Key Sources of Laws for Business Organisations in the UK

This report describes the key sources of laws as the legal context for business organisations in the UK. It covers different types of company laws, business transaction management, liabilities and duties of directors, legal business structure of UK companies, and more.

BSc (Hons) Business Management
BMP4002 Business 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
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Introduction
Every company aim to expand their business internationally. Hence, a organisation
is required to scan their internal and external business environment to analyze the
opportunity for growth (Abuselidze and Katamadze, 2018). IOM solutions is a
company which sell electrical parts to local garages. Sam is the owner of this
business who found that the business has grown in terms of demand and
employees. The following report covers nature and management of a company like
different types of company laws, business transaction management of a company,
various kinds of liabilities like business liability in negligence, director's role, liabilities
and duties of director, termination of partnership, Memorandum of association and
Articles of association. The following report also covers legal business structure of
UK companies such as sole trader, general partnership, partnership and limited
liability. At the end this report will recommend a legal structure to IOM solution with
appropriate justification.
Businesses & Organisations in the UK
Nature and management of a company-
The nature of a company is that it is a separate entity from its owners and from other
members of the company (Nature of a Company: History, Meaning and Definition,
2021). Perpetual succession is another important nature of a company which states
that a company will never die or stop due to it's owners or members exit the
company. Corporate personality will identify that the company has its own name and
it can purchase the asset from its own name. It is essential to manage a company
and a company can be managed by effective planning, organizing, staffing and
controlling.
Different types of laws for a company-
 Equality Act 2010- This is the act which mentioned that there will no
discrimination at workplace. A employer or employees of the company are
supposed tom avoid discriminating any individual on the basis of skin color,
caste, religion, culture, appearance and many others.
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 National Minimum Wage Act 1998- This Act mentioned that the company
must offer at least minimum wage rate to their employees so that they will
fulfill their basic needs of life (A Comprehensive List of Employment
Legislation in the UK, 2020).
 The Maternity and parental Leave Regulations 1999- It consist that a
company must provide appropriate amount of leaves to the employees who
are going to become parents in near future. This leaves are considered as
paid leaves. Hence, a company is not allowed to cut the wages of their
pregnant employee during their maternity leaves.
 Health and Safety at Work Act 1974- According to this Act a company is
required to focus upon safety of their employees at workplace. A employer
must make sure that their employees will wear safety tool kit while working
with big tools and machines to avoid accidents.
Business transactions management of a company-
It is essential for a business to record only those transactions which are done inn
terms of monetary value and which is essential for organizational growth. The
transaction must be conducted on the behalf of the business entity and must avoid
the transaction for individual purpose (Business Transaction, 2022).
Vicarious liability-
This is the situation in which one party is partially responsible for the unlawful action
of a third party (Vicarious Liability, 2021). The third party who has done anything
unlawful will also carries share in liability of unlawful action. This is basically seen in
seniors position roles. For example, if any employee conduct any lawful action at
workplace like harassment then his employer/ leader/ manager has to answer the
above executives about the case and why it happen.
Director's roles-
Director is the person of the company who is responsible to make all important
decisions for organizational growth. There are various roles of a Director which are
mentioned below-
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 Agent- A director plays a important role as the agent of the shareholder and
make sure that company will enhance their performance for earning high profit
for shareholders (Armour and Sako, 2020).
 Employee- Director of a company is also the employee of the company.
Hence, the director plays the important role to manage their day-to-day
activities.
Liabilities of director of a company-
 Liability to stakeholders- The directors are not personally liable to the
stakeholders. The director will not pay their stakeholders from their personal
pocket in case of any loss. The director is only liable is the company has
conducted any fraud (Roles & Responsibility of Directors, 2022).
Duties of the directors-
 Directors have duty not to misapply company asset.
 They are not supposed to make secret profits.
 They have duty to attend all official meetings on timely basis.
 They have duty to make their confidential information safe and secure.
Termination of partnership-
It means that the partnership is getting dissolved due to various reasons like conflict
between partners, due to death of any partner or any others (Bruwer, 2019). While
terminating the relationship between partners the assets, shares and accounts are
settled as per the agreement of both partners.
Memorandum of Association (MOA)-
It is the legal document of the company which is prepared during formation and
registration of the company. It will further define the relationship between company
and stakeholders with all terms and conditions at which stakeholders agreed to come
in contact. It mainly identify the objectives for which the company has been formed.
Articles of Association (AOA)-
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It is the legal document of the company which defines the purpose of a company and
it further have the rules and regulations for it's operations (Articles of Association,
2020). This document covers that how the company will achieve their goal
effectively. It also include preparation and management of financial records.
The legal business structure of UK companies
Sole Trader
Definition- Sole trader or sole proprietorship is the legal business structure where
whole business is managed and controlled by a single owner. A single person
conduct whole business operations by their own and they also make decisions.
Formation- Sole trading business is formed by the owner. No legal formalities are
required to form this kind of business (Bakhtiari and et. al., 2020). The only
requirement of sole trading is to get registered to HMRC.
Taxation- The sole trader who is earning below £12,570 are not supposed to pay
any tax, £12,571-£50,270 earning sole traders are required to pay 20% tax, £50,001-
£150,000 earning sole traders are required to pay 40% tax and Over £150,000
income of sole traders are required to pay 45% tax.
Liability- Sole traders are having unlimited liabilities which means that they have to
pay their losses even after using their personal property.
Dissolvent- In case of ending the business of sole trader, the owner is required to
apply for cancellation of all registrations and aware their suppliers and all their
parties associated with their business that they are dissolving the business.
Advantages-
 The owner have full power to make decisions for their business.
 The profit is not required to share among others.
Disadvantages-
 Unlimited liability will cause stress to owner.
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 A single individual unable to be expert in all business areas. Hence, a sole
trader may take wrong decisions in those areas which did not cover their
expertise.
General Partnership
Definition- General partnership is the form of business which consist of running and
controlling the business by two or more individuals who come in contract of
agreement to perform business activities with each other.
Formation- It is essential for all the partners to have written document for agreeing
to work with each others where all terms and conditions are mentioned such as profit
sharing ratio, controlling power, active participation and many others (Bergesio,
Koch-Medina and Munari, 2021).
Taxation- A general partnership is not taxable in its own right. Instead, the partners
are taxable on their share of the partnership's profits and gains.
Liability- They are also having unlimited liability which means they are also required
to use their personal property in case of paying their business debts.
Dissolving- While dissolving general partnership, all partners must agree to do so
and they must distribute their assets and profits according to the terms and
conditions of their initial agreement of partnership.
Advantages-
 The main advantage of general partnership is that, here each partner take
active participation in managing and running business.
 The business can grow with different kinds of experts in different fields.
Hence, effective decisions can be made.
Disadvantages-
 Again Unlimited liability will be biggest disadvantage for general partnership.
 There are more chance of conflict generation when two or more people with
different mind set work together to achieve a single objective.
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Partnership
Definition- partnership is the form of business where two or more people come
together to work with each other to achieve a single business objectives (Travis,
2019). The main difference between general partnership and partnership is this that
in general partnership all partners actively participate to run a business but in case of
partnership it is not essential that all partners will take active participation in
business. For example, three people come in partnership, it might be possible that
out of them only two run the business and third partner only agrees upon the
decisions which rest two partners had made.
Formation- There is a small process of forming a partnership firm like first it need to
be choose a business name for the partnership and then register the business name
with local, state and federal authorities. After this the company is required to
negotiate and execute a partnership agreement, obtain any required local licensing.
After this, they are required to determine what tax obligations the partnership has. At
the end, the partnership firm is required to open a bank account for their business.
Taxation- It has same taxation policy as general partnership.
Liability- Partnership firms are also having unlimited liability which means each
partner is responsible to pay their dept in the proposition of the agreement.
Dissolving- While dissolving the partnership firm it is essential for partners to make
aware about the reason for dissolving and must settle their accounts at the time of
dissolution.
Advantages-
 It is easy to get started a partnership firm due to its easy formation.
 The owner can easily share their burden in the partnership firm.
Disadvantages-
 The business has no independent legal status.
 Conflicts between partners in case of decision making process may occur.
Limited Liability
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Definition- LL is a separate legal entity in UK which is essential to registered in
Companies House. Here, there are a board of directors who take all decisions for
organizational growth (Dewi, 2021). There are different departments in this structure
of company with many employees. Basically such company structure have more
than 250 employees in their different departments such as marketing department,
finance department and many others.
Formation- There are few stages for registration of LL company which is mentioned
below-
 obtain digital signature certificate
 apply for dire4ctor identification number
 approval for the name by the central registration centre.
 Incorporation of LLP
 filing the limited liability partnership agreement.
Taxation- 30%tax is imposed on LL companies inn UK.
Liability- They are having limited liability which means their owners are not
supposed to pay their debts from their personal properties.
Dissolving- They must aware their registration authority in case of dissolution and
before that they need to take the permission of their stakeholders which will be get
after paying all their investments back to them.
Advantages-
 limited liability is beneficial for owners and board of directors.
 Different departments of the company will help them to focus separately upon
different aspects of a business.
Disadvantages-
 High investment is required in establishing building and hiring staff members.
 A lot of legal formalities are required to form a LL.
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Recommendations for IOM Solutions
It is recommended to IOM Solutions that they can opt for limited liability structure of
the company because this will help them to protect them to take burden of paying the
debt from personal property. Secondly, forming different departments will help the
business to grow well by focusing on each aspect of business. At the end, the board
of directors will help the company to make effective decisions.
Conclusion
From the above information it is concluded that there are various laws and
regulations related to business like equity act 2010 and many others. It is also
concluded that the company must avoid personal transactions of an individuals. They
are only required to maintain the records of company's business transactions. There
are various kinds of business legal structure like sole trader where a single individual
manage and run the whole business, general partnership where two or more people
manage business and all partners take active participation in managing business,
and many other forms are there.
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References
Abuselidze, G. and Katamadze, G., 2018. The importance of legal forms of business
subject for formation of business environment in Georgia. Kwartalnik Nauk o
Przedsiębiorstwie, 49(4), pp.83-88.
Armour, J. and Sako, M., 2020. AI-enabled business models in legal services: from
traditional law firms to next-generation law companies?. Journal of
Professions and Organization, 7(1), pp.27-46.
Bakhtiari, S. and et. al., 2020. Financial constraints and small and medium
enterprises: A review. Economic Record, 96(315), pp.506-523.
Bergesio, A., Koch-Medina, P. and Munari, C., 2021. Limited Liability and the
Demand for Coinsurance by Individuals and Corporations. Swiss Finance
Institute Research Paper, (21-57).
Bruwer, J.P., 2019. Critical innovation skills required of sole trader Small, Medium
and Micro Enterprise (SMME) management and its influence on perceived
business profitability.
Dewi, Y.K., 2021. The need to adopt a limited liability partnership for the legal
profession in the partnership law: A critical review from Indonesia’s
perspective. Cogent Social Sciences, 7(1), p.1999005.
Hung, N.V., Thinh, T.C. and Ly, N.T.K., 2022. General Partnership in the Vietnamese
Commercial Environment.
JIANG, Y.M., A Study of Civil Liability Allocation between the Partners and the Non-
Partners of Special-General Partnership Accounting Firms. Contemporary
Finance & Economics, (09), p.1733.
Travis, A., 2019. The organization of neglect: Limited liability companies and housing
disinvestment. American Sociological Review, 84(1), pp.142-170.
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Online-
Nature of a Company: History, Meaning and Definition, 2021 [Online] available
through:
<https://sociallawstoday.com/nature-of-a-company-history-meaning-and-definition/
#:~:text=The%20nature%20of%20a%20company%20is%20that%20it%20is
%20distinct,both%20separate%20from%20each%20other./>
A Comprehensive List of Employment Legislation in the UK, 2020 [Online] available
through:
<https://croner.co.uk/resources/employment-law/legislation-list/>
Business Transaction, 2022 [Online] available through:
<https://www.contractscounsel.com/t/us/business-transaction/>
Vicarious Liability, 2021 [Online] available through:
<https://www.investopedia.com/terms/v/vicarious-liability.asp#:~:text=Vicarious
%20liability%20is%20a%20situation,own%20share%20of%20the%20liability./>
Roles & Responsibility of Directors, 2022 [Online] available through:
<https://www.indialawoffices.com/knowledge-centre/roles-and-responsibility-of-
directors/>
Articles of Association, 2020 [Online] available through:
<https://corporatefinanceinstitute.com/resources/knowledge/other/articles-of-
association/>
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