Law for Business Managers: Forms of Business, Contract Law, and Director Duties

This guide provides a comprehensive overview of law for business managers, covering the different forms of business, contract law, and director duties. It discusses the advantages and disadvantages of sole proprietorship, partnership firm, limited liability partnership, and limited company. It also explains the essential elements of a valid contract and the duties of a director under the Companies Act of 2006.

LAW FOR BUSINESS
MANAGERS

Table of Contents
INTRODUCTION ..........................................................................................................................2
PART 1:......................................................................................................................................2
PART 2:......................................................................................................................................6
PART 3:......................................................................................................................................8
CONCLUSION ...............................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Business law which is also termed as Commercial or Mercantile laws, is a cluster of which
regulates the transaction which arises between several companies and individuals. The enactment
of such laws can be done in a way of agreement, convention and both national and international
legislations. It governs the various aspects of business such as transactions involved in trade,
rights and duties of respective person and liabilities, etc. moreover, there lies various forms of
business, which are, partnership firms, sole proprietorship and companies having limited liability
models(Aizenberg and Hanegraaff, 2020). The report is going to cover the various form of
business which are available in the market along with their advantages and disadvantages. Also
an attempt has been made with respect to the given case studies in order to evaluate the elements
of contract law. At last, the report will provide the brief overview on the duties of directors.
MAIN BODY
PART 1:
It has been observed that there exists certain responsibilities and rights which are required
to be carried on by the level of management in order to have effective functioning of the
business. Companies directs with the aims of producing and selling their goods and services in
order to have the profits. Business law is a legal tool which implies certain obligations on the
companies to perform in a certain manner. The ascertainment of proper form is thus very much

required by any individual before stating or expand his business. For the given case study of Gina
and Mary, the most appropriate form which will reward m,maximum profits and security is of the
limited company business model. The various form are as follows-
Sole proprietorship: This form is also known by the name of sole trader and self
employment. Here, owner is the only individual who takes care of all the activities related to
management and control of the enterprise (Barnett, 2021). It is considered as one of the most
simplest type reason being its process of incorporation and sole control in the hand of one
person that is the owner. Also one enjoys the perks of having entire profits all alone. But on the
other side other than the profits, being the single owner, liabilities at a certain point of time can
become a burdensome task and thus it can lead to increase of personal risks. Some of the
Advantages of sole trader are-
 proprietor can himself be the sole owner of the business,
 there lies minimum requirement for incorporation and establishment,
 the tasks of control and management are comparatively easier than the other forms,
 there lies simple procedure with respect to the taxation.
Further disadvantages are-
 one has liability of unlimited nature,
 no availability of time for personal recreation activities,
 business related activities sometimes can become headache for single person,
 the combining of personal assets to that of business assets creates a chaos for the sole
trader leading to the result of unlimited liabilities and debts.
Partnership firm: When two or more individual come together bearing a common
objective, with an aim of earning certain profits out of the said arrangement is defined as
partnership firm. The Partnership Act of 1890 is the main legislation which govern the
partnership firms (Bennett, Smith and Montebruno, 2020). All the said profits and liabilities are
shared among all the partners in equal ratio and also are bound to entertain the obligations and
duties which are required for the running of a business. As it is a cluster of various people, all
possessing some different qualities results in the successful performance which ultimately leads
to maximum profits. The Advantages of this form are-
 No individual liabilities as they are equally shared among all the partners,

 the capital can be managed easily as per the requirements,
 varied experiences and skills of partners creates a high calibre management for the
company,
 there lies the distinction between business and personal affairs,
 individual can have his own space while having the control over management.
The Disadvantages are-
 the company need to face the stage of dissolution if there occurs the death of any of the
partners,
 there lies the possibilities of disagreement among the existing partners which ultimately
leads to delayed decisions and hence slowdown in growth,
 the accountability of members increases as there prevails the concept of unlimited
liability,
 lack of direct control over the affairs of business as it includes the involvement of various
members.
Limited liability partnership: In this type of business form, which is somewhat similar to that
of earlier one, the duties and responsibilities are shared equally among all the members that is
partners of the company. The major point of difference is that the liabilities are shared in the in
the ratio in which the capital has been invested by each individual (Bhattacharya, 2020). The Act
of limited liability of 1907 is the legislation which governs this form of enterprise. Moreover, for
the legal existence of the business it is required to be get it registered in the house of companies.
Here the partners are entitled to have a separate liability with respect to their own part of
misconduct and faults. Some of the Advantages of this form are-
 there lies the concept of perpetual succession,
 there is no prescribed limit for minimum capital,
 comparatively the registration charges are much more less than the other form ,
 no such before mentioned limit for number of partners,
 the personal or individual assets are protected from that of the companies liabilities.
Further the disadvantages are-
 the process of dissolution of company comes in to effect if there stands the case where
one of the partner leaves the company,
 the accounts of the company gets publicly disclosed by the house of companies ,

 when there stands the case where members fails to comply with the regulations for
which they have been penalized.
Limited company: The Companies Act of 2006, is the legislations which regulates and govern
the registration of these sort of companies (Cribb, Miller and Pope, 2019). Here the business is
run by the directors and owned by the shareholders of the company. Also as firm enjoy s the
status of separate legal entity, the rights and liabilities of both company and its members are
individually ascertained. Moreover, the act also codifies various duties of directors which in
case of non compliance creates a legal obligation on them. Also this form of companies can be
created by both means as limited by shares and by guarantee. The Advantages of this form are-
 shareholders are entitled to entertain the limited liability,
 company enjoys the status of separate legal entity,
 there lies the flexibility in the process of incorporation,
 the personal assets of the individual are secured as there exists the bifurcation with that of
the company assets,
 the status and professional image of the business helps in creating a good impression in
the market as an established company.
Moreover, the disadvantages are-
 in comparison to other types the setting up of a company is a bit tangled and lengthy
task,
 because of the name of the firm there can rise certain restrictions and limitations,
 also the task of keeping the accounting financial records is a time taking,
 in order to withdraw the money from business, one needs to follow the strict procedures,
 the regular public inspection of the company sis required to be maintained.
Recommendations:
For the given case scenario, the best business form which suites the requirements of both
Mary and Gina is of the Limited Company model reason being several benefits attached to it.
Moreover, as Gina prevails the history of certain unpaid debts, this form of company makes,
because of its tax efficient nature the better option (Hemingway and Gunawan, 2018). Also, in
this it is comparatively more easy to create the required capital. Also the personal assets and

finances of the individuals are also secured while keeping their interest protected. Further, the
identification of a company as a separate legal entity provides the ease of taking certain legal
actions. Therefore, after seeing all the aspects, it is recommended for Mary and Gina to go ahead
with the option of Limited company as a form of their business.
PART 2:
Creating a contract in any organisation helps a business or company to act smoothly and
run effectively for its success in the longer run. An agreement binds businesses which is also
called as contract. This contract includes promises and obligations between the parties which
makes it lawfully binding. Contract law of UK governs the contract between the parties in the
business environment. This agreement is a promise enforceable by law which has the statement
of terms and conditions are needed to be followed by the parties who form the contract.
Something of value is exchanged between the parties as a form of consideration in the interest of
the parties making it legally binding (Hoekstra, 2021) . A contract can be written or orally
discussed. When it is created people agree on a common point thus forming an agreement. A
contract formation cannot take place without it being binding in lawful way. Thus the provisions
of contract law govern the case of Catherine who wanted to buy a guitar and so went to a shop
with the aim of purchasing it but due to the circumstances wants to know if a valid contract was
formed or not.
Let us see the essential elements for framing a valid contract:
OFFER- A party begins with a proposal of an offer to the other party for the formation of
contract. The offerer offers the statement of terms and conditions of contract. The party to whom
the offer is made is the offeree. Expression of the terms willingly by the party so that the other
party accepts and recognises it is the aim of the offer. Legal obligations are created on the parties
when the parties accept and recognise it.
ACCEPTANCE- When the party consents and agrees to the terms of the offer by accepting it,
the contract is said to have formed between the parties. The assent is expressed in the contract by
the party to whom offer is made(Olalere, 2018). Legally effective agreement is made when this
condition is fulfilled. But it is necessary that the communication of the acceptance happens by
communicating it to the offerer.

CONSIDERATION- A contract is said to be incomplete when consideration is not involved in it.
When the consideration is fixed it makes the contract binding. It is the general inclusion of
something of value which is exchanged between the parties to enforce any obligation or promise
that is made when the contract is formed. Generally consideration is monetary in nature in the
contracts.
INTENTION- Legal intent is necessary for a lawful relationship to be formed in a contract when
the parties form it. The lack of legal intention in the social arrangements is the reason why they
are not called as contracts. This clearly implies that legal intention is an essential requirement of
making a contract.
Invitation to Treat- when a party doesn't make an offer directly but invites other party to
make an offer that is termed as Invitation to Treat. Intention plays the role of the factor which
makes the determination if there is an offer or Invitation to treat by the party. All types of
advertisements and displays are the included in the Invitation to Treat. When the offer is made as
a general invitation then it is included under this title. Offers, tenders, display of goods, ads also
these form the part of an invitation. Offers are invited with the help of these thus they can be said
as Invitation to Treat (Singh, Lin and Ye, 2021). In the famous case of Spencer vs Harding it
was held by the court that tender is not an offer but merely should be treated as an Invitation to
Treat. Here the defendant had ordered to sell a stock by tender. The court said that in this there
was no promise that the stock will be sold to the highest bidder and thus no contract is said to
have been made because the defendant can accept the offer or reject it. It is all in his hands when
there is Invitation to Treat.
Thus in the given case scenario 2 of Catherine, when the guitar was placed by the
shopkeeper in the shop with a price tag it was merely an Invitation to Treat and not an offer.
Catherine willingly entered the shop with the intention to buy the guitar and make an offer of
consideration. She cannot hold the shopkeeper responsible for the wrong information on the
price of the guitar because of the sole reason that there was no formation of a valid contract
between the parties. Validity of any contract cannot be questioned until it is formed. So the final
decision of making a contract rests with the shopkeeper(Adekemi, 2018). Thus it is clear from
the given scenario of the case that a valid contract was not made between the parties it was just
an Invitation to Treat by the shopkeeper.

PART 3:
Companies in the United Kingdom are governed by the Companies Act of 2006. It lays
down the standards and provisions which determines the role, duties and responsibilities of a
Director which he should perform with intention while working in a company. This is the reason
that this legislation becomes important when a company is formed to govern its members. From
this act the Director derives its authority to act on behalf of the company for its success in the
longer run and thus this legislation acts as its source of power (Zhao and Wen, 2018).
The duties of the Director are :
 Work towards making the performance of the company successful- Act of fairness
and good faith is expected from the Director when he is performing his duties towards the
employees and clients on behalf of the company. He has to ensure that the company
grows and develops and make sure that it benefits for a longer term. All the
responsibilities given in the legislation should be followed by the director with good
intentions. But when they do not act with honesty and do not follow the procedures
prescribed then they have to face consequences in the form of penalties. Thus they should
ensure that they work in the best interest of the company.
 Act within the authority- Every director is expected to act according to the legislation
and according to the rules of the constitution of a company. They are bound in their
powers given by the Memorandum of Association (MOA) and Articles of Association
(AOA). The director has to face consequences and penalties if they act outside their
authoritative power (Vačoková, 2018) .
 Duty to act independently on behalf of the company- The director has to make
decisions and take independent decisions. Those decisions should benefit the company
and make it even more successful with time.
 Director to possess skills, care and diligence while acting in his duties- Every director
has the duty to act in a certain manner on behalf of the company but that should be
according to the procedures of a company which a normal diligent person would
act(Whyte, 2018) . The director must see to it that the director's best interests are
achieved with the fulfilment of the goals and objectives which can happen with the usage
of the skills, experience, care, knowledge and diligence by the director.

 Duty to avoid and resolve conflicts that arise within the company- The director must
work towards resolving disputes in a timely manner which arise within the premises of a
company between the employees and members so that they work with ease at the
workplace.
 Duty not to accept favours from third parties- Accepting benefits is treated as a
wrongful conduct because it is perceived to be for the personal gain of the director thus
he must not accept benefits from the other company while acting on behalf of the
company.
 Duty to make proclamations of the interests in the proposed arrangement- The
director must make the declaration if he has any interest in the company's proposed
arrangements(McCracken, McIvor, Treacy and Wall, 2018).
There are certain liabilities which must be observed by the director while acting upon his
duties and responsibilities due to the reason that how the third parties are affected when the
director acts outside his authorities and power. There are certain situations when the liabilities of
the director arise they are that they will be held responsible if they act dishonestly affecting the
interests of the company. They can be held liable for breach of fiduciary duty and thus end up
hurting the third parties who can be clients of the company. The other situation is ultra vires act
when they act outside the limits of their authority. Negligent act is conducted by the director
when he does not act with due care and diligence. The director can be made liable for breach of
trust of the company members due to malafide intention and wrongful conduct (Jaffey, 1975).
There is no personal liability but directors have liability towards third parties on behalf of the
company. The post of director has to perform common law and statutory duties. If the company
suffers due to the personal gains and unethical behaviour of the director then thy can be sued by
the company. Injunction can be ordered by the court in which the director might be asked to
refrain from doing certain activities which might badly affect the company or the third party thus
the director must not act outside his authority or powers prescribed for that post.
CONCLUSION
It can be concluded by the project that business law helps to manage the affairs of a
business environment in a well mannered way. Contract law on the other hand governs the
agreements created in a business. The daily management of a business is easier with the help of

these laws because these laws define the roles and responsibilities of the members of the
business for their smooth and effective functioning. A contract law is defined by its essential
elements which help in making a valid contract. Companies on the other hand are governed by
the Companies Act which defines the duties of the director and the responsibilities they have
towards the company.
REFERENCES
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Study of UK Listed Companies (Doctoral dissertation, University of Essex).
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Responsible Firms, or a Mechanism to Enrich Already Rich?. Available at SSRN
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