Business Organizations: Legal Formation, Management, Funding Report

This report provides a comprehensive analysis of business organizations, focusing on their legal formation, management, and funding. It begins with an introduction to business organizations and their legal frameworks, emphasizing the importance of legal obligations and risk assessment. The report then critically evaluates various forms of business organizations, including sole traders, partnerships, limited liability partnerships, and limited companies, detailing their legal structures, registration processes, and the responsibilities of owners and shareholders. It assesses the merits and demerits of each organizational form, considering factors such as liability, decision-making, and ease of setup. The report further examines the constitution of different business types and explores how business organizations can be effectively managed and funded, highlighting key factors such as knowledge of business management, adequate funding, financial management, customer satisfaction, and market competence. Additionally, it analyzes routes for legal advice and support in dispute resolution, offering recommendations for legal solutions and measures to resolve disputes. The report concludes by summarizing the key findings and emphasizing the importance of legal compliance and effective management for the success of business organizations.

Pearson Higher
Nationals in Business

Table of Contents
INTRODUCTION ..........................................................................................................................4
TASK ..............................................................................................................................................4
P4: Critically evaluate the various forms of business organisations and how they legally
formed.....................................................................................................................................4
M3: make an assessment about the merits and demerits of the arrangement of different forms
of business organisations........................................................................................................6
D2: Critically examine the constitution of various types of business organisations.............8
P5: State how business organisation can be managed and funded........................................8
P6: Analyze and highlight various routes of legal advice and support for dispute resolution to
make suitable recommendations to legal solutions..............................................................10
M4: Suggest legal measures for resolving a different of disputes, using examples to illustrate
how a party might obtain legal advice and support..............................................................11
D3: Critically measure the affirmative measures of legal solutions, legal advice and assist for
dispute resolution. ................................................................................................................11
CONCLUSION .............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Business organisation is an official body that carries out commercial business for gain of
profit. Such business is incorporated with a legal contract which holds legal property rights with
an established legal system. The best form of enterprise for business are corporations which
offers the best protection in terms of personal liability from its owners. The liability of
corporations is also very extensive as it requires detailed process for operational work. The legal
framework of an organisation is very essential as it helps in evaluating the risk and the way of
dealing with future oriented risks. The legal liability of an organisation helps in determining the
legal process for running an organisation(Christophers 2022). A body which regulates the
agreement and contract between the parties in a commercial way determines the aspect of
business law. The implementation of legal regulations, ordinances, rules with the approval of
government enables a business organisation to run legally with an authorised power. This report
will cover the legal formation of business law with its management and funding. The advantages
and disadvantages for formation of different business organisations. It will further cover the
effectiveness of legal solutions in order to resolve dispute between the parties.
TASK
P4: Critically evaluate the various forms of business organisations and how they legally
formed.
An authorised and valid business organisation is maintained with the legal obligations
that are imposed for running a legally verified business. The imposition of rules and regulations
is very important for running a business that helps in law and order within the organisations and
enabling the members to work within legal obligations of a company. According to UK business
law, a legal entity is a corporate body that is governed by the law and which determines the legal
liability of a business organisation.
The business structure of UK is legally formed with the segmentation of business into different
parts that determines the legal obligations of owners and shareholders with imposition of legal
liability and duties (Creutzfeldt 2018). The business structure of UK is divided into four main
parts which are mentioned below:

 Sole trader – The term sole trader itself defines business that is run by a singular person.
This requires a single person to run a business by himself in order to solely bear the
liabilities and responsibilities that comes during undertaking a business. Sole trader is
also a person who will handle all the activities of business from start to end by himself,
being the single main owner of a business. The registration of such business is very easy
and simple to be registered or done (D’Almeida 2021). Such registration is done by
HMRC, who does the registration of sole trader who is a self employed trader who works
foe himself. The legal obligations and liabilities are solely beard by sole trader indicating
his duties towards running a business. This allows the income generated from the
business to be taken by him with the benefit of profit. The liability to pay tax are also
solely beard by a sole trader with the payment of income tax. These taxes and national
insurance will be paid under the Self Assessment Tax Return. A Sole trader is not bound
to earn a specific amount of money determining his highest profits and earning.
Therefore, liabilities, duties and obligations are to be beard by a sole trader trader. These
liabilities includes personal assets as well as other assets that are owned by a sole trader
for running his own business.
 Partnership – The engagement of two or more person for running a business and
carrying out the business activities determines the aspect of partnership. Whenever
partners agree on a business plan then the liabilities with profit and loss are beard by
them. The investment is done by both in order to bear the responsibility of cost, risks and
benefits, which are involved while running a business. The relation between the partners
in order to legally run a business defines partnership. Partnership is an unincorporated
body where they are not under any liability and undertake the responsibilities by
themselves. If a partner does any negligent act then the liability is to be beard by both
partners, which entails them to bear the repercussions of any negligent act. There will be
equal payment of shares on the basis of ratio divided between the parties. Therefore,
profit, loss, shares are to be equally shared among partners while doing partnership in a
business.
 Limited liability partnership – The business of LLP is an organisation that functions
with the engagement between partners but the liability of partners is very less in such
type of business. The registration of such Limited liability partnership should be

registered at HMRC and also at the Companies House (Jones 2019). Such partnership
also requires the the preparation of annual accounts which is required for maintaining the
accounts of the organisation. There can be more or less members while incorporating a
company with Limited liability partnership. In this the partners are directed under the
authorisation of LLP agreement where the involved members have to submit a personal
Self Assessment Tax Return in order to share profit in a company. There should also be
payment of taxes by the members in order to bear the liability for incorporation in a
company.
 Limited company – According to Companies Act 2006, a limited company is a legal
entity that is run separately by private business owner. It is an organisation that runs
officially by the authorisation and management of directors and shareholders. It is a
privately based business organisation that runs with the obligations of legal rights and
duties (Lim, Tritto, Zeki, and DeMartino .et.al 2022). The members of an organisation
are legally bound by rights and duties of the company. In this the responsibility of
running the organisation is wholly of the company with investment to payment of tax.
The profit of a company is evaluated after the payment of taxes. Dividends can only be
shared between shareholders after the payment of taxes for running a corporative
business.
The Common law and Equity law of UK helps to smoothly run a business in any type of
organisation. It helps in structuring a business with imposition of legal liabilities and duties in
order to legally manage the running of an organisation. The legal framework of a company
enables the employees to abide by the legal regulations in order to fulfil their dirties.
M3: make an assessment about the merits and demerits of the arrangement of different
forms of business organisations.
Every business have their pros and cons which determines the potential and stability of
the company. Therefore, there are advantages and disadvantages of different types of business
organisation which are mentioned below:
Form of business Advantages Disadvantages
Sole Trader  The implementation of
decision making is very
 There is burden of
more responsibilities

quick and easy.
 There is maintenance
of confidentiality in the
information of the
company.
with liabilities to be
solely beard by a sole
trader.
 The investment in
business is done from
his own pocket.
Partnership  There is equal
distribution of rights
and duties in order to
lessen the burden.
 It is very easy and
smooth to open and
close a partnership.
 There are higher
chances of conflict
between the partners in
case of loss in the
business.
 The investment in
business is done from
the personal assets and
funds of the partners.
Limited liability partnership  The members have to
bear less liability.
 There are limitations
while enduring the
liability.
 There are higher
chances of leakage of
private information of
the company.
 The investment in this
type of partnership is
more in comparison to
other business
organisations.
Limited company  There is flexibility
while conducting such
type of business which
allows smooth working
of business.
 The liability to be
 The incorporation of a
company requires
complicated process to
be endured.
 The profit of the
company is shared

beard by the company
is limited.
among the directors
and shareholders
limiting the access of
more profit to be beard
by an individual.
D2: Critically examine the constitution of various types of business organisations
The formation of different types of business organisation which are Sole trader,
Partnership, Limited liability partnership, Limited company is done through the effective
enforcement of agreements and contracts that implement the rights and duties to be incorporated
in business organisation for for smooth and effective flow of business on a commercial level.
P5: State how business organisation can be managed and funded.
The successful running of a business requires effective management of it during the
incorporation of such business (Demirel and Danisman 2019). Therefore, it is very essential to
manage the activities of business in a smooth manner for successful running of such business. A
management of business needs to have the following factors for growth and development of
business organisations which are mentioned below:
 Knowledge of basics of business management : A successful business requires
effective management of activities of business. It is very essential to have the knowledge
of basics or roots from being a planner to sales person for implementation of any idea in a
business. The critical areas of business such as funding, management, accounting,
production, manufacturing and marketing are to deeply understood and analysed in order
to successfully run a business.
 Adequate funding : It is very essential to have good or cordial relation with lenders and
investors in order to have an advanced approach towards formation of business. A
creative or innovative idea or plan for business is successfully implemented if there are
sufficient funds to execute such business. Therefore, appropriate and sufficient funding is
very essential for successful transaction of a business.
 Management of money : A business can run smoothly if there is management of flow of
income for the company. The income generated in business should be managed by
separating the cost of input with payment of taxes and duties (Magalla 2022). After the

payment of all types of cost, money that is left is the original profit of the company which
must then be invested for growth of the businesses in an organisation.
 Satisfying the customers : The satisfaction of customers is the most important aspect of
business of any organisation. The quality of products and services must be of so high
level that a customer is fully content and satisfied with it.
 Competence level : The awareness of latest rules and regulations is very important for
having a strong hold in the market. It also helps the organisation in being competent
enough in order to successfully implement the market strategies for a successful business.
According to the Companies Act 2006, there is regulation of the business activities that are
governed by the Insolvency Act, 1986 through the directives of European Union and UK
Corporate Governance Code (Roo and Jagtenberg 2018) . These legislations enables the smooth
running of a business with imposition of legal obligations and duties upon organisations.
Business organisation are funded through the borrowing of money or funds mostly from banks in
the form of loans. Funding is an important factor for running of a business in order to derive
profit from it in the future. The most important sources through which funding can be derived are
mentioned below:
 Debt capital – These are funds that are borrowed in order to be paid later after generation
of income from the business. It is taken in the form of loan by the company which helps
in raising a capital for growth in the business. It is mainly used to increase growth and
profit for the company and even increasing the value of shareholder. The financial goals
and aim of the company can be achieved through funding of debt capital.
 Equity capital – The funds that are generated by the company through the owner for
investment in business. This does not require the return to be paid as it is invested
through the owner of the company for growth in business. Therefore, equity capital are
much better for long run as there is no burden of return to be paid and the generation of
income is used by the owner of company for growth na development in business.
 Retained earnings – It is the amount that is derived after payment of taxes from the
generated income. There is no implementation of tax on retained earnings as the taxes
are paid before the generation of retained earnings. It is also the profit that is derived after
the payment of costs, taxes and dividends to shareholders. These retained earnings can be
used for further investment in the company.

 Crowdfunding- crowdfunding allows a business owner to raise funds requesting general
public to support the business. If a business has the potential for further growth and gets
the confidence of people then, public does support such business establishment and give s
an chance to elevate.
 Business angles: Business angles are financially strong individual who seeks to invest
their money in potential business. Business angles are the experts in business investment
and has deep knowledge and wisdom about the business world. These angles mostly
invested in businesses who has the capacity to make space in the market. Any person
having a good and potential business plan can get an angel investor to support business.
 Bank loan: bank loan is the most famous and common source of funding for any
business establishment. Any person can go in banks to lend money. Bank grants money
to any individual who has business or who seeks to establish new business. Banks are the
easy source of funding. The person needs to comply with the terms and condition of
banks and if bank is satisfied with the borrower it sanction loan. Therefore banks are the
easiest available source of funding for a business.
The period of Brexit has majorly affected the financial capacity of companies while running a
business. Company is facing failure during the process of funding which is eventually declining
the financial growth of a company.
P6: Analyze and highlight various routes of legal advice and support for dispute resolution
to make suitable recommendations to legal solutions.
According to the UK law, Alternative Dispute Resolution (ADR) is the method of solving
disputes between the members of business and even with suppliers, traders and customers. It
enables the organisations or companies to solve the matter within themselves rather than being
dragged to the court (Brummer 2018). The Arbitrator plays acts a mediator to solve disputes
between the parties rather than going with the lengthy procedures of the court. It is a very
effective way for settling disputes between parties which saves time and money of the business
parties. It is a very cost friendly and time bearing process which saves lots of time of the parties
by avoiding tedious and hectic procedure of the court. It generally takes few months to solve a
arbitration process in comparison with the process of litigation which take many years.
Code of Civil Procedure, 1998 has determined arbitration to be the fastest method of solving
disputes in order to save time and money of the parties. The decisions of ADR are not binding on

the parties which enables the parties to review their decisions and even to mutually solve the
decisions by themselves.
There are different modes for resolving disputes through the process of Arbitration which are
mentioned below:
 Arbitration – It is the method of resolving disputes by settling a common say between
the parties. It prevents the parties from going to the court and resolving disputes in a
simpler and easy way. The arbitrator acts a mediator between the parties in order to solve
dispute in a cost friendly manner (Song 2022). The final decision made by the arbitrator
is known as award which is like a judgement given by the arbitrator.
 Conciliation – The process of conciliation includes the involvement of a third person so
that there is no partiality between the parties. A third party is appointed who is known as
conciliator in order to solve the dispute by being impartial towards the parties and
providing a fresh perspective to the matter of parties. The conciliator must be neutral in
order to give out a very impartial and amicable solution.
 Mediation – It is one of the most common method to be used while passing out an
impartial decision. The mediator acts an advisor between the parties in order to hear out
their matter and give out its amicable decision. The parties are generally advised to solve
their matter by mutually deciding and resolving the dispute among themselves. The
appointment of mediator is done to neutrally act between parties while imposing its
decision.
 Negotiation – This is one of the best and straightforward method while settling dispute
between the parties. In this the parties are advised to negotiate the matter among
themselves while mutually reaching to a common solution (Sweeting 2022). It is a very
flexible process as it allows the parties to solve their legal dispute in a very smooth
manner. Negotiation can also be done through giving more advantage to the affected
party.
 Solicitor: a solicitor is the councillor and advisor who can protect and assist against any
debts or a dispute in a business. A solicitor in business context have wide knowledge and
wisdom to relating to contracts , trade etc. and gives legal advice how to take a legal
action against a person or a company who breach contracts or do not comply the
contractual obligations.

 Commercial or company tribunals: For resolving disputes relating to business or trade,
especially in United Kingdom and Wales, there are company tribunals constituted for
resolving such disputes between companies, public, individual etc. in UK and Wales ,
there is most common and popular form of dispute resolution platform which follows the
procedure of courts are tribunals which follows the procedure of common law.
 The Advisory, Conciliation and Arbitration Service (ACAS): it is an institution
constitutes to improve the functions and management of business organisation to provide
better and smooth process for attaining and doing employment. It aims to create and built
healthy employment relation between employer and employee by complying all the
employment laws. It ensures to mitigate internal disputes and create an environment to
sole disputes and enhance performance of an organisation.
 Dispute resolution: it is a most common and popular process which assists in resolving
disputes between parties or companies. It is an outside court settlement where both
parties appoint a mediator, conciliator or an arbitrator to decides and adjudicate their
disputes. For instance, a negotiation between two parties, wherein the negotiator os the
third party who remains unpartial while deciding case.
The English civil justice system introduced the principle of Wolf Reform which was the fastest,
quickest and cheapest mode for solving disputes among parties. The introduction of Wolf reform
was like a fresh air in the English justice system as it helped in reducing the burden of litigation
through the easy and smooth process of arbitration.
M4: Suggest legal measures for resolving a different of disputes, using examples to
illustrate how a party might obtain legal advice and support.
The method of Negotiation is recommended to be used by the parties for resolving the
dispute in an easy and smooth manner. The parties are to be mutually decide among themselves
with the aid of fresh perspective to the disputed matter in order to provide a new approach to the
parties for resolving their disputes. Example – An order of 100 sweaters was made to the whole
seller by a shopkeeper. The whole seller was not able to complete the order of 100 sweaters on
time, so he negotiated with the shopkeeper by reducing the price of sweaters which was made by
him on time.