Legal Aspects of UK Businesses: Types, Directors' Duties, and Cases

This report provides a comprehensive overview of the legal aspects of businesses operating in the United Kingdom. It begins by defining various business structures such as Public Limited Companies (PLC), Private Limited Companies (LTD), Companies Limited by Guarantee, Unlimited Companies (UNLTD), and Limited Liability Partnerships (LLP), and Partnerships, detailing their characteristics, elements, and key features. The report then delves into the specifics of partnerships, including the elements of partnership, allocation of profit and losses, decision making and liabilities. The report then shifts to the duties of directors, specifically referencing the Companies Act 2006 and sections 171 and 172. Task 2 focuses on the Companies Act 2006, particularly sections 171 (duty to act within power) and 172 (duty to promote the success of the company). The report also includes real-life case studies like Hurst v. Bryk, Smith vs. Sheldon, Latta vs. Kilbourn, and Volkswagen, which are used to illustrate the practical application of legal principles and the consequences of non-compliance. This report serves as a valuable resource for understanding the legal framework governing businesses in the UK.

Legal Aspects

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
TASK 2............................................................................................................................................5
CONCLUSION................................................................................................................................7
REFRENCES...................................................................................................................................8

INTRODUCTION
Legal aspects are those which is given by the government of particular nation for
resolving disputes within several companies. There are various types of organisation in United
Kingdom such as Public Limited, private limited, unlimited company, limited partnership and so
on. Legal aspects is given for all these so that they can sun in easy and smooth manner. Below
mention assignment is explaining several types of business which is operating in UK. Along with
partnership and unlimited liability company with the elements as well as features (Bogomolov
and et.al., 2015). With some real life cases and their judgements all these are covered in task
first. Whereas, second involves duties for directors to act within their power according to the
section 171 and companies act 2006. In the last it also enlighten duty to promote the success of
the organisation as per the section 172 and companies act, 2006.
TASK 1
There are several types of businesses which operates in United Kingdom. Description of
all these is given below :-
 Public Limited Company (PLC) – This is the organisation whose ownership is open for
the public and they can take it through buying their shares. In PLC financial liability of
the particular person is restricted up to the fixed amount which is according to the amount
of their investment. Public Limited Company is combination of two concepts i.e., their
shareholders are responsible for its financial liability to the point of the money invested.
 Private Limited Company by shares (LTD) – These are the business which is not
owned by any person from public. LTD is managed and controlled by non-government
organisation or through the few shareholders. Along with this, sale of the firm is handled
privately as well an individual person is responsible for liability of the business up-to the
amount they invested. Private companies are most famous and well known kind of
companies.
 Company Limited by Guarantee – In this, the investor individually not responsible for
the entire amount they had invested as this status of the enterprise is reserved for
companies that don’t have shareholders such as smaller and NGO (non-profit
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organisations). As per the given law of United Kingdom such organisation have to
include Limited in their name.
 Unlimited Company (UNLTD) – Their is wide difference within Limited and Unlimited
firm because in these enterprise there is no formal kind of restriction on the sum of
money which shareholder have to pay if company will goes into liquidation. In Unlimited
Company when liquidation take place, at that time it is duty of shareholders for settling
outstanding liabilities of the company, regardless to the extent of the investment amount.
 Limited Liability partnership (LLP) – These are the enterprise which is not treated as
partnership company in United Kingdom. In LLP each and every partner have their
limited liability which states that responsibility of partner is up to their negligences and
mistakes instead of being responsible for entire. Partners have right of managing and
controlling business.
Partnership :- It is type of business organisation in which two or more than that people
invest their hard earned money, skills and other resources for introducing an business
(Murray,MacIntyre and Teel,2011). In partnership company every partner share their profit and
loss as per the written in agreement as well according to ratio of investment.
Elements Of Partnership – Their are several elements which is involved in partnership
company. Some of them in mention below along with their description :- Percent of Ownership – Their is record of partnership which is known as deed in that all
the necessary information related to the contribution of each and every partner is also
mention. Amount of investment is consider as the ownership percentage as well it cannot
be change. For example, ABCD is the partner who put considerable amount of cash but
they have no plans to work in the company. Whereas another partner not invest any
amount, but they provide sweat equity for success of business. In this situation partner
who is working full time get large percentage of ownership . Allocation of profit and losses – This states that, in every organisation profit and loss
incur which needs to be divided in partners as per the amount of their contribution. In
simple term it can be said that ratio of profit and loss divide is mention in the partnership
deed which was according to the amount of investment and contribution both. Who can bind the partnership - Any partner in the company can bind partnership firm
with the consent of other.
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 Making Decision – This is the important work because it can take business up to its high
and low both. Thus, their should be proper decision making process in the business and it
require involvement of each and every partners. So that better judgement can be taken
which assist in growth of firm.
Unlimited partnership :- In the unlimited Liability business joint owners are involved
and they are equally responsible for all the debt and liability which occurs in business while their
operations (Purcal and et.al., 2011). Liabilities of Unlimited partnership company is not paid by
the personal assets of partners but they shares of every partners is involved in it.
Key Features of Unlimited partnership – Unlimited partnership firms have some key
features which is mention below along with their explanation :- More persons – In the Unlimited partnership there are minimum two persons and
maximum as per the sector of company. Firm can be of any type according to that
partners criteria is fixed such as in banking 10 persons are maximum and in non-banking
20 are required for forming an partnership firm. Profit and loss sharing – There is agreement of every partnership firm in which all the
necessary detail is mention regarding to contribution of partner and their ratio of profit
and loss dividation. As per the deep profit and loss is shared within partners.
 Unlimited liabilities – Each and every partner have unlimited liability in the company
like proprietorship. This states that if assets fall short for operation of business then
private assets of partners will be utilised for the activity of business.
Laws related to Partnership -
Hurst v. Bryk is a major issue which incurred between two partners where both the
members are liable for debt in equal weight-age. In fact, both the members are responsible for
beneficial as well as assets. Section 44 of the act have designed an appropriate rules and norms
which aids in final resolution of partnership accounts by considering necessary terms and
conditions. Basically, confusion can definitely emerges between Mr. Hurst and his partners as
they are not aware about the necessary terms and conditions.
According to journal business of law, 2003 (limited partnerships) it has been assessed
that both the members are tax transparent as only liability of tax are emerges into income and
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capital profits. In simple words another name of limited partnership is mixed one as well as
investment partnership for minimizing the confusion.
Another case of partnership act is “SMITH vs. SHELDON” in which Sheldon has taken
steps against Smith on the basis of partnership indebtedness. They are also facing major
problems while running business like payments issue due to which conflicting situations is
arising between both of them. Hence, judgement of this case was also totally based on
partnership act as they need to learn more about necessary terms and conditions.
LATTA vs. KILBOURN is other case of partnership in which they don't know about
their rights and duties towards each other. Thus, because of that they are encountering a major
problems while running a business entity such as; exploiting obligations of each other without
knowing about that.
Private Limited Company :- This is the company which offer limited liability and legal
protection to the owner along with few restriction on their ownership. It limit numbers of
shareholders to 50 and restrict them for publicly trading.
Elements of Private Limited Company – There are several elements related to the
private limited company which assist in easy understanding. Out of these elements two is
mention below :- Number of Directors – Private limited company have to appoint at least two directors as
per the company act, 2013. Although, they are not needed to appoint any independent
director.
 Restricted Trade of shares – Private limited company have some restrictions on
transferring and sales of shares as well it may be advantages and disadvantage for the
company depend on the outlook of owner (Keller2011). For the shareholder who want to
sell their share and cannot sell to the outsider is advantage for them. Whereas,
disadvantage for the person who want to sell because they have limited option for it.
Key features of Private Limited Company – There are some feature of private limited
company which is mention below :- Limited Liability – In private limited company liability of the person who hold company
is limited according to the shares hold by him\her. Private limited companies partner
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don't have any risk because they have to share only up to the amount of their holdings
only.
 Separate legal Entity - Company and their owner both have their separate legal entity
sin private limited. Firm will exist in business environment after the death of their
partners.
Laws related to Private limited liability-
One of the major scandal of private limited company is “Volkswagen” that is faced by
entire organization. However, in this case Environmental Protection agency has claimed that
vehicles of company has destroying the surrounding of society. It means Private limited
company is encountering this major legal case and directors are answering for this problem.
Rahmatullah (No 2) v Ministry of Defence; Mohammed v Ministry of Defence [2017]
UKSC 1 [Judgment; release] Act of state claimed that mistreatment boroughs amongst UK
people whomsoever claimed that they have wrongfully treated or detained by forces of UK while
disputes of Iran and Afghanistan.
TASK 2
Companies Act 2006
This act was formed by parliament of the United Kingdom which is one of the longest act
in British Parliamentary history as in this covered around 1,300 sections nearly 700 pages as well
as contains approx 16 schedules etc. Under the Companies Act 2006 sections 171 to 177
described the various roles or duties of directors within firm. They are appointed by central
authority in UK companies to the form of board as well (Lan and Heracleous, 2010). Directors
perform number of duties of responsibilities as per the Companies Act which reflects the
common law as well as equitable principles. It can be summarised in details such as:
Section 171: Duty to act within power:
The first director's duty is to follow the constitution of company under the section 171, in
which enabled exercise power and its proper purpose within an organisation. There are some
authorities and powers which are delegated to the directors for managing and maintaining
business firms and take better decisions in an effective manner. In this includes some subsection
such as:
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Section 171 (323): According to this sections, major duties are codifies the actual
principles of law that must be undertaken by directors while exercising their power as per the
terms and conditions. Therefore, constitution focused on proper purpose by considering specific
situations as well.
Section 171 (324): In this defined the director's roles and duties as per the company's
constitution that consist with some general duties under section 257. these duties are also defined
in the company's articles of associations (Nagy,2013). In this included various functions or
activities which must be undertake by the directors during performing any task according to their
defined duties in an adequate way. Some of major roles of directors are as follows:
 Directors can take part in the decision making process within organisation. They can
make better decisions accordance with the company's articles.
 On the other side, directors can allow to organisational members for the purpose of
making favourable decisions to get best possible outcomes. If members are treated by
virtue of any legislation as well as rules of law for better decision. For example, director
of the firm can take decision by informal unanimous consents of over all individuals in an
effective manner.
Section 172: Duty to promote the success of the company
Under this section, directors must required to promote the success of the company.
During passage of this section, various provisions created debates in parliaments regarding
decision making process. They prescribed that decision must be taken by the interest of every
members as well as stakeholders such as suppliers, general community, creditors, environment
shareholders and many more. There are some subsection of 172 such as:
Section 172 (325): In this, major duty codifies regarding current laws as well as
enshrines in statute which has referred like principle of enlightened shareholders values. As per
this act, director have to understand about good faith and build good relationship with members
for the purpose of promoting success of the company in an effective manner (Mitnick,2015).
They should make favourable decisions that beneficial for its members as well.
Section 331: Director of a business firm needs to pay their attention toward liquidation of
investment when the company is insolvent. Through this, director can easily promote funds to
manage creditors liability while winding up the firms. It is their responsibility to avoid insolvents
to minimise losses to creditors.
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Section 332 : As per the this section, it is the duty of director to promote organisational
activities in order to getting maximum success. On the basis of this, they needs to make desirable
changes and modification to getting desirable outcomes of working approaches. Through this,
they can easily connect maximum creditors with firm for fast investment.
CONCLUSION
From the above mention assignment it has been concluded that, there are several laws
and legal aspects which is given by the government of United Kingdom for resolving issues
which occur in companies. Business environment is dynamic in nature thus there is chances of
several problems so in such legal aspect play their important role. Apart from this from this
report it is understood that there are several companies in United Kingdom. Where, partnership
and private is described along with their elements and several features. Moreover, companies act,
2006 is described under section 171 and 172 which highlight duty of directors for promoting
success of the organisation.
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REFRENCES
Book and Journal
Partnership Act
Murray, T. A., MacIntyre, R. C. and Teel, C. S., 2011. An Analysis of Partnership Performance:
The St. Johns Mercy Medical Center–Saint Louis University School of Nursing
Dedicated Education Unit Project. Journal of Professional Nursing. 27(6). pp.e58-e63.
Purcal, C. and et.al., 2011. Does partnership funding improve coordination and collaboration
among early childhood services?–Experiences from the Communities for Children
programme. Child & Family Social Work. 16(4). pp.474-484.
Law of agency
Bogomolov, A. and et.al., 2015. Overview user interface of emergency call data of a law
enforcement agency. U.S. Patent Application 14/581,823.
Keller, S., 2011. Texas versus Chevron: Texas Administrative Law on Agency Deference after
Railroad Commission v. Texas Citizens.
Lan, L. L. and Heracleous, L., 2010. Rethinking agency theory: The view from law. Academy of
management review. 35(2). pp.294-314.
Mitnick, B. M., 2015. Agency theory. Wiley Encyclopedia of Management.
Nagy, D. M., 2013. Owning stock while making law: an agency problem and a fiduciary
solution. Wake Forest L. Rev. 48. p.567.
Online
Law of agency. 2018. [Online]. Available through:
<http://docs.manupatra.in/newsline/articles/Upload/FA398636-A18A-4B4A-AD0B-
67DF42E894B4.pdf>.
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