Types of Business with Legal Consequences and Recommendation
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This report evaluates different types of businesses, including sole trader, general partnership, limited liability partnership, and more, based on their legal structure and nature. It also recommends a suitable business structure for IOM solutions.
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Table of Contents INTRODUCTION..........................................................................................................................2 TASKS.............................................................................................................................................2 Types of business with legal consequences and recommendation..............................................2 REFERENCES................................................................................................................................9 1
INTRODUCTION In order to start and expand any business in the economy, businesses are required to be follows several legal legislature and structure to establish their operations. The business structure that choose by the individual and group influences every aspect. From daily operations to taxes slabs and the risk of personnel assets that incurred due to structural nature of business.The report is going to highlight the sources of law, business transactions, the nature and management of a company, the concept of business liability in negligence, the vicarious liability of an employer and also individual employment rights. The report is further going to explain the various types of business organisations are potentially available in terms of reorganising. It also provides the explanation with a recommendation of the most suitable organisation type for thechoose situation. TASKS Types of business with legal consequences and recommendation Sole trader The sole trader is the person that runs the business on their own. They have the complete rights to take the decision for the their business operations. It include as an separate entity that performs all the business functions on their own. The mentioned business structure did not require any legal formalities to them in the legal house. Their is no evolvement of any partners in regard to the business functions. As only the sole trader is responsible for all business actions in their business(Vu, Phan and Le , 2018). Taxation The taxation Criteria implied on the sole trader businesses in the UK are listed in the below discussion. Personal allowance-First£12500 are tax free for sole traders. On the income of above £1,00,000 these entities loose the 1 on their personnel allowance on every earning of£2 Basic tax rate-1-£37,500 (after taking off personal allowance) = 20% tax Higher rate tax:taxable income over £37,500 = 40% tax Liability 2
The mentioned business identity faces the unlimited liabilities due to the business structure. The sole trader have the risk of their personnel assets in order to pay the debt to their creditors. Therefore the risk of bankruptcy is way much higher in compare to other legal structure. Dissolvent-As there is no legal documents included in starting the business such as registration of business. Therefore these type of business entity can be dissolved easily without any concerns in the business operations. The sole trader need to just maintain their record for the further tax assistance as well as they need to clear of all the debts before dissolving their business operations. Advantage-The above discussed business operations don't need any heavy investment in compare to other legal business structure. The owner can take any decision regard to the business operations as well as there is no distribution of profits without any splits. Disadvantage -then sole trader faces the unlimited responsibility due to its solo entity as well as all the decisions and business operations were followed by the single entity. The sole trader works hard in order to operates its business activities more effectively(Taylor, 2020). General partnership The general partnership is the practices in which two or more partners agreed to split their assets and liabilities according to their mutual concerns. it includes all the losses, profits as well as other business functions. The discussed business entity provides the advantageous to the indulged partners to become more flexible and functions in order to perform the functions more effectively In the operational market. Through, the mutual concerns between the decided partners a partnership agreement created in such business entity. This type of business structure requires minimum two peoples in which the deed can form. Taxation In the above mentioned partnership the tax is not implied on the business operations. The taxes implied on all the business partners. The share of taxes in split according to the share of partners in the business functions. In regard to this the income of general partnership is conclude as an self employment income. Dissolvent-TheCreatedpartnershipcanbedissolveifanypartnersexiststhebusiness operations of firm. Any conflicts as well as changes in the relation of the partners can also arise the situation of dissolution in the business operations. In dissolution the business all the partners 3
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have to be wind up all the business functions regard to the debt repayment as well as all the legal documentation. The entities indulged with business functions need to prior notified relation to the dissolution as well as their concerns is required(Slijepčević, 2019). Advantage-The mentioned partnership conclude as an less expensive in order to the formation. It also required the minimal paperwork to create the effective partnership. This is more compliance because there is no need to maintain or showing the annual reports ofbusiness operations. Hence it gives the advantage in order to maintain the privacy in the business operations. The tax segmentation is also simplified without any complexity. The dissolution is much faster and simplified due to no paperwork requirement in the functions. Disadvantage-The action of other partners can easily impact the all the partners by an individual decisions.The individual cannot take the decision regard to the business. Hence, the mutual concern is needed in implying any decision in the business operations. Due to such functions the formation of implying of new activity takes time. Through, the mentioned structure money cannot by raised from the investors for developing the business operations. Hence, enhancingthebusinessoperationsthrough,thefundingcannotbepossibleindiscussed partnership. Businesses & Organisations in the UK A company is an formation of two or more persons that performs the operations in order to generate the profit. A company is said to be a separate legal entity in which business has its own identity as compared to the partners. There are different type of business entities such as publiccompany,privatelimitedcompany,soleproprietorship,limitedliabilitycompany, partnership as well as one person company. The vicarious liability is know for the no fault liability in which one person action or decision liable for the result of other one. In the company functions any decision or act of single partner reflects on all the partners as well as on the operations of the company. Vicarious liability is the aspect in which a company fails into perform their responsibility in regard to their operations due to this company face the financial loss and operational damage(Kohler, 2019). The role of director in the company is to manage and evaluate the operational task of company in an effective manner in order to gain the desired result according to the set of company goals. Director is liable of Any losses and project failure in company operations. 4
The termination of partnership is known for the dissolution of partnership and relation between the partners. After the termination of partnership all the assets, liability of business is disposed off. Amemorandumofassassinationthelegaldocumentthatcreatedatthetimeof registration of a company as well as article of association is a legal document that used by the company in order to classify their rules and regulation. Partnership The partnership is the formal practice of arrangement that is performed between the two or more individuals in order to perform the functions of business to ascertain the desired level of goals in the market. In such partnership arrangementall the owners are responsible for each other's operations. The decision taken in this type of partnership are performed with the help of mutual understanding or voting rights. All the assets and liability are distributed among all the partners according to the agreement. It requires the different taxation number as well as all the partners get the tax benefits also. At the time of dissolution the business partners need to wind up all their affairs and notify all the interested entities in the partnership agreement(Kay , 2021). Taxation The taxation slab in the partnership does not implement on the above explained business type. In partnership,the partners are required to pay the the individuals taxes as per their share in the business operations.According to the allocated share of profits partners pay out their taxes. Dissolvent The dissolution of partnership can be perform due to several attributes which are explained below- Admission of a new partner Retirement or death of a partner Due to insolvency Change in any profit ratio 5
As per the partnership Act, 1932 the dissolution of the partnership between all the partners of the firm is known as dissolution of the firm.If any partner disagree or exit the partnership agreement the formed partnership dissolves. In relation to this due to bankruptcy of a partner can also dissolves the formed partnership as well as if a business involves new partner in the partnership then new partnership agreement is created which deployed the current formed partnership(Harding, 2021). Advantages The various advantages of the partnership are explained below- As the partners canbring cashinto the business that can help the investors to invest more in the business that will help to grow the business(Groves and Hillson, 2019). The partnership process is easy to from as well asless expensiveas compared toother business forms such as company, sole proprietor or LLP. All the decisions take in the partnership are done bymutual concernsof all the partners. All the profit and losses in partnership are shared according as per theirshare in the partnership agreement. Unlike the companies, the partnership do not need to disclose their annual report in the public. Hence this point plays a major role in business to create the greater option of privacy in their operations. The legal structure also can be changed easily according to the partnership requirement. Under partnership type of business, theload of work can be dividedamong all the members which can also save the time and can bring the positive impact on the partner's personal life. Disadvantages The various disadvantages of the partnership are explained below- All the partners work together and responsible for thebusiness debt that is one of the main drawback of partnership.Hence, if any mistake or error takes placethen all the partners will be help accountable for that in the business operations. The tax is charged as per the on the personal tax rate. For example, if business earning will increase so on the tax rate. 6
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Another disadvantage in partnership is that partners cannot transfer their individual ownershiptosomeoneotheroutsidethebusiness.Itrequirestheirconsentand consideration to transfer such ownership. Hence, any individual in partnership have no righttotakethedecisionwithoutconsiderationofallthepartners(ERWIN, ABUBAKAR and MUDA, 2018). Limited Liability The limited liability partnership is said to be a type of partnership in which business and partners are taken up as separate entity. The liability of all the partners in this structure are separate as well as limited. Due to this the partners are not liable to pay the debt to their creditor on the verge of their personal assets outside the business operations. Partners under this partnership shares the profit according to their deciding ratio. The number of partners can be extended without any limit. Taxation Partners in the mentioned structure pays taxes on their profit share not on business operations. Advantages No limit of owners in the business operations It requires low registration cost there is no mandatory requirement of audits The risk of Bankruptcy of partners is exempted in this type of structure Disadvantages one of the major disadvantage of LLP that analysed in the given report is higher tax rate as well as the partners in this type of structure have to be regularly posted their financial account in the public which shows the lack of privacy to the business operations. Recommendation According to the above discussion various legal structure were identified. All these structure showed the different business nature as well as entity in the structure. To perform the 7
functions more effectively and effectively in the target market every business need the perfect legal structure for their functions. In relation to this the limited liability partnership is the most suitable business structure for the IOM solutions. Hence through such structure the individual can easily enhance its business operations as well as expand its business process to several new region. Through, the involvement of number of partners in the discussed partnership the owner of IOM can engage number of partners in its business functions in order to take the effective decision of the business operations. Through such functions the mentioned business can also distribute its responsibility to perform more smoothly as well as they can easily raise the fund from the investors in order to enhance their business operations. Through, such discussed structure the complexity in business operations can also be eliminate easily as well as the risk of business failure will also decrease(Conant, 2018). Conclusion From the above report it can be concluded that there are different types ofbusiness which have differentlegal structure. In the above mentioned report the various businesses are evaluated on the basis of theirdifferent nature and entity of such structure. In order to start the business a favourable structure is needed to be followed as per the given situation. As in the above report various structure were evaluated that demonstrated the different natures and practices. In this given report all the four type of legal structure were discussed to proposed the suitable structure to IOM solution. It further explained the various recommendation that are required to be followed. 8
REFERENCES Books and Journal Conant, L., 2018. 6. Europeanization and the Courts: Variable Patterns of Adaptation among National Judiciaries. InTransforming Europe(pp. 97-115). Cornell University Press. ERWIN, K., ABUBAKAR, E. and MUDA, I., 2018. The Relationship of Lending, Funding, Capital, Human Resource, Asset Liability Management to Non-Financial Sustainability of Rural Banks (BPRs) in Indonesia.Journal of Applied Economic Sciences,13(2). Groves, P. and Hillson, E., 2019. Learning outcomes.Applied Paramedic Law, Ethics and Professionalism, eBook: Australia and New Zealand, p.291. Harding, T., Oetzel, J., Simpson, M. and Nock, S., 2021. Identifying the Facilitators and Barriers in Disseminating and Adopting a Health Intervention Developed by a Community– Academic Partnership.Health Education & Behavior, p.10901981211033228. Kay, R., Pahnke, A. and Schlepphorst, S., 2018. Business Transferability Chances: Does the Gender of the Owner-Manager Matter?. InWomen's Entrepreneurship in Europe(pp. 39-64). Springer, Cham. Khanchel, H. and Kahla, K.B., 2021. Partnership success factors: overcoming cultural misfit between tunisian SMEs and their french partners.Independent Journal of Management & Production,12(7), pp.1808-1835. Kohler, M.J., 2019.The Tax and Legal Playbook: Game-Changing Solutions To Your Small Business Questions. Entrepreneur Press. Slijepčević,S.,2019.Public-privatepartnershipinEurope:Comparativeandsectoral perspective.Journal of Applied Economic Sciences (JAES),14(64), pp.319-331. Taylor, A., 2020. Transatlantic Partnership: British Army Legal Services and the US Army Judge Advocate General's Corps.Army Law., p.2. Vu, M.C., Phan, T.T. and Le, N.T., 2018. Relationship between board ownership structure and firm financial performance in transitional economy: The case of Vietnam.Research in International Business and Finance,45, pp.512-528. 9