Key Sources of Laws for Business Organizations in the UK

This report describes the key sources of laws as the legal context for business organizations in the UK, including types of businesses, liabilities, and duties of directors. It also provides recommendations for expanding a sole business with proper knowledge of law.

BSc (Hons) Business Management
BMP4002 Business Law
Assessment 2
Report on describing the key sources
of laws as the legal context for
business organizations in the UK
Submitted by:
Name:
ID:
Contents
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Introduction
The following report represents the key source of laws as the legal context for
business organizations in UK. Here, the nature and types of businesses and
companies have been considered and all the rules and regulations regarding
companies and businesses are taken into consideration. The following report also
include duties, roles and liabilities of directors of the company. This report also add
recommendations for Sam on how he can expand his sole business, IOM Solutions,
with proper knowledge of law.
Businesses & Organizations in the UK
A business refers to the involvement of two or more people who come together to
achieve their collective goal by engaging in commercial, industrial and professional
activities (Al-Awlaq and Aamer, 2022). Limited liability companies, sole
proprietorship, corporations and partnerships are different types of business.
Nature of company is given below:
 A firm is considered as an existing company only when it is registered under
Companies Act or equivalent act. To register an enterprise, members must
have proper documents like MOA & AOA and permission of shareholders,
directors and share capital to be deemed as a legal entity.
 As per law, the corporation is treated as a legal person who have its own
rights as claiming the property, can get into legal contracts with its name and
to sued and be sued by others.
 A firm is considered as separate person from its owner and controller. It itself
is responsible for its debts and creditors and for its actions. Likewise, the
enterprise is not responsible for the private debts of the individuals.
 According to Companies Act 2006, the firm is limited by guarantee or shares.
In the organization, that is limited by shares, of shareholder's liability is limited
to the value of the unpaid shares of the shareholders. In a firm, limited by
guarantee, the member's is restricted to any type of guarantee that is decided.
Vicarious Liability:
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This type of liability refers to when a person is held responsible for the actions
or mistakes of another person. In workplace, an employer can be answerable for the
omissions and faults of the employees. The law has developed an understanding
that in some relationships have a nature that requires a person who engages other
to take responsibilities for the wrong doing of others and supervise them.
Business Liability in negligence:
When a professional body fails to perform its rules and responsibilities or
conduct any omission to required which falls short for the required standard or
breaches a duty of care. For a claim in negligence to succeed, it is necessary to
establish that a duty of care was owned by the defendant to the claimant, that duty
was breached and due to that specific negligence, claimant has suffered loss like
financial loss, physical damage or injury of the clients or customer.
Director
A company consists of two bodies that are shareholders and directors, the
directors are responsible for managing the management of an enterprise (Caiazza,
Cannella Jr and Phan, et.al., 2019). They are responsible for making the effective
and operative strategies of the firm and for ensuring that the corporation is satisfying
its statutory obligations.
Roles and Duties of Director:
 The director must act within his/her powers for the purposes that are
mentioned in company's constitution. The company's constitution includes the
article of association, memorandum of association and regulations and rules
according to enterprise's nature and law.
 The director an organization must treated every employee equally without
being bias and should make every judgment according to the stated rules and
laws.
 For maintaining the integrity of the company, this is the responsibility of a
director to not accept any kind of offers from the third party. Such conduct can
give rise to misconceptions and suspicion which would leave the question
mark on the company.
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 Director of a firm must avoid such conflict of interest or in interest of a
company. These may be conflicts between his/her duties as a director or
his/her personal interest or duties owed to third party. This duty applies
particularly to the exploitation of the property or information or an opportunity.
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Termination of Partnership
Termination basically mean dissolution of partnership when a business relationship
between partners came to end. There are four ways to terminate the partnership
which are:
1. Termination by expiration or notice: A partnership can dissolved if a company
meets anyone of the following reasons:
 after completion of the fixed period.
 after completion of a purpose.
 by providing notice to other partners.
2. Termination by Bankruptcy or death: Any type of partnership can be
dissolved if the situation of the death or bankruptcy of any partner arises.
3. Termination by illegality of partnership: If the partnership is unlawful in any
context, partnership will be dissolved or void if any action the business is
considered as illegal in the eyes of law .
4. Termination by Court : If an organization is found guilty in the eyes of the
constitution, the court can order the terminate the partnership immediately.
Memorandum of Association & Article of Association
Memorandum of Association: It shows that the subscribers want to create a
company under Companies Act, 2006 and agree to become its first members and
they are ready to buy at least one share each. MOA must be subscribed by each
subscriber (Chung, Kao and Chang, 2020). It includes a statement of compliance
that must be send to Companies House together with an application for registration
of a firm and its article of association.
Article of Association: This article sets out how to run a company, governed and
owned. It puts restriction the powers of directors, members and shareholders. This
article covers:
 liabilities of subscribers
 duties, powers and responsibilities of directors
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 director's meeting, voting procedure, delegation to others and conflicts of
interests
 retaining records of the decisions of directors
 appointing and approving of directors
 member's dividends and others distribution
 decision making procedure followed by members and attendance at general
meetings
 communication process between different level of employees
 applying the company's seal, if applicable
The legal business structure of UK companies
Sole Trader
It refers to the person who fully owned his/her business and is self-employed, he/she
enjoys the whole profit by themselves and also suffers loss by themselves. This
person is responsible for the actions and decisions made for the business. To form a
sole trade, a person first select a proper name and then register it to HMRC and
VAT. Once a Sole Trader register under HMRC, the person is liable to pay tax every
year. The person have to notify HMRC of their earnings using self-assessment
system (Maples, Hodson and Jone, 2020). The deadline of completing self-
assessment is 31st January and every individual has to pay tax that they owe. Sole
Trader has unlimited liability, broadly it can be said that unlike the owners of limited
company, in sole proprietorship the person is responsible for his/her debts. If the
person can't pay off creditors by business, his personal property or assets may be at
risk(Hull, Reynolds and Sullivan, 2020). For the dissolution of the business, the
individual has to inform HMRC and also need to send final tax return. The person
also need to cancel the VAT registration before the given deadline.
Advantages:
 The individual is the only person to enjoy the full profit earned by the
business, he/ she is not liable to share his profit with others.
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 There is no interference in decision-making from others, the owner can
formulate decisions and plan accordingly.
Disadvantages :
 Along with profits the person is liable to pay-off all the creditors and debts
alone and if he/she is not able to pay, his/her personal assets can be used.
 All the responsibilities are held on the shoulders of a single person, he/she
has to look after the day-to-day operations and make decisions accordingly.
General Partnership
The relationship which is made between two or more persons carrying on business
with a same point of view of earning and sharing profit is referred as general
partnership. After deciding the name of the company, the person has to register
his/her company under HMRC for tax purposes (Rouhani, Geddes and Do et. al.,
2018). The partners have to register for VAT and it is mandatory to obtain any
business insurance. Partners have to register themselves for HMRC and do self-
assessment before the due date and pay taxes accordingly. The liability in general
partnership creditors can address the claim directly from the general partners without
first claim against the company. The partner who satisfy the claim of the creditor, can
be compensated by the company for the expenses occurred (Rouet and Côme,
2019). The general partnership can be dissolve through many ways like, the
collective decisions of the partners, due to death or bankruptcy, due to insolvency,
because of court order, by giving notice or on expiration of time period.
Advantages:
 As stated, partnership is a grouping of two or more partners working together,
the more the partners are the more the capital obtained which will grow the
business.
 In partnership the decision and strategy making efficiency would be increased
as the partners have different skills and knowledge which will be beneficial for
the company.
Disadvantages:
 It is more likely of conflicts to be arise as there are more people which may
results in disagreements.
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 No one can enjoy the profit alone because as partners, the profit has to be
shared.
Partnership
The Limited Liability Partnership is that type of partnership in which the liability of the
partners is limited to the portion partners have share in business (Tricker, 2019). It is
a legal entity and is registered as legal body at Company House . It is advisable to
the partners to prepare the LLP agreement to avoid future disputes.
Advantages:
 An LLP is legal entity in its own right and can enter into contracts by its name
employee staff directly.
 New members can be added and removed easily related to unlimited
company.
Disadvantages:
The LLP has to file accounts to Companies House and this means the profit of the
company is open for inspection (McCouch, 2021).
In LLP, the profits cannot be retained to the company and are taxed immediately
after it occurred.
Limited Liability Corporation
A Limited corporation is a company offers limited liability protection, it is a separate
legal entity from its owners, therefore the owners cannot be responsible or liable for
the business creditors and debts. For formulation of LLP, the members have to
select an appropriate name and then prepare a LLP operating agreement after that
file your LLC with the Secretary of State's Office and obtaining EIN that is Employer
Identification Number (Mancuso, 2019). Once all the steps have been followed a
business's separate bank account is formed. The taxation policy is similar as in
general company that is by doing self-assessment and mention it to HMRC before
the due date.
Advantages:
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 LLC's members are shielded from the their liability for the act of LLC and its
other members. In other words, it can be said that creditors cannot approach
to the personal assets of members.
 LLC's do not directly pay taxes at business level, a business income or loss is
'pass-through' to the owners and reported on their personal IT returns.
Disadvantages:
 an LLC is considered as more expensive to form and maintain than other
types of business as the state charge an additional formation fee. Many states
also lead other ongoing fees such as annual report and franchise tax fees.
 Transfer of Ownership in LLC is more harder than with the other corporation
as shares of stock cannot be sell by LLC to increase ownership.
Recommendations for IOM Solutions
The most significant type of organization Sam should opt is Limited Liability
Partnership as he want to expand IOM Solutions . His business has been increasing
in terms of demand and employees, having a partner to handle different segments of
the business is going to beneficial for Sam. As LLP is do not attack to the personal
assets of the partners for paying debts and liabilities, Sam will be protected from
such issues. Also the formation of LLP is comparatively easy than others and
requires less capital. If Sam choose this option, his business will not only grow but
his burden and responsibilities can be shared.
Conclusion
This analysis shows that how business and organizations work in UK, the nature,
types of companies and its liabilities. This report consider some legal structure ,
taxation and forming and dissolving different types of corporations and partnerships.
The duties and responsibilities of directors are briefly discussed. After discussing all
legalities of different companies and partnership, the IOS Solutions has been
suggested to opt Limited Liability Partnership in order to grow and handle the
business.
References
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Al-Awlaqi, M.A. and Aamer, A.M., 2022. Organisation flexibility, efficiency, and
sustainable long-term performance: an application of data envelopment
analysis and relative variety analysis. International Journal of Business
Excellence, 27(4), pp.529-554.
Caiazza, R., Cannella Jr, A.A., Phan, P.H. and Simoni, M., 2019. An institutional
contingency perspective of interlocking directorates. International Journal of
Management Reviews, 21(3), pp.277-293.
Chung, W.H., Kao, S.L., Chang, C.M. and Yuan, C.C., 2020. Association rule
learning to improve deficiency inspection in port state control. Maritime
Policy & Management, 47(3), pp.332-351.
Maples, A., Hodson, A. and Jone, M., 2020. Exploring the effectiveness of using an
extended case study in the teaching of taxation. Journal of the Australasian
Tax Teachers Association, 15(1), pp.198-231.
Hull, F., Reynolds, D. and Sullivan, J., 2020. Going it alone. Construction Journal,
pp.12-15.
Rouhani, O.M., Geddes, R.R., Do, W., Gao, H.O. and Beheshtian, A., 2018.
Revenue-risk-sharing approaches for public-private partnership provision of
highway facilities. Case Studies on Transport Policy, 6(4), pp.439-448.
Rouet, G. and Côme, T., 2019. Organisations and Resilience: What Relevance for
the Eastern Partnership?. In Resilience and the EU's Eastern
Neighbourhood Countries (pp. 293-317). Palgrave Macmillan, Cham.
Tricker, R.I., 2019. The Evolution of the Company—how the idea has changed.
In Corporate Governance (pp. 1-22). Gower.
McCouch, G.M., 2021. Family Limited Partnerships, Bona Fide Sales, and
Inadequate Consideration. ACTEC LJ, 47, p.247.
Mancuso, A., 2019. Your Limited Liability Company. Nolo.
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