Key Sources of Laws for Business Organizations in the UK

This report by Desklib describes the legal context for business organizations in the UK, including different business structures, their pros and cons, and legal liabilities. It covers the Companies Act of 2006, employment laws, and the roles and responsibilities of directors. The report recommends limited liability partnership as the best option for expanding a business, and provides legal implications, advantages, and disadvantages of different business structures.

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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Table of Contents
Introduction ...............................................................................................................................2
Businesses & Organizations in the UK........................................................................................2
The legal business structure of UK companies..........................................................................3
Sole Trader:............................................................................................................................3
General Partnership:.............................................................................................................4
Partnership:...........................................................................................................................5
Limited Liability:.....................................................................................................................5
Recommendations for IOM Solutions........................................................................................6
Conclusion..................................................................................................................................6
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Introduction
Business engages it self in various activities as a type of company or professional
entity by conducting technical or enterprise activities. They majorly work for gaining profit.
These type of professional entities can run on a small scale or as a type of big giant company.
They can range from a sole trader, corporation to transnational companies. Several times their
operations are based on production and distribution of goods by selling them that is why they
require a range of strategies to implement their goals. These businesses are also bounded by
various responsibilities which are created due to the legal obligations placed on them by the
acts which govern them. They all operate with plans and policies by a single person or by
several persons in order to expand their business from time to time. These help in generating
profits and revenue for its owners and shareholders at the same time by growth among the
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competitors. Business law is a type of legislation which governs the companies and
businesses with also detailing provisions on how to form a business and how to operate it for
longer time(Cappellino, 2020). This report will cover in detail about the different type of
business structures, their pros and cons, director's role in the company, their legal liabilities
and recommendation to Sam for suitable organization type.
Businesses & Organizations in the UK
Business companies in UK act in accordance with the Companies Act of 2006. They
also have to comply with employment laws so that their employees don't suffer. They
therefore have a separate identity as a professional entity called as artificial person. Their
nature as being a company they have a different identity, perpetual existence, separate
properties, common seal and the right and responsibilities of suing any body or getting sued.
Business transactions of companies in UK includes heads and non disclosure agreements,
share or assets sale and purchase, letters of intent, etc. The companies are also bound by the
Vicarious liabilities which establishes that the employer will be held liable and responsible
for any erroneous act committed by its employee against any other person. The business can
also be held liable for business negligence if it fails to perform its responsibilities according
to the standards which have been prescribed for the duties performance. The director being
the person responsible for the proper conduct of the business has a set of roles to perform
with obligations implied on its post which creates liabilities. He has to take important
decisions and judgments while acting within the powers assigned to its role, he has to work
towards making the company successful while also resolving conflicts in it. If the director
performs breach of the duties assigned to him, he can be held liable by the other directors or
by shareholders. He can be asked to compensate for the loss which the company suffers
because of him, his contract can also be terminated, he can also be disqualified from the post,
criminal of fence can also be made against him for any serious breach and he can also be
asked to return the properties of the company if he holds some, etc. The partnership in a
company can be terminated by the Partnership act 1890. While operating any company both
Memorandum of Association(MOA) and Articles of Association(AOA) is important. They
both govern how the company is made and operated(Hardman, 2020). The MOA is a lawful
statement which is signed at the time of formation of a company by shareholders or any
guarantors whoever is involved whereas AOA is a written statement of all the rules and
regulations by which the company will be operated which are agreed by the directors and
shareholders of the company.
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The legal business structure of UK companies
Sam operates his business of IOM solutions since eight years where he works as a
sole trader on his own where he runs it single hand and can be held liable for whatever
obligations his business incurs(Wial, 2018). Him being the sole decision maker he doesn't
need to share profits. Now he wants to expand his business of selling electrical parts and
wants to earn on a large scale due to increase in his customers and the demands made by
them. He has various options available for a suitable business type and is looking for
recommendations on the same. They are:
Sole Trader:
Self- employed people are several times called as sole traders. This is the most
simplest business structure which is easier to open, establish, run and operate. His single
presence in the business makes him the sole beneficiary of the revenue generated by profits
of the business. He is responsible for all the liabilities that occur in the business as him being
the sole head and owner. Thus this type is very famous among the businesses in UK due to
the control of ownership being in single hand. Due to their setting up being so simple they are
cost friendly in their establishment(Ostrow, Nemec and Smith, 2019) Some of the
advantages of sole proprietorship are, one can keep all the profits, can have maximum
privacy, operation and establishment of business is much easier as compared to other options.
Disadvantages are, one needs to bear all the debts and liabilities on his own, can become
difficult and sometimes impossible to take holidays, all the business related day to day
responsibilities are to be fulfilled by owner itself. This type also has disadvantages based on
the fact that the material and equipment costs is entirely on one person. Banking and financial
risks also arise within this type.
Legal implications of this type are: The owners of the business in this type will need to pay
income tax and corporation tax on all their business earnings from time to time. They need to
abide by the General Data Protection Regulations and get registered in it thereby keeping a
register of the data of its customers. This regulations comes with penalties in case someone
fails to act according to them(Picciotto, 2018)They are also legally required to be in national
insurance. They also need to avoid any legal consequences by filing self assessment tax
returns on time.
General Partnership:
In this two or more people in collaboration with each other establishes a business in
order to procure some benefits. This form of business establishment is considered as one of
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the most common form having person entrusted more than one in number. Further the number
of person involved in the important decision making are identified as partners and functions
as co-owners of the said business. Generally there lies several forms of partnerships but
general partnership is said to be the most ordinary one. Also, talking about the formation of
this form of partnership , it is very much easier as compared to others and reasoned as least
expensive one. Here all the stated partners are held equally responsible for the affairs of the
business including both liabilities and profits in equal share. Further each and every partner is
equally bound to impart labor, skills, investment and assets to the business. Also as similar to
the other forms of partnership, it also have more number of advantages than of disadvantages
where one can be that the share of profits straightaway flows towards the partners and enjoys
a equal amount of liability.
Now talking about the legal implications of this form, as per the given provisions the
partnership firms are not considered as a separate legal entity, than its owner. Which means
that both the owner and firms have as separate legal status. Therefore, all the partners are
individually required to pay the taxes on their part of income rather than paying the taxes on
whole of the income which has been acquired as a result of partners collaboration(Simkovic,
2018)
Partnership:
Partnership is a collaboration between two or more individuals who agrees to share
the profits and liabilities of the business. In order to constitute a partnership firm it must
consists of following three elements, which are that there must exists an agreement among the
partners and the said agreement should be made with respect to the share of acquired profits.
Also the business can be run by all the partners jointly, or by any one of them on behalf of
others(Toson, 2017)Further there stands a lot of advantages a well as disadvantages with
respect to this form of business where merits can be that it provides a broad network for
business as it includes the number of partners. Which can at the same time can also become
the drawback as partners tends to loss the direct and full control over the business as a result
of large circle.
Further talking about its formation, it requires a willful affiliation partners to start a
business. Also a partnership deed is a basic prerequisite this form which governs all the
affairs of the business including the hare of profits as well. It can be constituted in either of
the manners as written or oral.
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Limited Liability:
In this form of business the liability of its said members are limited to the amount of
shares he acquires. Generally it is a type of company which is held for small businesses and
shares cannot be publicly traded. Advantages of this can be, both company and its owners
enjoys the status of separate legal entity, there exists no such requirement of minimum capital
to start a business, owners of the business enjoys the benefit of limited liability.
Disadvantages are, the number required shareholders should not be more than 50 in number,
also other major drawback can be that the prospectus can not be issued to general public.
Also, the partners as well as company, both enjoys the status of separate legal entity
and hence even though the company is responsible to full extent, the liabilities of its partners
are limited to the amount of share each invested(Somjai, 2017) The partners are said not to be
personally liable for any debt to the company except there arises a case of fraud on the part of
partner. Similarly as there exits no such concept of joint liability in case of limited liability
business hence no partner can be held liable for the acts of others negligence and fraud.
Recommendations for IOM Solutions
After having a thorough understanding of various forms in order to start or expand a
business, the form of business which will stand most appropriate for the Sam is of the limited
liability partnership. As it is clearly stated that he wish to expand his running business named
IOM solutions, and even after getting many opportunities, is lacking behind only because of
the reason of inadequate management as being only person to manage the affairs of the
business. Also as Sam while expanding his, is looking for the option of secured business, this
option will fit to his choice.
Conclusion
From the above report its can be conferred that the companies Act of 2006 plays an
very important role in terms of companies and their management including every minute
details for it including the process of its formation, the liabilities of its partners and their share
of profits. Further the report also discusses the various forms of business which are available
at the option of any person who wishes to start a new or expand the existing business
including all their legal implication, advantages and disadvantages. Also it is concluded that
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the best option which is available in the hands of Sam, in order to expand his business of IOM
solutions is of limited liability partnership.
References
Cappellino, A., 2020. How to Choose the Right Business Organization Form.
Hardman, J., 2020. The Companies Act 2006: It's time to complete the transition. The
Company Lawyer. 41(4). pp.93-97.
Ostrow, L., Nemec, P.B. and Smith, C., 2019. Self-employment for people with psychiatric
disabilities: advantages and strategies. The journal of behavioral health services &
research. 46(4). pp.686-696.
Picciotto, R., 2018. The logic of partnership. In Evaluation & Development (pp. 59-68).
Routledge.
Simkovic, M., 2018. Limited Liability and the Known Unknown. Duke LJ, 68, p.275.
Somjai, S., 2017. Advantages and disadvantages of outsourcing. The Business and
Management Review. 9(1). pp.157-160.
Toson, S.J., 2017. Renewed hope for the low-profit limited liability company. Society and
Business Review.
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Wial, H., 2018. 21. New Bargaining Structures for New Forms of Business Organization.
In Restoring the promise of American labor law (pp. 303-313). Cornell University
Press.
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