Unit 7: Business Law - A Comprehensive Guide for Startups in London

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Unit 7- Business Law
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Table of Contents
Introduction................................................................................................................................3
Scenario 1- LO1 and LO2........................................................................................................4
Principles of English legal system and primary sources of law.............................................4
Common law as a source of law............................................................................................5
Secondary sources of law.......................................................................................................5
Recent reforms and development in the English legal system...................................................6
Application of the statutory and common law in courts............................................................7
Statutory laws.........................................................................................................................7
Common laws.........................................................................................................................7
The potential impact of business laws on companies................................................................8
Reforms and its effectiveness.....................................................................................................9
Impact of legislations, regulations and standards on business.................................................10
Legislations..........................................................................................................................10
Regulations...........................................................................................................................10
Standards..............................................................................................................................10
Scenario 2- LO3 and LO4......................................................................................................11
Legal formation of organisations.........................................................................................11
Management and funding of different business organisations.................................................14
Advantages and disadvantages of various business organisations...........................................15
Alternative modes of dispute resolution (ADR)......................................................................17
Arbitration............................................................................................................................17
Mediation.............................................................................................................................18
Conciliation..........................................................................................................................18
Negotiation...........................................................................................................................18
Comparison of different legal advises......................................................................................19
Conclusion................................................................................................................................20
References................................................................................................................................21
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Introduction
Hardy and Morrison Solicitors representing through its legal practitioner presents the
following report for the new start up companies in London to make them aware about the
existing legal system of United Kingdom. The first part of the presented handbook comprises
of the application of business laws especially employment laws and company laws which
shall be applied on the new and existing companies of UK. The report starts with the
description on the nature of English legal system along with the sources of law. Further it
explains the application of statutory laws like Companies Act 2006 and common law in
courts and judgments. It also enumerates various employment laws which are made
applicable on the working of the organisations.
The second part of the report contains description regarding the types of organisations which
can be formed in UK like sole trading company, firm in partnership and limited liability
company. It then elaborates the ways of funding and managing business organisations. The
working of the organisations faces challenges regarding the application of law and hence
there are chances of disputes either internally or with any external party. Hence the report at
last contains recommendations regarding various alternative modes of dispute resolution for
the resolving of disputes.
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Scenario 1- LO1 and LO2
This is the first part of the report submitted on behalf of the legal practitioner of the law firm
Hardy and Morrison Solicitors. This part contains description regarding the legal principles
on which the English legal system is based and the sources of English laws. it then elaborates
the application of business laws like employment, contract, competition and company laws.
Principles of English legal system and primary sources of law
The English legal system is based on the Parliamentary form of government which means
that the parliament is the supreme body in the country which has the power of making,
amending and ending laws. The law-making process of the UK runs under various stages
starting from introduction of the bill to the receiving of royal assent.
Hence it is clear that the very first and foremost source of law in UK is the Statutory
Legislation which are passed by the parliament. These legislations are introduced in the form
of a bill which passes through the first reading, second reading, committee stage, third
reading and finally the Queen’s consent (Universitiesuk, 2016).
The following figure provides for the visual representation of the law-making process in UK:
Fig 1: Law making process
(Source: Universitiesuk, 2016)
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Common law as a source of law
The next source of law in the English legal system is the case laws which is called the
common law in UK. The common law are judicial precedents which are previous judgments
on the cases having alike circumstances and these decisions are binding on the lower courts.
The judgments of the supreme court serve as a binding judgment for the other courts and
hence these judgments become a source of law in the country.
the basic principles of common law provide for:
 The giving of judgment that is adjudication after understanding the facts completely
and searching for judgments given in cases of alike facts.
 The common law has come up with for the purpose of meeting the pacing needs of the
society.
 Common law is written publication and hence its reliability is strong (Carpenter,
2019).
Other primary sources of law include the laws made by European Union as United Kingdom
is the member state of EU and hence it is bound by the laws and treaties signed by EU.
United Kingdom being a member state of EU is bound under the agreement to abide by the
international treaties and free trade agreements (FTAs) agreed by the European Union.
Hence in cases of corporate disputes as well, previous rulings of the court can serve as a
source of law for the new companies getting registered in UK (Martin, 2014).
Secondary sources of law
Along with statutes and common law as primary source of law, the UK legal system also in
some cases depends on the secondary sources of law. In case the court or the presiding officer
faces difficulty in the interpretation of law, they depend upon the writing s and explanations
provided by law experts and writers for their judgments.
Hence the secondary sources of law include:
 Law reviews
 The treaties signed by UK government
 Writings of law experts
 Commentaries
These secondary sources are a good source for understanding the meaning and language of
law as it contains citations and references to the primary source (Martin, 2014).
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Recent reforms and development in the English legal system
As per the changing needs and demands of the public and the society. The government
undertakes changes and reforms in the existing legal system in order to modify it according to
needs of people. In the UK as well, certain reforms have been introduced in the past years for
coping with the needs of people.
The following reforms can be taken as example:
1. The constitutional reform:
o This reform was brought by the Labour government in the year 1997.
o It included three main fields for reform which were:
 Reform of House of Lords
 Delegation of power
 Enactment of Human Rights Act 1998
o The effectiveness if these reforms in the UK legal system is significant as the
passing of the Act of 1998 led the government to incorporate human rights for
the citizens under the domestic laws (Partington, 2013).
2. Reform in civil court system:
o The reforms made in the civil court system can be traced to the year 1999
when a completely new system to redress civil suit was formed.
o Under a report named Access to Justice forwarded by Lord Woolf in 1996, a
completely new set of civil procedure rules were passed. it also contained
legislation for the modernisation of courts and legal services.
o The Legal Service Commission was also created under the Act.
o The effectiveness of this legal reform can be seen in the present system as the
new Commission provided legal aid which proved to be an aid for
economically weaker sections of the society.
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Application of the statutory and common law in courts
Statutory laws
The new companies planning its registration in UK are required to get accustomed and
familiar with the fact that the courts while giving its judgments rely on the statutory and
common laws. Hence the application of these laws can be seen in the judgments given by the
courts in corporate cases.
The application of the statutory law can be seen in the court applying the provisions of the
Companies Act 2006 while giving decisions relating to the corporations. Example of the
case Thermascan Ltd v. Norman [2009] EWHC 3694 (Ch) can be taken into account where
it was held by the court the rules and principles of the common law shall be taken into
consideration and account while interpreting the provisions of the Companies Act 2006. This
means that the provisions and the principles as laid in the common law shall be the same as
mentioned in the provisions of the Companies Act 2009. This was stated by the court by
providing an example for the same as the provision of Section 171 of the Act is based on the
equitable principle that ‘directors are under a responsibility to act within the powers vested in
them for the purpose for which the right is given and the same shall be the inclusion in the
internal articles of the company’ (Lawteacher, 2018).
Common laws
The rise in equity and justice has made the courts to observe similarity of essential facts in
earlier cases and made this the basis of the rule which is formulated to serve as a guiding
piece for the future cases. This process expanded so vastly in the litigation and judiciary
system that the court is to call upon for the decision of the case on frequent principles laid
down in earlier cases. In this situation the court applies the existing rules without looking for
the source from which these rules are derived.
But the complexities in society led to situations where the courts discovered that there is no
rule formulated regarding such matter. In such case the court lays down a new rule which
shall serve as a precedent for future cases.
 Examples of the court laying down new rules in absence of existing rules can be
traced from the case of Pells v. Brown (1620) Cro. Jac. 590, and Collen v. Wright
(1857) 8 E. & B. 64, where new rule was laid down by the court in the absence of
existing rule that an agent impliedly warrants his authority. But it was also held by the
court that the new rules shall not be inconsistent with other sources of law (Carpenter,
2019).
Hence it can be settled that the application of statutory law is at priority in the courts and in
absence of statutory laws the court relies on common law that is precedents. But in case there
is no previous cases decided regarding similar facts, the court has the authority to lay down
new rules which shall serve as rulings for future.
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The potential impact of business laws on companies
The companies operating in United Kingdom shall be subjected to a number of business laws
in order to ensure that their functions are consistent with the legal system of the UK and that
they are not pursuing any illegal objective. Further these laws also ensure that the rights of
the employees are protected. These laws also provide for the process of registering a
company to work in United Kingdom.
The various laws to which the organisation shall be subjected to are:
1. Employment laws:
 The organisation shall be subjected to employment laws which provides
provisions for the protection of employment rights of the employees as well as
employers.
 The laws include statutes like the Employment Rights Act 1996 and the
National Minimum Wage Act 1998.
 It protects employees from unfair dismissal, provides provisions for paid
leaves and other benefits (Barnard, 2012).
 Under the Act of 1998 the employees are entitled to get a minimum wage of
£7.84 as prescribed by the legislature in the statute.
2. Company laws:
 The organisations registered in UK shall also be subjected to the provisions of
the Companies Act 2006.
 The Act covers the provisions relating to the formation and registration of the
company.
 It further provides for the registration of the articles and memorandum of the
companies working in UK (Lawteacher, 2018).
 The Act also covers the duties and powers of the companies’ directors.
 The formation of the limited company as per the Act may be limited by share
or by guarantee.
 The Competition Act 1998 has also been enacted in United Kingdom for the
purpose of restricting fraudulent business practices and avoid companies to
secure dominating position in global market through abusive means
(Hannigan, 2018).
3. The English laws of contract:
 The principles of law of contract are also made applicable on the organisations
working in UK as the business transactions are done through the entering of
contracts.
 These contracts are formed as per the requisite essentials of a valid contract
and hence the organisations are at compulsion to abide by the law of contract
in order to make the contract enforceable (Countouris, 2016).
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Reforms and its effectiveness
Law reforms are a result of changing needs of the society. The Law Commission is an
independent body in the UK which is responsible for the reforms which come up as a demand
of the general public. The change in the law means there is to be change done in the
economic, political or social behaviours of individual directing or omitting them to do or not
to do a certain act. But law reform is not confined to merely social, economic or political
changes but are is a broader concept.
In United Kingdom there are various recent developments done in order to reform the current
legal structure. The effectiveness of these developments and reforms can be seen in the
effective functioning of these measures.
Some of the major changes in the UK legal system over a period of 15 years is as follows:
1. 1st phase:
o In the first phase major institutional changes that occurred include:
 The Ministry of Justice was created in 2007
 Transfer of responsibility of offenders and prisons from Home Office
to Ministry of Justice
 Creation of the Legal Service Commission to provide the facility of
legal aid in 2000
 Creation of the Supreme Court replacing the judicial functions of the
House of Lords in 2009
 Creation of Tribunal Services
 Creation of Ombudsman to address administrative complaints of the
general public in 2007 (Faundez, 2016).
2. 2nd phase:
o In the second phase the changes in institution continued which include:
 Establishment of National Crime Agency in 2013
 Reformation of county courts in 2013
 Creation of family courts in 2014
 New courts for the hearing of international commercial disputes in
2015.
Hence the major changes in laws and establishment of the new institutions to address
complaints have led towards effective functioning of the UK legal system as establishment of
additional courts and tribunals have lessen the burden of the courts (Faundez, 2016).
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Impact of legislations, regulations and standards on business
The business owners need to know how their business activities and daily functions shall be
affected by different legislations, regulations and standards. Hence as a legal advisor, the
report is submitted differentiating between the three illustrating with examples.
Legislations
 Legislations are enacted statutes which are passed by the parliament as laws which
define the behaviour to be followed and omitted.
 These are codified laws which provides for the definition of wrongful act whether in
civil or criminal cases and also provides or the punishment of the same.
 For the purpose of governance of companies, the legislations which are formed are
relating to employment laws and company laws (Smallbusiness, 2019).
 For example, legislation for company law includes Companies Act 2006 and
employment include the Employment Rights Act 1996.
 The legislations need approval from both the houses of parliament and finally the
royal assent is required.
Regulations
 Regulations are also codified laws at the local level which provides for the procedure
of implementation and application of the legislations.
 Regulations are not substantial laws rather they are the regulatory procedure of the
legislation.
 For an example the regulations relating to online selling of goods can be taken where
the companies are regulated for the purpose of their online market.
 Another example can be considered of the regulations relating to intellectual property
which are passed for the purpose of protection of intellectual property like copyright,
patent and trademark (Adams, 2016).
 Further all the licenses which are approved by the government are included within the
category of regulations.
 The jurisdiction of regulation depends upon the areas within its scope that is whether
it is local, state or at federal level.
Standards
 Standards are the accredited and approved business ethics which the companies
functioning in the UK are required to follow on an internal level.
 These standards include the extent of the companies’ task like the standards
mentioned in the articles of the company for the protection of environment.
 Further these standards may also in for of health and safety measures to be taken for
the safety of workers.
 These standards are framed consistent with the Health and Safety at Work Act
1994 (Smallbusiness, 2019).
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Scenario 2- LO3 and LO4
This is the second part of the report which is prepared to give recommendations relating to
the disputes which may arise in new companies. Hence as a legal practitioner the following is
the description of the various options available with the companies for resolving their
disputes.
The report starts with the formation of different types of business structure and their legal
incorporation. It further deals with the management and funding of the business
organisations. It also covers the advantages and disadvantages of the different business
organisations and at last contains the legal solutions for corporate disputes.
Legal formation of organisations
The business organisation in UK can be incorporated as limited companies or function as
unincorporated company through sole trading or partnership.in case of incorporation as well
the companies may be limited or unlimited company.
The following image provides for various types of companies which can be formed in UK.
Fig. 2 Types of organisations
(Source: Businesscasestudies, 2019)
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Sole proprietorship:
 This business is run by a single owner who has complete control over his business and
he has the sole right of decision-making.
 He is the controller over the profits earned by the company and he is accountable to
no one.
 The business activities in this business type remains confidential as the information is
accessible to only one person.
 This business types comes within the category of unincorporated company as the
registration of this business is not required (Dignam and Lowry, 2012).
Partnership firm:
 This business type is run by two or more partners under a partnership firm.
 The partnership firm formed in UK is governed by the provisions of statutory law
which is the Partnership Act 1890.
 This business structure is also within the category of unincorporated business as this
does not require registration and is run after the formation of a partnership deed
between the partners.
 The partners share unlimited liability in this business that is they are liable personally
for the debts of the firm (Businesscasestudies, 2019).
 The partners are accountable to each other and are liable for each other’s acts which is
done in the course of business even without their knowledge and consent.
Companies:
 In UK there are several types of companies which have made way for the competition
in global as well as domestic market.
 These companies include:
o Limited and unlimited companies (Section 3)
 The company is limited if the liabilities of the members is limited up to
their share and investment.
 The company is unlimited if the liability is unlimited of the members
(Businesscasestudies, 2019).
o Private and public companies (Section 4)
 A public company is one whose certification state that it is a public
company.
 In public companies the fund is raised through the general public
whereas in private companies the fund is raised through personal
sources.
o Companies limited by guarantee (Section 5)
 A company limited by guarantee does not have a share capital, instead
it has guarantors.
 The guarantors pay a nominal amount in the event of winding up.
o Companies for community interest (Section 6)
 Any company whether limited by guarantee or share may become a
community interest company.
 This company is one which works for social causes for the interest of
the society at large.
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