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Legal Aspects of Business in the UK

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Added on  2021-06-17

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LEGAL ASPECTS OF BUSINESS 4 LEGAL ASPECTS OF BUSINESS Task 1 The United Kingdom has ranked as the seventh most business-friendly environment where businesses can expand and sustain their future growth (Doing Business, 2018). The section 1 provided that a partnership is referred to business relationship between two or more individuals for carrying out the business in common for generating profits (Legislation, 2018a). Its disadvantages include lack of separate personality, disagreement leads to the dissolution of entire partnership and informality in case a

Legal Aspects of Business in the UK

   Added on 2021-06-17

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Running head: LEGAL ASPECTS OF BUSINESS0Legal Aspects of Business
Legal Aspects of Business in the UK_1
LEGAL ASPECTS OF BUSINESS1Task 1The United Kingdom has ranked as the seventh most business-friendly environment wherebusinesses can expand and sustain their future growth (Doing Business, 2018). There arethree types of business structures operating in the UK which include sole trader, partnershipand limited company. Each of these structures has different advantage and disadvantages.Two of the most common and popular forms of business structures in the UK are unlimitedliability and private limited companies. This essay will focus on analysing the elements ofthese two structures by referring to relevant legislation and case laws. A partnership arisesbetween two or more individuals when they enter into an agreement to co-own and share theprofits of losses of a business. In the United Kingdom, the Partnership Act 1890 (PA)provides provisions regarding governance of partnerships. The section 1 provided that apartnership is referred to business relationship between two or more individuals for carryingout the business in common for generating profits (Legislation, 2018a). There are three typesof partnerships which include general or unlimited partnerships, limited partnerships andlimited liability partnerships (LLPs).The advantage of the unlimited partnership includes lack of formality, confidentiality ofdocuments and easy to form by written, oral or implied by conduct. Its disadvantages includelack of separate personality, disagreement leads to the dissolution of entire partnership andinformality in case a partnership agreement is formed between partners. The first element ofpartnership is a relationship between individuals. In Joyce v Morrissey (1998) TLR 707 case,a dispute arises between band members regarding sharing of profits (Cox, 2012). The bandmembers did not consider that they were in a partnership, however, the court held that apartnership is established because a relationship is created between parties. This case showsthat relationship between people is an essential element of partnership. Another essentialelement of a partnership is that parties must enter into a relationship to carry on a business.Section 45 of the PA 1890 provides that a business means trade, occupation, and profession.In Mann v D’Arcy (1968) 2 All ER 172 case, D was in a partnership with two individuals,and he was the active partner. He formed a joint venture with M to purchase 250 tonnes ofpotatoes. The question arises other partners are bound by this joint venture (Duncan, 2012). The court held that the joint venture was a usual way of carrying out the business hence otherpartners are bound by its terms as well. The third element is “in common” which was
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LEGAL ASPECTS OF BUSINESS2explained in Saywell v Pope (1979) STC 824 (Ch) case. In this case, the court held theintention of parties to create a partnership agreement does not create a partnership becauseparties were not running business in common. Similar judgement was given in StrathearnGordon Associates Ltd v Commissioners of Customs and Excise (1985) VATTR 79 case inwhich the court rejected the argument that the consultant is partner of Gordon because hepaid share of profit in some projects because there is lack of business being carried out incommon (Bull, 2011). The fourth element of the partnership is “with a view of profit”. In MYoung Legal Associates Ltd v Zahid Solicitors (A Firm) and others (2006) EWCA Civ 613case, the court held that a person can be liable as a partner if rather than receiving a sharefrom the profit, he/she is paid a specific amount by the firm for the work done by him for thefirm’s behalf (Morse, 2010). Hence, it can be concluded that present for all essential elementsis required to form a partnership.The Companies Act 2006 (CA) governs the provisions regarding a private limited company.Section 4 of the Act defines a private limited company that is not a public limited company(PLC), therefore, it is important to understand the key difference that separated an LTD fromthe public limited company (PLC). The shares of PLC can be bought and sold, and list on astock exchange whereas shares of LTD are sold to close friends, and they cannot be list onthe stock exchange. Section 9 of the act provides provision regarding registration document.Section 10 regarding statement of capital, section 11 regarding statement of guarantee,section 12 regarding statement of proposed offers and section 13 regarding statement ofcompliance (Legislation, 2018b). Section 9 provides that an LTD is required to create amemorandum of association and article of association. The article of association is a crucialdocument because it sets out the basic structure of management and administration in thecompany which assist in regulating its internal affairs and it provides terms which arenecessary to be followed by directors while taking business decisions. A company isincorporated after its registration, and its effect of incorporation include the ability to performfunctions as an incorporated company, subscribers of memorandum becomes members, legalstatus in the eyes of the law, subscribers of memorandum become shareholders, and directorsor secretary are deemed to be appointed to that post (Sheikh, 2013). As per section 59 of CA 2006, the name of a private limited company must end with ‘limited’or ‘ltd’. An LTD as separate legal personality and its members’ liability is limited. A limitedcompany has a corporate personality which is separate from its shareholders and members.An LTD has perpetual succession which means it continues to exist irrespective of the fact
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