Business Law: Forms of Business, Management, and Funding Analysis

This report delves into the realm of business law, examining the fundamental aspects of different business forms prevalent in the UK, including sole proprietorships, partnerships, limited liability companies (LLCs), and corporations. It outlines the formation processes, legal requirements, and distinct characteristics of each structure. The report further explores the crucial aspects of managing and funding these business entities, detailing various financing methods such as personal savings, debt financing (loans, bonds, and leases), equity financing (venture capital and angel investors), and government grants. Moreover, it provides an insightful comparison of the advantages and disadvantages associated with each business form, offering a comprehensive understanding of their implications. The report also offers legal advice as a solution to the different case studies.

Unit Number & Unit Title Unit 7: Business Law
Title Business law

Introduction
The aim of this assignment is to discuss the different forms of the business and how they can be
managed and funded. Companies need to follow legal requirements at the establishing stage so
that it can legally manage and operate the business. The assignment also provides legal advice as
a solution to the different case studies provided.
ACTIVITY 1:
ENCLOSED IN PPT
ACTIVITY 2:
2.1 Formation of different forms of business organization
Business enterprises consist of some very common forms that are generally used in UK such as,
limited Liability Company, a general partnership and sole proprietorship.
The Sole Proprietorship
This is the simplest form of business which is being operated by a single person. Overall
business is the responsibility of that person and is the one who is responsible for all debts and
profits of the business. A fictitious name can be used for running the business or otherwise the
owners name can also be used. The fictitious name is basically a trade name with help of which
the business can be known but it is not separate from its owners (Beatty, Samuelson and Abril,
2018)
This form of business is popular because of its ease of set-up, simplicity and nominal cost. The
major registration requirement for the owner of the business is that they just have to secure local
license and register his/her name and just by doing these several steps a sole proprietor business
can be established. There is no specific legal classification of the company and no individual
identity of the company. Drawback of this form of business is that all debts of the business are
liability of a single owner. So, if financial trouble is faced by the business, lawsuits can be
brought by the creditor against owner of the business and if that suit turns to become successful,
then business debts will have to be paid by the owner with his/her personal money (Kubasek and
et.al, 2020)

The Partnership
Partnership is a form of business that is automatically developed when more than one individual
engages together in a business with the aim of generating profits. In various forms, partnership
offers flexibility to multiple owners along with simplicity in operations of the organization. The
types of partnerships are the limited liability partnerships and limited partnerships wherein the
amount of liability is assessed by the type of partnership.
Those partners, who are responsible, strive to develop a memorialized agreement of partnership
in their agreement, possibly with an attorney’s assistance. As it is not difficult to form a
partnership, often they are formed accidentally on the basis of an oral agreement. Formation of
partnership relies on the joint engagement of two or more individuals in order to perform
activities of business to pursue revenues.
Partnerships must consist of a written agreement of partnership due to its ease of formation and
informality (Cameron and Pagnattaro, 2017). The registration process of the partnership firms
includes registering with the HM revenue and customer including information relating to all the
partners within the partnership firm along with their profit sharing ratio.
The Limited Liability Company (LLC)
Limited Liability Company is basically a new type of business organization. Such companies are
basically referred to as hybrid form of business. It combines a corporation’s liability protection
with ease of partnership administration and tax treatment. Similarly, liability protection is offered
by it to its owners regarding liabilities and debts of the company.
Limited liability is basically a structure of business which is integrated in company’s house as
person who is legal. Owners and Limited Liability Company are completely separate from one
another, contracts can be formed by using the name of the company and the company is fully
responsible for its liabilities, finances and actions. Limited liability is not the responsibility of
owners of the company, which states that owners are only responsible for those debts of the
business that are equal to the amount of investments that they have made or the guarantees they
have given to the company.
Registration must be done of limited companies at company’s house that is the UK registrar of
companies as “limited by guarantee” or “limited by shares”. Shareholders amounting to one or

more than one own the companies that are registered as “limited by shares” and directors
amounting to one or more than one manage these companies. A single person can act as a
director and owner of the company, so it can either be formed by a single person or by adding
other people (Jones, 2019)
The Corporation
Corporation consists of a group of individuals who by law are authorized to act as single person,
consisting of the liabilities and rights that are different from individuals by whom the
organization is formed.
Corporations are basically legal entities developed by common law, state or Royal charter.
Establishment of these entities is done as separate legal bodies consisting of their own distinct
liabilities and features.
These corporations can be formed in many ways, but they are mostly used to operate the
business. Type of corporation that is most significant is the common law or registered company
statute. In UK, corporation tax is also paid by the corporations.
Limited liability is an important feature of these corporations. This states that if the corporation
fails, then only the investments will be lost by the shareholders and in the same way only jobs
will be lost by the employees.
Corporations, by law are recognized as consisting of the responsibilities and rights as natural
people. This states that human rights can be exercised by the corporations against the state and
real individuals, and if they violate the rights of humans then they will be considered as guilty.
They can also be considered guilty for making a criminal offence like manslaughter or fraud
(Beatty, Samuelson and Abril, 2018)
2.2 Managing and funding of the different forms of business organization

In businesses, funds are referred to as pooling resources that are financial and available for short
time period.
Sole proprietorship
Personal Savings
Equity or personal savings must be considered in the first place while searching for money.
Personal resources can consist of cash value insurance policies, real estate equity loans, early
retirement funds or profit sharing.
Friends and Relatives
owners of the business might consider private sources for financing such as friends or parents. It
will also be a kind of equity financing due to the reason that interest in ownership will be
received by the relative or friend in the business. Same formalities must be followed while
receiving investment from a relative or friend that are to be followed while receiving investment
from an outside investor.
Partnership
Debt Financing
Debt financing is referred to as borrowing of funds from the creditors on the terms of repaying
them within specific time period that is decided in addition with the amount of interest.
Generally, it can be said that interest is received by the creditors on the amount of money that
they give in the form of borrowing.
Banks and Other Commercial Lenders
Commercial leaders and banks are major sources that are popular for financing businesses. But,
most of these lenders demand a solid plan regarding the business along with plenty of collateral
and positive track record. It is not easy to take such loans while starting up a new business. But
while the business is running successfully and profit & loss statements are being maintained
along with net worth statements and cash flow budgets than it becomes easy to achieve these
loans through providing all the documents (Jan and Harm, 2019)
Limited liability partnership
Government Grants
State and federal government often gain financial support in the form of tax credits or grants in
order to expand a business or start a new business.

Commercial Finance Companies
These companies are considered when commercial sources are not lending finance for the
business. Business profit projections, track record and ability to pay back the loan are mainly
considered by these companies.
Government Programs
Several programs are designed by local, federal and state government to resolve the financial
issues that are faced by small businesses and new ventures. This support is generally in a

government guarantee form regarding loan repayment from a lender who is conventional.
Repayment assurance is provided to the lender in form of a guarantee for repayment of loan that
is gained by the business that consists of limited amount of assets (Snyder and Maslow, 2018).
Bonds
For a particular activity, finance can be raised through using the bonds. They are some kind of
special debt financing because the company issues the debt instrument. There is a difference
between other instruments of debt financing and bonds due to the reason that interest rate is
specified by the company and when the principal amount will be paid by the company is not
decided.
Lease
Lease is a basic method of gaining assets that can be used in the business without availing equity
or debt finance. It is an agreement that is legal and made between two parties in order to specify
the conditions and terms for using an asset on rent such as equipment’s or building (Halbert and
Ingulli, 2020).
Corporation
Equity Financing
Equity financing is referred to as exchanging some part of business ownership in order to gain
financial investment for the business. The part of ownership that is gained by the investor
through investing into the business allows him to share profits of the company. Equity includes
an investment that is permanent within a company and the company is not liable to repay it after
some time (Bambara and et.al, 2018)
Venture Capital
Venture capital is referred to as financing that is gained from individuals and companies in the
businesses that are held privately and are young. Capital is generally provided to businesses that
are young in exchange for share in ownership of the business. These firms are usually not willing
to invest in those businesses that do not consist of a proven financial track record. Whereas,
companies that are already profitable are likely to achieve investments from these firms (Batlan
and Bass, 2018)
Angel Investors

These are businesses and individuals who provide support to businesses that are small so that
they can grow and survive. So they are not just focused towards the economic returns. These
investors also consist of a mission that is to be focused, security and profitability is still wanted
by them against the amount of investment they are making. So, their demands are in some way
same as those of the venture capitalist.
2.3 Advantages and drawbacks of different forms of business organization
Sole Proprietorship
Advantages Disadvantages
 Inexpensive and easy to establish the
business.
 No or little formalities are there.
 The business is not forced to pay
unemployment tax.
 Personal and business assets can be
mixed by the owner of the business.
.
 Unlimited personal liability is there
for the owners regarding the business
liabilities, losses and debts.
 Capital can be raised by the owners
through selling business interest.
 These businesses cannot survive in

case if the
(Miller, 2016).
owner is unavailable
Partnership
Advantages Disadvantages
 Inexpensive and easy to start the
partnership.
 Few formalities are there and annual
meetings are not required.
 Smaller businesses are offered
favorable taxation from partnerships.
 They are not forced to pay heavy
amount of taxes.
 Unlimited liability is there for every
owner regarding the liabilities, losses
and debts of the business.
 Responsibility is beard by individual
partners regarding actions that are
performed by all partners.
 Oral and poorly organized
partnerships can result in creating
disputes among the owners.
Limited Liability Company
Advantages Disadvantages
 Few formalities and no annual
meetings are required.
 Protection is gained by owners from
obligations and debts of the company.
 Partnership-style is enjoyed by these
companies
 It is not an appropriate medium for a
business that strives to become public.
 Large amount of investment is
required
 Periodic filing and annual fees are
required by the companies.
 Certain professional vacations are not
allowed to LLC companies from the
state (Conley, 2016)
Corporation

Advantages Disadvantages
Protection is gained by owners from
personal liability of obligations and
debts of the company.
 Easy to become public companies.
 Securities can be sold in order to raise
capital.
 Ownership can be transferred easily
through transferring the securities.
 Unlimited life can be availed by the
corporation (Cosens and et.al., 2017)
 Annual meetings are required and
certain formalities are to be fulfilled
by the directors and owners.
 It is expensive to form a corporation
 Periodic filing and annual fees are
required from the corporations.
2.4 In the context of each case study below, undertake the following activities
Case A: Thomas and JVC Plc
ISSUE
The issue here is that Thomas was appointed a board of director in JVC Plc and is wondering
whether will be given the pay which he is entitled to. Also, in addition to this he has thought that
what will happen when JVC Plc will be struggling to survive.
RULES
Appointment & Remuneration of Directors
A director can only be paid if she/he contains a contractual payment right. The contact can take
place in any form. Written agreement of service between the company and director can be stated
as a major example that is provided expressly for payment of salary or wage, probably with some
other benefits as well. Subject to the article of the company, power is there in the board to award
the directors with service contracts, like the powers of all directors, a service contract should be
offered completely for the company’s benefit (Erickson, 2018)
Remuneration of directors
such remunerations should be entitled to the directors as the company through an ordinary

resolution might determine.

Insolvency
Insolvency is referred to as inability of an organization or individual to fulfill its financial
obligations such as paying back the amount of money to the lenders as debts. Before a company
becomes insolvent or insolvency proceedings are faced by an individual, an informal agreement
will be made with the creditor, such as making using alternative ways in order to make the
payment. Insolvency can result due to poor management of cash, increase in expenses or
reduction is inflow of cash.
APPLICATION
The appropriate legal solution for the case are as follows in case of situation wherein JVC Plc is
struggling for surviving-
Informal agreement with creditors
An option might be available with JVC PLC to develop informal agreement with the recipient so
that on various terms the debt can be paid. This usually takes place when temporary financial
difficulties are being faced by the company and an immediate threat is not there that a formal
action will be taken by any of the recipient. Informal agreement is not referred to as a legal
binding as it can be withdrawn by the creditor at any time (Gower.Morley, 2016)
Company voluntary agreement (CVA)
Company voluntary agreement is basically a binding between the creditor and the financial
company for making overall payment, or some part of the debts of the company in a specific
time period that has been agreed. Trading can take place during the time period of company
voluntary agreement and after than period as well. Director of the company can propose a
company voluntary agreement and not its creditors or shareholders.
Administration
The process of administration states that the company is handed over to a practitioner who is
insolvent known as the administrator. While charge is in the hands of administration, any legal
action cannot be taken by the creditor to recover the amount of debt or begin compulsory
liquidation without taking court’s permission (Hansmann and Kraakman, 2017)
Administrative receivership