Legal aspects of business Essay Example

  • Category:
    Business
  • Document type:
    Coursework
  • Level:
    Undergraduate
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    2
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    1444

LEGAL ASPECTS OF BUSINESS

Introduction

Jessica and Mary have a wide arrange of business structures available to them, which they can select to run their dry-cleaning business. Each business structure that Jessica and Mary may choose to have its legal and tax ramifications. The paper will discuss the advantages and disadvantages of various business structures that are available to both Mary and Jessica as per the British law. This will provide a better understanding of different legal aspects of businesses1.

Ordinary Partnership

Mary and Jessica have the choice of getting into an ordinary partnership, according to the partnership requirements, the two partners are expected to share the task of running a business and then share the ideas with other related partners2. The two entrepreneurs can benefit from getting into an ordinary partnership as it is easy to create and also maintain due to lack of bureaucratic nature of governance3. They oly need to register as indicated in the Salomon v A Salomon & Co Ltd. There is no fee, which is associated with the creation of a business entity. The two person can benefit from the creation of a partnership only required little formalities to start a business as which sometimes can be a simple oral agreement as decided in the Carlen v Drury case4. Mary and Jessica are not required to contribute anything when establishing their business. Connectively, owners, may also report their each appropriate share of net business losses on each personal taxes5.

However, an ordinary partnership that Mary and Jessica may enter into makes the owners of the business to be jointly and personally liable for any debts, liabilities, and judgments taken within the business6. This means that a partner can be liable and sued along with their partnership in the same action as shown in the case of It’s A Wrap (UK) Ltd v Gula7. For the transfer of equity, the transferability is limited where there must be unanimous consent of all partners to transfer their interest from one person to the other seen in the decided case of  Scottish Insurance Corp Ltd v Wilsons & Clyde Coal Co Ltd8.

Limited Liability Partnerships

This is a corporate structure which is considered to be an essential hybrid entity that tends to combine the characteristics of a corporation and a partnership or sole proprietorship Derry v Peek. Among the advantages that the two individuals are expected to enjoy are that the members who also act as the owners will benefit from the limited liability where the shareholders of corporations are not personally liable for the entities beyond their investment in the entity like in the mergers and acquisition  Hogg v Cramphorn Ltd.Limited liability company owners also have a flexible tax option where the partners are taxed as a partnership. The entity is eligible to file for bankruptcy protection under the bankruptcy statutes9. The revenue authority does not conduct an audit of limited liability companies as frequently as they do to the sole proprietorship10. This ensures that there are few or little legal implications on LLC companies compared to other business structures11.

On the other hand, the process of forming an LLC is one of the most expensive and complex entities to form. The profits generated are usually subjected to self-employment tax. In some instances, the LLC fee is assessed on the gross revenue as opposed to net profits, this implies that the company could be making losses but still obligated to pay the LLC fee. It is not possible, it make a single person LLC, which calls for such a business to have many people who are operating it as opposed to as a sole proprietorship12.

Companies

A company is identified as a diverse legal entity that is different from its stockholders or other business officers, in the United Kingdom the common category of the company includes the proprietary limited companies that cannot raise the required capital from the universal public through IPOs and offer shares to the share markets. in the case of  Ashbury Railway Carriage and Iron Co Ltd v Riche to protect the shareholders13.The second company is identified as a public company that is formed with the intention of raising or borrowing public money through listing the company shares to be traded on a stock exchange14. In an event where the company is registered, it is allowed to trade and operate anywhere within the United Kingdom. After sales are made the tax rate can be made more favorable where the entrepreneurs have a chance to access a wider and more capital and skills base15. The disadvantages of a company are that the process of forming registering and running it is expensive; it also requires highly trained personnel Adams v Cape Industries [1990] Ch 43316.

The reporting obligations can also be compound since the financial matters of the company are made public making it exposed to competitors within the market. In a situation where the directors fail to meet their legal obligations, they may be sued or held personally liable and obligatory for the company’s debts17. This makes them part and liable to decisions, actions, and judgment made by the business as opposed to LLC where the members are not liable as in the cases of Colin Gwyer & Associates Ltd v London Wharf (Limehouse) Ltd [2003] BCC 885 (also, Eaton Bray Ltd v Palmer) which indicates the duties of the proprietors18.

. Lastly, profits distributed and shared to the shareholders are taxable as earnings.

Conclusion

Based on the information provided it is significant for Mary and Jessica to consider and choose the best business structure which will have little or no legal implications on their business. Secondly, it is important to ensure that they make certain that the business structure they choose will not make them liable in any way.

References

Asser TMC and Fund IM, Legal aspects of regulatory treatment of banks in distress(International Monetary Fund (IMF) 2001)

Birt I, Legal and taxation aspects of your small business (4th edn, Allen & Unwin 2013)

McInnes M, Kerr IR, and VanDuzer AJ, Managing the law: The legal aspects of doing business(4th edn, Pearson Canada 2013)

Campbell D and Craig T, Organizations and the business environment (2nd edn, Elsevier Butterworth-Heinemann 2005)

Lopez-Tarruella A and Lopeztarruella A, Google and the law empirical approaches to legal aspects of knowledge-economy business models (T. M. C. Asser Press 2012)

Magnet JE and Dorey DA, Legal aspects of aboriginal business development (LexisNexis Butterworths 2005)

McCrackan A, Practical guide to business continuity assurance (Artech House Publishers 2004)

McInnes M and others, Managing the law: The legal aspects of doing business (2nd edn, Pearson/Prentice Hall 2007)

Nicholson MJ, Legal aspects of international business: A Canadian perspective (Prentice Hall Canada 1997)

Padhi PK, Legal aspects of business (Prentice-Hall of India Pvt. 2012)

Pathak A, Legal aspects of business (5th edn, Tata McGraw-Hill Education India 2013)

Puerto JB del, Legal aspects of business (2014).

Sople VV, Legal aspects of marketing in India (New Age International (P) Ltd., Publishers 2004)

Spadaccini M, Business structures: How to form a corporation, LLC, partnership, or sole proprietorship (Entrepreneur Press 2007)

Adams v Cape Industries plc [1990] Ch 433 

Anor v Palmer & Ors[2002] EWHC 2748 (Ch)[2003] B.C.C. 885.

A Wrap (UKLtd v Gula & Anor [2006] EWCA Civ 544 (11 May 2006)

Carlen v Drury (1812) 35 ER 61

Colin Gwyer & Associates Ltd v London Wharf (Limehouse) Ltd [2003BCC 885 

Ashbury Railway Carriage and Iron Co Ltd v Riche (1875) LR 7 HL 653

Derry v Peek (1889) LR 14 App Cas 337 

Hogg v Cramphorn Ltd [1967] Ch 254

Salomon v Salomon & Co Ltd [1896] UKHL 1

Scottish Insurance Corp Ltd v Wilsons & Clyde Coal Co Ltd [1949] AC 462

1Mary Jo Nicholson, Legal aspects of international business: A Canadian perspective (Prentice Hall Canada 1997), 43-45.

2
Ibid 32-54

3Andrew McCrackan, Practical guide to business continuity assurance (Artech House Publishers 2004), 56-58.

4Mitchell McInnes, Ian R Kerr, and Anthony J VanDuzer, Managing the law: The legal aspects of doing business (4th edn, Pearson Canada 2013), 86-89.

5Ian Birt, Legal and taxation aspects of your small business (4th edn, Allen & Unwin 2013), 15-18.

6
Ibid, 55-60

8Aurelio Lopez-Tarruella and Aurelio Lopeztarruella, Google and the law empirical approaches to legal aspects of knowledge-economy business models (T. M. C. Asser Press 2012)

9Tobias M C Asser and International Monetary Fund, Legal aspects of regulatory treatment of banks in distress (International Monetary Fund (IMF) 2001), 85-93.

10David Campbell and Tom Craig, Organizations and the business environment (2nd edn, Elsevier Butterworth-Heinemann 2005)

11Joseph Eliot Magnet and Dwight A Dorey, Legal aspects of aboriginal business development(LexisNexis Butterworths 2005) 33-40.

12
Idid, 76-75

13
Ibid, 32-38

14Andrew McCrackan, Practical guide to business continuity assurance (Artech House Publishers 2004),16-22.

15Akhileshwar Pathak, Legal aspects of business (5th edn, Tata McGraw-Hill Education India 2013)

16David Campbell and Tom Craig, Organizations and the business environment (2nd edn, Elsevier Butterworth-Heinemann 2005),12-25.

17Jericho B. del Puerto, Legal aspects of business

18Michael Spadaccini, Business structures: How to form a corporation, LLC, partnership, or sole proprietorship (Entrepreneur Press 2007)