Key Sources of Laws for Business Organisations in the UK
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This report describes the key sources of laws as the legal context for business organisations in the UK, covering different types of businesses such as sole trader, partnership, limited liabilities and general partnership.
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Business Management BMP4002Business Law Assessment 2 Report describing the key sources of laws as the legal context for business organisations in the UK Submitted by: Name: ID: Contents 1
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Introduction [Introduce the report signposting key points to be covered in the report.] The business law in UK is formed under the Companies Act 2006. The law is dividedintotwopartscorporategovernancewheretherightsofshareholders, stakeholders, employees and directors are consider. Whereas, the other part is corporate finance considers the two money raising options such as equity finance anddebtfinance.Thetermbusinessmanagementincludesdifferenttypesof businessactivities,organizing,planning,staffing,directingandcontrolling.The present report is also comprises of the nature management, liabilities, director roles, duties, memorandum of association and article of association of Sam Operates which is a sole trader company.The report will also cover different types of businessessuchassoletrader,partnership,limitedliabilitiesandgeneral partnership. Businesses & Organisations in the UK [Explain nature and management of a company - different types of law, Business transactionsmanagementofacompany;Vicariousliability;Businessliabilityin negligence;Directors’roles,liabilitiesandduties;TerminationofPartnership; Memorandum of Association (MOA); Articles of Association (AOA).] IOM Solutions operates is a sole trader company deals in electrical parts to local garages. The company is owned by Sam who is running IOM solutions since eight years. From the past two years Sam found out that the company's market demand is increasing which encouraged him to expand his employee strength. Sam is a single owner of the company so he handles the overall management and working of the enterprise. As a sole trader is a self employed person who is the owner of the company. All the profits and risks associated with the company are earned and bear by the owner. Asoleownerfirmastofollowmanyrulesandregulationswhichare mentioned below: If a sole trader is earning£1,000 every year then he has to invest in 2 national insurance payments to qualify different benefits and he has to prove that he is self employed to claim tax free childcare. 2
It is mandatory to record the working of business and expenses The owner is liable to file a self assessment tax return in every accounting year. To manage the business transactions the sole owner uses a separate banking arrangements. The account holds all the details about the business such ashow much money the business is paying to its suppliers, how much money is earned by the firm and how much is spend in other expenses of the company. The separate account helps the owner in maintaining books of accounts and invoices. Vicarious liabilities in English law is a doctrine of English tort law which states that the the employer is responsible for the wrong doings of the employee, if employee is performing his duties and any mishap happened then employer will be liable for the act. This type of liability is usually faced by the sole owners. The owner of the firm holds unlimited personal liability. There is no legal difference between the owner of the firm and the firm itself. It states that the creditors and other individuals who have claims against the owner can reach onto both, business assets and personal assets of owner. The sole owner of the firm performs different managerial roles by filing the paperwork, raise the fund as per requirement through different medium, take all the decisions, maintain accounts and like wise. The owner has to be optimistic to see the bigger picture of the firm. It is the responsibility of the owner to define the vision and mission of the company. He also make a futuristic blueprint of the company which contains all the goals and objectives that a business firm is planning to achieve. The partnership agreement can be terminated through 5 ways - The firm is getting dissolved by agreement. Dissolution of the firm by issuing a prior notice The expiration of partnership contract Dissolution of firm by the order of court A Memorandum of Association, often called as MOA is a legal statement signed by the shareholders and guarantors of the company. A Memorandum of Association is necessary while registering the company in the companies act. The 3
statements holds the names of the company founders. The MOA is prepared in a standard format. The Articleof Association, oftenknownas AoA. Itis alegal statement prepared in a specified format. It acts as a guide for the owners about how a company is to be run. Company specifies its rules, regulations and policies in this document. The legal business structure of UK companies Sole Trader [Provide definition and explain formation, taxation, lability, dissolvent and Advantages & Disadvantages.] A sole proprietorship is a simplest business structure. In UK, both the persona and the firm are same. There are some extra paperwork required in case of sole proprietorship. In case of sole proprietorship the owner is responsible for all the profits and the losses and the owner manages all the mishaps single-handedly. The enterprise can be formed with an idea only. It is not necessary to register a sole proprietorship firm in United Kingdom. Tu register a company the owner needs to- keep a track of sales and expenses of business File a self assessment tax return in every accounting year Pay taxes on income earned And it is must to have a national insurance number The basic drawback of operating a sole proprietor business is the liabilities associated with the firm. The owner is responsible for the losses and debts of the business personally. Any mishap with the owner effects the firm. The sole proprietorship firm can be dissolved through three mediums- Owner's decision Death or disability of the owner 4
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Bankruptcy The sole proprietorship business has certain advantages such as- The owner is a sole boss All the profits earned are kept by the owner himself Low startup cost Maximum privacy business establishment is simple The sole proprietorship business have some disadvantages also- Unlimited liability Includes a lot of responsibilities Hard to take off Any mishap from the side of owner affects the businesses General Partnership [Provide definition and explain formation, taxation, lability, dissolvent and Advantages & Disadvantages.] A general partnership is type of company in which two or more persons come together to form a company. All the involved partners share assets, profits and liabilities. It is a jointly owned business(Yatsechko, 2020). In a general partnership firm all the partners also share unlimited liability. Theformationofapartnershipfirmisbasedonaprocedurewhichis mentioned as- The partners come together to choose a name of the firm Register the firm with the chose name with companies house Decide the designation of the partners and their share in the company Unlimited liability partnership firm agreement formation and submission 5
In general partnership firm the taxes are not filed the side of the company whereas the partners are responsible to file their taxes of their sides. For this reason the partnership firms are known to be transparent in tax purposes. The significant advantages of a partnership firm are- It supports quick decision making as the decisions are taken by the partners only It easy to start, it can be start with a online registration through partnership firm registration. All the partners are supported by the employees and other partners so people expertise in running business. Easy fund arrangements Low registration cost The significant disadvantages of a general partnership firm are- Sometimes partners may not agree on the same decision which can delay the decision making process. Not a separate legal entity disruptions can caused by misunderstanding Partners have to share profit Partnership [Provide definition and explain formation, taxation, lability, dissolvent and Advantages & Disadvantages.] The partnership firm is made up of two or more than two people. The firm is made up general partners and limited liability partners(Yin and Burke, 2020). The general partners runs the business whereas the limited partners do not take interests in operations of the company. The limited partnerships are governed by limited partnerships act 1907. in limitedliabilitypartnership,thepartnersarenotagreedondoingdaytoday 6
operations of the company but they agree on contributing a certain amount of fund. This type of partnership firm is a combination of both the traditional partnership firm and a company. At the time of insolvency the company has to follow a certain process which is- Application for initiating the process Interim moratorium Appointment of resolution professional A report need to be submit by resolution professional Decision of higher authorities Moratorium period Issue of a public notice and invitation of claims for money from creditors Register claims Prepare a list of the creditors requesting for claim Plan repayment Report by resolution professionals on repayment plan Calling for meeting to the whole committee of creditors Approve the repayment plan from the creditors Report of meeting there are significant advantages of partnership firm- Generous amount of amount contribution Limited partners faces limited amount of risk and losses Shared work The significant disadvantages of the partnership firm are- 7
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Lossforgeneralpartnersastheyhavetobearmoreriskindebtsas compared to limited partners Decision making is not in the hands of limited partners Limited Liability [Provide definition and explain formation, taxation, lability, dissolvent and Advantages & Disadvantages.] Acompanyisaseparatelegalentitywhichisformedbyagroupof individuals. A company can be divided in many ways which are divided on different basis such as ownership, structure, financial reporting, number of people involved in a business and profit earning. The procedure for registration of a company is- Choose the structure of the company Register the name decided Select a formation package of the company which is already set by the UK government Enter the information of the company Allocate the shares of the business Prepare MoA Prepare AoA Submit all the documents There is a certain procedure of tax filling in UK. The current company tax on income and capital profits is 19% which can be increased to 25% till 2023. The corporation tax is to be paid after nine months from the end of accounting period (Chortok,YevdokymovaandSerpeninova,,2018).Thetaxiscalculatedafter deducting certain reliefs and allowances which are incurred wholly and exclusively. The significant advantages and disadvantages of a company are- 8
The liability of the shares holders are limited to the face value of their shares and guarantee given by them The company has its own perpetual existence The management of the business is in the hands of the directors There is no limit set for the expansion of the company The shares are transferable and the owners can sell their shares at any time whereas some disadvantages are- There is a lack of secrecy as a company is formed with the contribution of a lot of members There are certain types of restrictions imposed on the working of the company Sometimes the hired employees do not take personal interest in the goals of the company Recommendations for IOM Solutions [A recommendation of the most suitable organisation type for Sam to choose for IOM Solutions.] IOM solutions is a sole proprietorship firm and facing a hike in the demand of products and the company is also demanding a hike in work force to full fill the market demand. Sam is the owner of the firm. To make the business successful it is recommended to IOM Solutions to covert the sole proprietorship business into a general partnership firm(Mezzarobba, 2019). Involving one or more than one partner will help Sam to full fill the demand with more efficiency and the partner will come with new ideas which can be useful for the business. Aft5er the involvement of partners the risk will be divided, more funds will be available as well as the losses will be shared in between all the partners. After studyingtheworkingandproblems facedby Sam in runningIOM Solutions can be solved by changing the firm into a general partnership firm. Conclusion 9
[Summary of analysis] From the abovereportit is concludedthat, for IOMsolutions it willbe beneficial to convert the firm from a sole proprietorship firm to a general partnership firm.Therecommendationisgivenafterstudyingtheformation,taxation, advantages, disadvantages and about the sole proprietorship firm as well as general partnership firm. The report also includes about the limited liabilities partnership firm and a company(Hnedina, K.V., 2019). The report includes about partnership and company, their formation, tax filing procedures and their advantages as well as disadvantages. REFERENCES Online and journal Chortok,Y.,Yevdokymova,A.andSerpeninova,Y.,2018.Formationofthe mechanismofcorporatesocialandenvironmentalresponsibilityofthe tradingcompany.JournalofEnvironmentalManagement&Tourism,9(5 (29)), pp.1011-1018. Hnedina, K.V., 2019. Strategy: Essence, Advantages, Methods and Techniques of Formation.Бизнес информ, (2), pp.14-20. Mezzarobba, V., 2019. The valuation of a multinational company and its advantages. Yatsechko,S.S.,2020.Buildinganinstitutionalmodelofinteractionbetween government and business in public-private partnership. InGrowth Poles of the Global Economy: Emergence, Changes and Future Perspectives(pp. 709-716). Springer, Cham. Yin, G.K. and Burke, K.C., 2020.Partnership Taxation. Wolters Kluwer. 10