Business Law Assignment

Questions: Part A: 1. Setting up/Starting an unlimited partnership or a private limited company. Present an analysis of the pros and cons of setting up either an unlimited partnership or a private limited company.2. Running an unlimited partnership or limited company. Explain and analyse the duties and legal obligations associated with running either an unlimited partnership or a private limited company. 3. Duties and liabilities in the termination of either an unlimited partnership or a private limited company. Explain the ways in which either unlimited partnerships or private limited companies are terminated. Analyse the liabilities and duties occurring in the termination of these types of venture. Part B) Relevant statute should be cited to support each point raised, with case law examples and academic commentary to reinforce arguments and evidence research. Answers: Part A 1. Setting up a private limited company in United Kingdom can be an easy process if proper guidelines are to be followed. For a company to be limited in nature, the company needs to be registered online at Companies House. Registration is possible online, b post or through an agent that requires a registration fee to be paid. This process of registration is called as incorporation. To list of requirements needed for setting a private limited company is the company needs to have a name, which is according to the rules set for the same (Cumming and Walz 2010). The company should have a registered address, one director, at least one shareholder, a memorandum of association, statement of capital, which gives details of companys shares and finally an article of association. After the company is registered, the company will receive a Certificate of Incorporation. Another important registration is that of Corporation tax, which is compulsory within three months of starting business (Altman Sabato and Wilson 2010). There are many advantages and disadvantages of setting up a private limited company. The advantages of setting up a private limited company are as follows: Easy Procedure to set up With the introduction of online registration of a company, the procedure to set up a limited company has become very simple. There is no need to wait for a long period for the Companies House to process the paper work (Davies 2010). The incorporation cost has also become an allowable expense against corporation tax. The Companies Act 2006 makes rules for establishing and running a company in United Kingdom and this amended Act has made setting up a company very simple effective from 1 October 2009 making administrative formalities minimal. Separate Legal Entity A limited company has its own individual personality and identity. This makes an outside party contract with the company and not with the shareholders and directors of the company. This also gives company a never ending life which means that a company survives the death of its owners and the directors and shareholders of the company can change from time to time without affecting the status of the company (Nambissa and Ball 2010). Limited Liability The liability of the shareholders of the company was limited for the debts that the company would bear. The liability of the shareholders is limited to the amount of their unpaid share capital. This helps a companys management to take calculated risk without the fear of any gross loss, which could be suffered that the liability be unlimited like in partnership firms. Limited Liability is one of the most significant benefits which a private limited company enjoys. Tax Benefits Sole trading companies and Partnership firms pay income tax and Limited companies pay corporation tax. Corporation tax rates are lower than the income tax rates. This is a significant advantage in setting up private limited company (Becht et al., 2010). Easy Fund Raising In case of sole trader and partnership firms, the owners have to raise or collect capital from their own resources however, in a private limited company, the company has the option to raise funds while issue of shares. The company has the option of issuing new shares and offering it to its existing shareholders. However, the option of raising funds with the help of public issue is only possible if the company is a public limited company (Brealey et al. 2012). Creditability An efficient and talented management team supports the internal working of a private limited company. This factor is a big help in building third party confidence in the limited company. The third party can include various suppliers, vendors and other larger companies who would not deal with a company that is not of the limited nature. This opens up broader business opportunities for the private limited company, which can help in its ultimate goal of making huge profits (Daniel 2012). The disadvantages of setting up a private limited company are as follows: Liability Even when one of the major benefits of forming a limited company is that the limited of the owners is limited. The bank still requires personal guarantees from the directors of the company, which means the directors can somewhat be liability for the debts of the company. Administration The administrative formalities are much higher in a private limited company than the other form of business structures like the sole trader and partnership. Directors of a private limited company are expected to deliver various statutory reports and company papers to Companies House. In addition, non-compliance or failure on the part of the director to submit these documents on time can attract heavy penalties (DA, FERREIRA and MARQUES 2012). Confidentiality The accounts and important documents of a private limited company are public records, which every and any person can review. This makes the companys vital information open to all and the confidentiality of the company is very limited (Gatti 2013). Accounting fees - The reporting formalities for private limited companies are very wide and attract heavy penalties if the company fails to comply with the same. Therefore, to avoid the heavy penalties the companies are bound to employ highly talented accountants and compliance officers, which increases it, cost as the talented accounts charge a heavy fee for their services (Cavoukian 2012). Withdrawal In case of an individual who wants to withdraw from his position or surrender his shares of the company, it gets a difficult situation as it is complicated to separate the assets and finance of the director and the shareholder from that of the companys (Henriques and Richardson 2013). 2. Starting and running a private limited company, attracts many duties and legal obligations, which are mandatory to be followed. Non-compliance of many of such duties and obligations can result into heavy monetary penalties and go to the extent of criminal liability, which included arrest (Teasdale 2011). As a limited company has its own personality of a legal person, however practically it cannot be arrested; therefore, the top management of the company, which are the shareholders, directors and auditors of the company usually, are charged with criminal liability in case they act negligently in fulfilling their duties as an employee of the company. A private limited company in United Kingdom is governed under the rules and regulations made by the Companies Act 2006. The Companies Act 2006 states many duties and legal obligation, which all the limited companies in United Kingdom need to comply with in order to be operative legally (Saunders and Steffen 2011). The various duties and legal obligation of private limited companies are as follows: Registration The primary duty of a private limited company is that it registers its existence, name and address duly following all the rules and regulations and paying the correct registration fees as required by the law. The said rules and regulations are clearly mentioned in the Companies act, 2006 in United Kingdom (Storey and Ymen 2011). Maintain Accounting records Every private limited company is under the duty and legal obligation to maintain accurate and correct accounting records, which are reviewed by the Companies House annually. At the end of every financial years, the Company is under an obligation to prepare a statutory annual account (Bale et al. 2012). Taxation It is a primary duty and legal obligation of every private limited company to pay appropriate tax returns whenever required by the law as directed in the Companies Act 2006 in United Kingdom. The accounts and tax returns are required to meet the deadlines Companies House creates for its filing (Lyon, Teasdale and Baldock 2010). Corporate Social Responsibilities I the recent years, many legal amendments and reforms have made corporate social responsibility a mandatory activity which every company operative in United Kingdom needs to comply ad fulfil. Corporate Social Responsibility is a action which every company needs to take to fulfil certain legal requirements to enhance the economical, environmental and social development. It means that a private limited company acts as a responsible business house and follows a strategy with principles of shared value for society and business (Burns 2010). Legal Compliance It is the duty of every private limited company operative in United Kingdom to carry its busies following the law set in United Kingdom which is the Companies Act 2006. The rules and regulations set in the Companies Act 2006 is the guiding document, which suggests all the legal requirements to be followed by a company. It is the companys duty to carry according to the said Act. These duties include conducting timely meetings according to the rules set for the same, appointment of appropriate skilled staff, etc. Disclosures It is the duty of every private limited company to make accurate and honest disclosures of the all information that its legally liable to disclose. The consequences of inappropriate disclosures can attract many monetary penalties. Bribery It is the duty of every private limited company in United Kingdom to refrain from taking or giving any monetary benefits to gain advantages. The laws against bribery should be followed by every private limited company and it is important not just as a legal requirement but to keep a clean competitive environment in the society to work (Teasdale 2010). Management It is the duty of every private limited company to appoint skilled staff, which includes directors ad auditors. In return, the directors consist the top management, which run the company; therefore, director duties are almost the duties of the company. Section 171 to 177 under the Companies Act 2006, state duties that are mandatory for a private limited companys director to follow. These duties include the duty to act within the powers as mentioned in the Act, the memorandum, and the Articles of the company, to promote the success and interest of the company in every way while taking important decisions regarding the working of the company. It is also the duty of the director to have independent judgement without any conflict of interest where he keeps his interest above that of the companys. It is the duty of the director to exercise reasonable care and diligence while carrying out his duties as a director. It is the duty of the director to avoid taking any bribe or undu e advantages from any third parties to promote self-interest. Following these duties by a companys director indirectly makes the company comply with the legal requirements of the Companies Act 2006 (Teasdale 2010). Environmental Safeguard If the private limited company is engaged in manufacturing or processing industry or any other industry which can harm the environment, it is the duty of the private limited company to take all measures to ensure that its manufacturing or processing unit does not harm the environment. It is the duty of every company to protect the environment while carrying out its business. 3. There are many factors, which can lead to termination of a private limited company. A private limited company, which is not involved in trading, can apply to strike down its name from the register of the companies. Under Section 1003 of the Companies Act 2006, a limited company can request for dissolution provided it meets the necessary requirements. These requirements are as follows: The company has not traded for a period of 3 months The name of the company was no changed in the last three months It is free from any current or potential legal proceedings The company has not made any disposal for value of its properties and rights If a private limited company is not trading since the last three months, the simplest and the most inexpensive way of dissolution is to apply for striking down he companies name from the register. However, this method is not an alternative to insolvency proceedings. The private limited company is under an obligation to sent copies of dissolution form within 10 days from its application for the same to all the companys members, employees, managers, trustee and directors for signing the said form. If the Registrar believes that the said company is fulfilling all the requirements mentioned above and is not working currently, they will strike down the companys name from the registrar and the private limited company will be dissolved without going through liquidation (Ltz, Eberle and Lauter 2011). The next method to dissolve a company in United Kingdom is to initiate members voluntary dissolution. This method can be used when the company is solvent and wished to retire or stop its business operations. There are simple steps to dissolution under this method, which are filling solvency declaration and call for a shareholder meeting to pass a winding up resolution, then the resolution needs to be advertised in a Gazette. Finally a liquidator needs to be appointed who will take charge of dissolution process and finally send the finally report to Companies House where the dissolution will be accepted. In case the company is insolvent, the dissolution can be either the creditors voluntarily dissolution or the company can opt for compulsory liquidation. For a company to be dissolved in the first manner, shareholder agreement is compulsory where 75% shareholders agree to the dissolution. The next steps are similar to the method of striking down companies name only in this case a creditor meeting is conducted where creditors can question directors about company failure or suggest another liquidator. However, when a company cannot pays its debts and the creditors get a court judgement for payment of their debts, company can either pay the debts of the creditors or get into a arrangement with the creditors to pay the debts in future and opt for voluntary arrangement. The creditors in this case apply to get the companys assets seized, if the assets are not enough to pay all debts, the creditors apply to have the company dissolve (Acerete et al. 2010). The liabilities and duties of a private limited company on termination are that it pays all its creditors in full any debt which its owes. The company should follow the legal process of termination mentioned in the Companies Act 2006 in United Kingdom. The dissolution fees and penalties, if any, need to be duly paid by the company while it is carrying on its dissolution procedure. The company going through dissolution procedure needs to fill all the forms its legally required to fill under the Companies Act 2006. Part B The private limited company, which is owned and managed by me, is called High Heels Private Limited. The said company is involved in manufacturing a wide range of shoes including women, men and children shoes. The company was started two years ago with me and two of my other friends as three shareholders of the company. The name of the directors of the company was Paul Walker, Tina Gomes and me, John Davis. We started the said private limited company considering the various advantages of the private limited business structure compared to the partnership structure, which could have been another option. The major advantage we received was limited liability, which allowed us to take many calculated risk in the past two years, which eventually proved fruitful and lead to the success of the High Heel Private Limited. The private limited company structure attracted many people who showed great interest in being a part of it. Therefore, the business structure helped us to develop great teams, which is very important in establishing a business and achieving success. It is rightly said that great business activities are a result of a great and talented team, which proved true in my experience. In the recent times, employees who seek for jobs look for much more than just a high salary, they want to be a part of a larger entity which has wide growth prospects. This makes the potential employees get attracted to join a company business structure. The private limited company is the most suitable for economic growth as the problem of raising funds is not very difficult in the limited form of business structure. The new issue of shares can be distributed to existing shareholders. Another benefit of private limited company is that it protects personal assets and it gets easier to concentrate on work without the tension of losing your personal assets. This makes one focus on the business without the fear of potential business losses affecting your business. The tax benefits attached with private limited business structure also benefited High Heel Private Limited Company at the initial stage and during the first years of its incorporation as it cut down on the capital and cost of running the business. In the industrialist environment today, the companies with limited growth scope are falling apart and the reason for its decline is that they follow the traditional business structure of sole trader and partnership, which have growth limitation. With High Heel Private Limited, being a company, it attracted many vendors and suppliers who dealt with us believing in the structure and the management, which we build; this resulted in a significant growth that was observed in the past one year in the company dealings. The company was started with producing just 6,000 pair of shoes in a year, which had increased to 11,000 pair of this the following year. As High Heel Private Limited was a manufacturing unit, the company from its very start and in all its administrative formalities fulfilled all the legal requirements, which are mentioned in the Companies Act 2006. Following regular compliance rules helped the company to receive governmental support, which resulted fruitful while the shoe factory was expanded. The aim of the private limited company started was to expand and gain profits by following all the legal procedures and requirements, it was a principle, which was adopted in the Articles of the company, that the Company will carry its business with all compliances. Thus, the good intention being the business increased the market value of the company, which resulted in its quick success. Therefore, according to be selecting an appropriate business structure is the primary step towards building a successful business which is followed by making well with the advantages the business structure has to offer and smartly avoid the situations where the disadvantages can create huge problems or losses. The private limited company structure is one of the best business structures available to establish and run successful business operations. 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