at:
https://www.citizensadvice.org.uk/ [Accessed 23 March 2020].
Community Southwark, 2020. Charitable Incorporated Organisations (CIOs). [Online]
Available at: https://www.communitysouthwark.org/sites/default/files/images/Charitable
%20Incorporated%20Organisations%20-%20CIOs.pdf [Accessed 23 March 2020].
Company Bug, 2020. The advantages and disadvantages of being a sole trader. [Online]
Available at: https://www.companybug.com/advantages-and-disadvantages-of-a-sole-trader/
[Accessed 26 March 2020].
Entreprenur, 2020. Partnership. [Online] Available at:
https://www.entrepreneur.com/encyclopedia/partnership [Accessed 23 March 2020].
Fox Williams LLP, 2019. Formation of partnerships in United Kingdom. [Online] Available
at: https://www.lexology.com/library/detail.aspx?g=1325a2fd-22f4-4744-a99b-d20f1a2847a7
[Accessed 23 March 2020].
GOV.UK, 2020. National Insurance. [Online] Available at: https://www.gov.uk/national-
insurance [Accessed 23 March 2020].
GOV.UK, 2020. Register your charity. [Online] Available at: https://www.gov.uk/setting-up-
charity/register-your-charity [Accessed 23 March 2020].
Gov.UK, 2020. Set up a business partnership. [Online] Available at: https://www.gov.uk/set-
up-business-partnership/register-partnership-with-hmrc [Accessed 23 March 2020].
Gov.UK, 2020. Set up a business partnership. [Online] Available at: https://www.gov.uk/set-
up-business-partnership [Accessed 23 MMarch 2020].

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Gov.UK, 2020. Set up a charity. [Online] Available at: https://www.gov.uk/setting-up-
charity/governing-document [Accessed 23 March 2020].
Gov.UK, 2020. Set up as a sole trader. [Online] Available at: https://www.gov.uk/set-up-
sole-trader [Accessed 23 March 2020].
Korchak, J., 2017. Advantages and disadvantages of a partnership business. [Online]
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advantages-and-disadvantages/ [Accessed 26 March 2020].
Korchak, J., 2019. What is a sole trader? [Online] Available at:
https://www.informdirect.co.uk/business-management/what-is-a-sole-trader/ [Accessed 23
March 2020].
Legal Information Institute, 2020. Alternative Dispute Resolution. [Online] Available at:
https://www.law.cornell.edu/wex/alternative_dispute_resolution [Accessed 23 March 2020].
MHA, 2017. Advantages and disadvantages of being a charity. [Online] Available at:
https://hlca.co.uk/insight/knowledge/advantages-and-disadvantages-of-being-a-charity/
[Accessed 26 March 2020].
Mygov.scot , 2019. Set up a business in the UK. [Online] Available at:
https://www.mygov.scot/start-business-uk/register-your-business-in-the-uk/ [Accessed 23
March 2020].
NCVO, 2020. PROS AND CONS OF BECOMING A CHARITY. [Online] Available at:
https://knowhow.ncvo.org.uk/setting-up/charitable-status/pros_and_cons_of_becoming_a_ch
arity [Accessed 26 March 2020].

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Williams, M., 2020. 13 things you should know about being a sole trader. [Online] Available
at: https://www.startupdonut.co.uk/set-up-a-business/registering-as-a-sole-trader/13-things-
you-should-know-about-being-a-sole-trader [Accessed 23 March 2020].