Business Law Report: IOM Solutions and Business Structures

This report delves into the realm of business organizations, examining various structures such as sole traders, partnerships, limited liability partnerships, and different types of companies, including private and public limited companies, and one-person companies. The report provides an overview of each structure, outlining their legal frameworks, liabilities, and operational characteristics. It discusses key aspects like incorporation, re-registration, and insolvency, along with the implications of each business form. The report uses the case study of IOM Solutions to explore options for reorganizing the business structure, considering factors like liability, taxation, and management. The analysis culminates in a recommendation for IOM Solutions, suggesting the most appropriate business organizational form for future growth and expansion. It also highlights the importance of understanding the legal and financial implications of each choice.

Business Law
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Table of Contents
Introduction......................................................................................................................................3
Main Body.......................................................................................................................................3
Business organisations................................................................................................................3
Sole Trader..................................................................................................................................3
Partnerships.................................................................................................................................4
Limited Liability Partnership (LLP)...........................................................................................4
Company form of organisation...................................................................................................5
Types of companies.....................................................................................................................6
Other forms of organisation........................................................................................................7
Recommendation.........................................................................................................................7
Conclusion.......................................................................................................................................8
References........................................................................................................................................9
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Introduction
Business organisation generally refers to the entity which is formed for the purpose of
carrying out commercial operations and involves defining its organisational structure (Schölin,
Broomé and Ohlsson, 2016). Organisational structure of a business outlines its management
structure and operational method and includes three main management forms like sole trading,
partnerships, corporations, etc. All of these structures are governed by different business laws
which defines and limit their scope. This report is based on the case study of a sole trading
organisation – IOM Solution, exploring options to expand its management form. This report
consists of discussions on various types of business organisations potentially available to
reorganise IOM Solutions and their legal consequences. In the final part, a recommendation has
been drawn up to suggest trader Mr. Sam a suitable business organisation for re-organisation.
Main Body
Business organisations
Business organisation refers to an entity which is incorporated with an aim to carry out
commercial enterprising by providing goods or services to the customers. Decisions about
choosing choosing types of business organisation depends on various underlying factors
involved such as management structure required, personal liability involved, taxation and other
legal provisions applicable, ability and availability of potential sources of raising finance, etc. In
UK, there are four main business organisational structures – sole trader, partnership, limited
liability partnership and company form of organisation. Each has its own legal backing and
liability implications for owners.
Sole Trader
This is most basic and simplest form of business organisation. It is not to be registered
and governed under a specific law (Bouette and Magee, 2015). However, to start business
operations, sole trader must register their business with Her Majesty's Revenue and Customs
(HMRC). Business and proprietor are not treated as separate entity. Therefore, proprietor is
entitled to all the profit that business makes and is also liable to pay out all the taxes, rates and
insurances by filling and filing suitable self assessment returns. Sole proprietor has an unlimited
liability i.e. trader is accountable to bear all the losses as well as liabilities even at a personal
expense. A sole trader can trade under own name or can choose another name for business as
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well which is not needed to be registered. However, name should not include limited (Ltd),
limited liability partnership (LLP) or public limited company (PLC). It should also not be same
as an existing trade mark, or contain offensive or sensitive work or expression.
Partnerships
They are defined by Partnership Act of 1890 and involves two or more real or artificial
persons who enter into an agreement to conduct business and share profits and losses of the
business operations in the agreed ratio (Ions and Sutcliffe, 2015). Other than that, they also share
risks, costs, benefits and responsibilities of business operations in a pre-agreed manner. Partners
share joint as well as separate responsibilities. They also have unlimited liability i.e. in
unfortunate case of losses, they will be liable to cover those losses not only from their business
assets but also from their personal assets. Partnership business are not needed to be registered
separately with a distinct authority but must necessarily register with HMRC. A name and
nominated partner has to be chosen for partnership firm. Nominated partner would be held
responsible for managing tax returns of the partnership as well as keeping all the business record.
Business has to pay taxes as per the profit made out of it after squaring all the allowed expenses.
However, partnership does not need to pay out tax. Rather, each partner has to pay tax on their
respective share in partnership profits. Other than unlimited partnership, limited partnerships and
limited liability partnerships are also allowed in UK.
Limited Liability Partnership (LLP)
This business organisation is a combination of partnership and company form of
organisation as in it is similar in partnership in most of the aspects except that partners have
limited liability here (Frankish and et.al., 2015). Therefore, LLP has to be registered at
Companies House along with HMRC. It is governed under Limited Liability Partnership Act,
2000. Documents containing name of the LLP, registered address, information of minimum two
designated members, LLP agreement, etc. which contains all the terms and conditions related to
LLP operations have to be submitted with both the competent authorities. Its name must end with
LLP and should not be same or similar to an existing name. Its annual accounts have also to be
filed in both. LLP needs two or more members. Member can be both real person or artificial
person like company. Each member is responsible for paying their own tax liability but are not
personally liable to cover for the losses incurred in the business.
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Company form of organisation
Company or corporation is a form of business organisation which is owned by
shareholders and managed by directors (Tricker, 2019). Most of the companies in UK are limited
liabilities companies which are either limited by guarantee or by shares. Its features include:
 It has its own separate legal identity from its owners which means that it has its own legal
rights and obligations.
 It has its own separate finances from financial capabilities of its owners.
 It can sue anyone in its name and can get sued as well.
Incorporation
Incorporation is the process of registering the company before commencing its business
operations with legal authorities. In UK, limited companies are to be necessarily registered with
Companies House under Companies Act 2006. To register a company, below mentioned steps
are required to carry out:
 Choosing a company structure – Before incorporating, promoters need to decide structure
of the company for example, 'private company limited by shares'. Company structure has
an impact over tax liability, management and operational structure, availability of finance
options,etc. therefore, must be chosen carefully.
 Choosing a company name – It is very important for both new and existing company to
check the availability of desired name (Seaman, 2015). Name must not be alike or same
with an existing company, it should also not be offensive, sensitive or reserved.
 Finalising company basic information – It includes deciding on the registered office
address, information about company directors, promoters and member-shareholders.
Share allocation must also be pre-decided prior to informing Companies House.
 Preparation of Memorandum and Articles of Association – These are the most basic
document that governs the company operations. They formalise the direction, business
objective, purposes, rules and regulations, etc. of the company.
Post completion of all the detailing, they are to be submitted to Companies House which
will give legal authority to the company's existence. Post incorporation, directors are entrusted to
file annual accounts of the company every year as well as to inform House about any changes
made in the operations, official information and management of the company.
Re-registration
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Re-registration of company takes place when company changes its business structure as
in legal status such as an unlimited company to a limited company or vice versa, a private
company limited by shares to a private company limited by guarantee and vice versa, a private
company to a public company or vice versa, etc. or other changes like name change, address
change, etc. To re-register, company officials need to apply to Companies House with a copy of
resolution, amended memorandum and articles of association and other necessary documents. On
successful verification of the changes, an amended certificate of incorporation will be issued
which will contain modifications along with date of re-registration (Whitehead, 2016).
Insolvency
A company is declared insolvent when it is unable to pay its liabilities and debts.
Insolvency often leads to winding up of company however, necessary steps can be taken up by
company directors to allow company to trade. They can get professional advice to proceed
further. An insolvent company can continue to trade if all its creditors agree to allow its
operations and offer it some respite that it can part proceed and part liquidate. If they do not
agree, they can go to court as well to get compulsory liquidation. Company can itself wind up its
operations and assets to pay its creditors and can re-register itself later to re-initiate its
operations.
Types of companies
Private limited company
A private company can be limited by share or guarantee in UK. In company limited by
shares, liability of the members are limited to their unpaid shares and in the company limited by
guarantee, liability is limited to the amount guaranteed by member to contribute in company's
assets in case of wind up. Third type is private unlimited company in which there is no limit to
members' liability. A private company cannot offer its shares openly for sale amongst the general
public. It needs to have at least one director which must be over the age of 16 and is not
disqualified to be a director (Elliot, Williams and Young, 2018).
Public limited company
In a public limited company, there is a share capital and the liabilities of the members are
restricted to the unpaid amount on their share capital. It is allowed to offer its shares for sale
amongst general public and can also be listed on stock exchanges. Therefore, its is generally
suited to large companies. It has a mandatory requirement to appoint two directors at least.
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Other forms of organisation
One Person Company
It is also a form of limited company. It requires listing of minimum of one director and
one member, both of which positions can be handled by same person as well. It is highly useful
for small business owners and sole traders who wants to expand their business operations but
like to work individually or doesn't have suitable partner to convert into partnership, can turn
their business into one person company. It is also beneficial in the way that if needed, additional
directors and members can be brought on board at any time after the incorporation of the
company. Any person who is minimum 16 years of age and is not disqualified director or
undischarged insolvent can set up one person company in UK in the nature of private limited
company.
Incorporation and insolvency process of one person company is same as in other limited
companies (Smith, 2018). These are to be registered at Companies House specifying a real,
physical office address. Incorporation details cover company name, registered office address,
nature of business activities, details of directors and members, Memorandum and Articles of
Association, etc.
Limited partnership
It is a form of partnership form of business organisation in which there is at least one
'general partner' and one 'limited partner'. Both have different responsibilities and liabilities
restrictions however, all partners have to pay tax on their shares of the profit equally (James,
2016). Limited partnership is registered with Companies House along with HMRC providing the
name and address of the business, defining general and limited partners, submitting partnership
deed which contains all pre-agreed business clauses among partners, etc. Address must be
physically verifiable and name must not be existing and offensive or sensitive. Limited partners
have no say in business management and are only liable up to their contribution and general
partners have all the responsibilities and liabilities like partners in unlimited partnership.
Partnership Deed must contain exits clauses for dissolution, insolvency, winding up, etc. along
with other general terms and conditions.
Recommendation
Business provided in the case study – IOM Solutions is a sole trading concern of Sam. In
the wake of business growth and expansion, various options that can be explored by the
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proprietor are discussed. Sam can take any route to grow its organisation but out of all, ONE
PERSON COMPANY seem most appropriate. This business organisational form provides a
company structure which will not only provide limited liability cover but will also allow better
tax and financial planning. However, it is subjected to more regulations and legal compliances
which are absent in case of sole trading concern. Sam can register as single director and member
for its private limited company. It will eliminate the need for any partner and provides the
flexibility to increase the member and directors as the business requires.
Conclusion
Above report includes discussion about various forms of business organisations available
before entrepreneurs. It can be concluded that there are various options that a sole trader can
exercise to adopt and restructure its business organisation in case of expansion from partnership,
LLP to various forms of companies. Structural decision needs to be taken on the basis of
requirement, liability planning, tax planning, operational management, etc.
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References
Books and Journal
Bouette, M. and Magee, F., 2015. Hobbyists, artisans and entrepreneurs. Journal of Small
Business and Enterprise Development.
Elliott, M., Williams, J. and Young, A.L. Eds., 2018. The UK Constitution after Miller: Brexit
and Beyond. Bloomsbury Publishing.
Frankish, J. and et.al., 2015. Measuring business activity in the UK. In Handbook of Service
Business. Edward Elgar Publishing.
Ions, K. and Sutcliffe, N., 2015. Developing yourself, developing your organisation. The Work-
Based Learning Student Handbook. p.51.
James, M., 2016. UK Tax System: an Introduction. Spiramus Press Ltd.
Schölin, T., Broomé, P. and Ohlsson, H., 2016. Self-employment. International Journal of
Entrepreneurial Behavior & Research.
Seaman, C., 2015. Creating space for the business family. Journal of Family Business
Management.
Smith, D., 2018. Company law. Routledge.
Tricker, R.I., 2019. The Evolution of the Company. Corporate Governance: Values, Ethics and
Leadership, p.1.
Whitehead, G., 2016. Commerce: Made Simple. Elsevier.
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