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INTRODUCTION TO BUSINESS LAW
Business law is the prominent aspect that contains legal framework related to formation as well as winding up of company. It assists corporation to move ahead in an ethical way. It assist management of company to do right thing and protect right of firm for long span of time with greater profitability. Present report is about business law of managers for partnership as well as private company. In this regard, legal regulation surrounding the creating and running of these two business organizations are explained. Further, law of negligence imposes a duty not to cause economic loss is also analyzed that protect right of company which leads to ensure long run growth of firm.
On the basis of given scenario, a client has decided to set up new business with a former colleague. Simply Businesses focuses on three important factors for setting new business such as capital, control and minimizing risk that facilitate owner to manage all business activities in an effective way (Davies, 2010). Here, suggestions can be given to client on the basis of advantages as well as disadvantages of both private and Partnership Company. It assists them to know about risk involved and also the rate of return so as to ensure about consistent flow of income. Being consultant of Simply Businesses, detail information related to incorporation and rising of money as well as other regulatory framework to be followed for respective business, is given to client. It develops his understanding to select the best alternative and invest his money in suitable option so as to increases overall rate of return (Moore, 2012). The given information for client, includes following factors that play significant role for setting up new business-
Trading as a Partnership
In order to set up new business in the form of partnership, Simply Businesses ensure about compliance of Partnership Act 1890 that is formulated by UK's parliament. Here, there should be two or more than two partners who start business with mutual consent. They come together for sharing equal profit or on the basis of their agreed rate which facilitate give upward direction for future business activities (Blum, 2007). Formation of partnership business can be based on oral or written contract. Here, the main factor, capital that consists of agreement related to sharing of profit as well as investment ratio by each partners. It leads to resolve their conflicts and ensure long run survival of business with greater profitability (Advantages and Disadvantages of Partnership, 2010). The second factor, control is also taken into account while forming partnership business. Owing to this, management of business is decided on the basis of equal responsibility of all partners so as to control all business activities in an effective way (Gray, 2010). Basically single partner has equal right to take decision on any matter of business in relation to successful running of the same. Formation of partnership business can be in term of implied agreement of all partners that leads to start up new business in an effective way. On the occurrence of specified event, partnership can be dissolved thereby relationship among each partner is also terminated. Partnership firm can also be dissolved with mutual consent of all partner and distributing equal liability among them. Third factor, risk that is easily minimized due to shared profit and loss among partners that leads to manage all business activities effectively. Further, setting up business as partnership has following advantages that develop deep understanding among client-
Shared profit and loss-Partnership is best way to start to new business thereby roles and responsibilities of each partner is shared. It facilitates to minimize risk and give upward direction future business activities. Here, firm is powered to move ahead without any type of barrier that facilitate to ensure long run survival with greater profitability.
Good amount of capital- Partnership is the biggest advantage thereby large amount of money can be arranged because of shared interest of associated people (Lehto and Nysten-Haarala, 2010). It facilitates to expand business and cater need of different types of buyers in an effective way. Greater the number of people, greater the ratio of capital which assist to ensure about consistent flow of production and achieve long as well as short term objectives of company (Business law for managers, 2015).
Effective formation- Formation of partnership firm is very flexible than limited company. It requires fulfilling less legal formalities in comparison to company that facilitate to start business quickly.
Disadvantages of trading as partnership
There are following disadvantages of setting business as partnership-
Disagreement-The biggest disadvantages of partnership is disagreement among partners that sets limit for growth of firm. Due to possession of different ideas among each partners lead to create conflict among them which have direct impact on productivity as well as profitability of firm.
Agreement- In partnership business, all members have to agree on the same term otherwise it hampers performance of firm. Partners need to be agreeing even in case of inappropriate decision taken by majority of people. It sets limit for them and they cannot act beyond their equal roles as well as responsibilities.
Taxation-It is the greatest barrier for partnership business because partners have to pay personal tax within specified time span. It increases burden of partners and also expenses of firm that leads to decreases overall rate of return (Milner, 2011).
Liability-The liability of partnership business is depending on nature of liability of firm. In ordinary partnership, members have to bear financial risk of business beyond their specified liability. On the other hand, limited liability partnership facilitates to minimize risk and ensure long survival of firm with greater profitability. Hence, in ordinary partnership, members have to bear huge loss.
Legal regulation surrounding the formation and running business
Registration of partnership firm is done under the act of Partnership 1890 that is formed by parliament of UK. Further, rules and regulations which are specified in the same act, need to be followed by each members of partnership. Here, partnership deed contains all terms and condition as well as responsibilities of each member. They all make efforts towards common objectives and share profit in equal ratio (Shehzad, 2009). A circumstance that leads to dissolution of partnership is also stated in deed that facilitates to ensure effective running of business. Members of partnership firm are also required to enter into oral or written agreement; however, written agreement is preferable among them.
Trading as a Company
In order to start business as private company, Simply Businesses have to follow Companies Act, 2006. This act specifies rules and regulation for corporation that has separate legal entity and principles. It can be understand with the help of Salomon v Salomon & co. Ltd 1897. It is the appropriate evidence to specify rules and regulation for formation of private company that enables management to know about their liabilities (Tomprou and Nikolaou, 2011). It helps promoters to start business in an effective and resolve issue occurred during payment of long as well as short term debts (Companies Act 2006, 2014). On the basis of aforementioned case, management of company has limited liability and personal property of owner cannot be considered for payment of company's debt. Creditors cannot claim for personal property of owner as they he has limited liability towards business. Salomon v Salomon case depicts that owner is not entitled to pay for debts because company itself is responsible for the same (Oladokun and Aluko, 2014). The case highlights the main factor that both owner as well as company is two distinct person and has separate legal entity. Hence, creditors cannot claim on shareholders personal property in order to make payment for outstanding liability (The rule in Salomon v Salomon, 2014).
Legal regulation surrounding the creation and running business
There are following legal regulation in order to formation of company-
- Registration of corporation under Companies Act 2006 and ensure abide by the law.
- Registration of company is done on the basis of type of company such as limited liability or unlimited liability.
- Management can ensure successful start up of business only after getting certification of incorporation
- In order to form company, Article of Association and Memorandum of Association should be included.
- Registration must be done of members, mangers and also directors of firm.
Advantages of trading As Company
- The biggest advantage of firm is long run survival where resignation, death and retirement of any partner do not leads to dissolution of firm.
- Separate legal entity of owner as well as company
- In comparison to ordinary partnership firm, there is limited liability of partners working in company thereby their personal property is not considered to offset outstanding liabilities (Kim, 2009).
- Management of private company has full control over the basis which facilitate to manage all business activities in an effective way.
- The rate of tax is also fixed for the corporation which gives certainty for future rate of return.
Disadvantages of trading As Company
- There is restriction on increasing amount of capital by each partner.
- Company is also required to follow complex accounting system that depicts overall financial information of the same.
- Company has to follow lengthy registration procedure and have to ensure about compliance of several legal formalities that leads to delay in start up of business.
On the basis of aforementioned discussion, being consultant of Simply Businesses i will suggest my client to start up their business as partnership and register the same as well (Ilter, 2012). Because, it helps client to start up business with comparatively less legal formalities and also there is shared loss and profit which gives upward direction for future business activities.
Hong Kong Fir Shipping Company Ltd v Kawasaki Kisen Kaisha is the origin of innominate terms between warranties and conditions. It has laid emphasis on some of the terms that result in termination of contract in the form of remedy. On the other hand, sufferers can claim for damages thereby termination of contract does not take place. It is directly connected with breach of terms (Bucher and Winter, 2009). It is case of two parties in which a ship was hired for 2 years on the basis of agreement which include term that it would be seaworthy right through hiring period. Here, problem was occurred and sheep become out of service for period of 20 weeks. In this regard, purchaser considered as breach of condition and take decision to repudiate the same. However, seaworhtiness was just the term of contract, not condition of the same that does not give right to purchaser to breach the contract.
The innominate term take place when there is no condition and warranty associated with contract. From the case Hong Kong Fir Shipping Company Ltd v Kawasaki Kisen Kaisha, it can be critically analyzed that sheep was out of services for a period of 20 weeks not for 2 years. Hence, contract cannot be breached however; Hong Kong Fir Shipping has done it. Here, seaworthiness was not the condition of contract thereby party can terminate contract (Yang and Lin, 2010). In this case, there was not condition as well as warranty was applied so court originated innominated term. If, there is breach of condition then party can terminate contract but there was no such things were involved in the given case. Here, Hong Kong Fir Shipping did wrong by repudiating contract on the basis of term seaworthiness of sheep. It creates loss to innocent party. In case of non-compliance of condition, contract can be repudiated or reject but the same cannot be done without presence of such type of happenings. On the other hand, if one party breaches warranty then another party can claim for damages but both are not entitled to breach the contract. Therefore, for the given case, court has not considered breach of condition as well as warranty and it just introduced innominated term of contract. On the basis of innominated term, sheep was out of service for short span of time that does not give authority to Hong Kong Fir Shipping to breach the same (Shehzad, 2009).
From the above statement, it would not be better to place all contractual term in category of innominated term which gives greater flexibility to court while dealing with repudiation of contract. Owing to this, court cannot take fair decision in relation to provide justice to innocent party. Innominated term can be applied in some abnormal or exceptional cases, where both conditions and warranties are not applied. It can be critically analyzed that, by placing all contractual term into category of innominated term; innocent party won't be able to claim for damages. Hence injustice will take place (Palmer, 2014). However, breach of condition and warranties can be considered only in specific cases where it is mentioned in agreement.
Law of negligence can be defined as conducts of person or party that falls below the standard required to ensure protection of other parties against unintentional harm or risk. It arises due to lack of care from side that cases harm to other party. It is applied only when one party take care while acting with others so as to protect their right and do not intend to harm them. Law of negligence imposes a duty not to cause economic loss to another party. Negligence can arise on the road, at work, medical and health care as well as faulty products. It can be critically analyzed that, there should be present of some characteristics which provide evidence that one party not intend to harm another (Manjoo, 2012). Some elements are explained as follows that shows about law of tort of negligence-
- The foremost factor that provides evidence about existence of low of tort of negligence is duty of care. Both defendant and claimant party should take care of each other so as to protect other from economic losses.
- Breach of duty make defendant liable for negligence. It occurs because of lack of care while performing task and causing intentional harm to other party.
- Defendant is liable only for those damages which are occurred due to his/her carelessness.
- Claimants must prove the harm legally recognized harm during negligence otherwise he/she cannot claim for damages.
The tort of negligence can be understood with the help of below mentioned cases-
Hedley Byrne & Co Ltd v Heller & Partners Ltd 
In the above case, court came to know that there was absence of duty of care which causes economic loss to other party. Here losses occurred due to negligent misrepresentation that leads to raise issue by the side of innocent party (Jefferson, 2008). For the present case, court discharges case as there was no duty of care which provides evidence about tort of negligence. Here, pure loss economic loss took place due to negligent misstatement. It was also found that special relationship are there between both parties thereby defendant was required to take enough care in giving advice to give up negligence liability. Hence, misstatements were there that depicts that there was absence of duty of care.
There are also some cases which provide evidence of law of negligence that duty not to cause any economic loss to the party. From, Home Office v Dorset Yacht Co Ltd , it was found that if one person causes for the damages to other then the same is liable to prevent economic damages (Shehzad, 2009). If, he fail to do so then defendant need to pay for the damages and claimant can take legal action against him. The final decision for the case was dismissed by court (Elements of a Negligence Case, 2014). In order to proving the fault of party that causes economic losses to others, following elements need to proved in court-
- There should be duty of care by the side of defendant party. It is foremost factor that should be taken into account by defendant.
- Losses occurred due to breach of duty must be caused by defendant party.
- The last element that should be proved in court of justice is economic losses must be consequences of repudiation of contract.
The aforementioned rules specified about the tort of negligence and helps to innocent party to take legal action against party at default. It also enables judges to provide effective judgement in relation to well being of sufferers.
Donoghue v Stevenson (1932), is case of two party in which a person named Donoghue got ginger beer in gift in which he found dead snail. Consumption of that drink caused him ill. Owing to this, party takes legal action against manufacture of ginger beer. Further, there should be duty of care take by manufactures of ginger beer (Milner, 2011). The appeal of give case was allowed by the court that also formed modern law of negligence. Here, manufacturer named Stevnson, is liable to pay for damages, although there was no legal relation between consumer and manufacturer. Further, Donoghue has right to claim for damages. It helps to provide justice to innocent party and court takes effective decision party at fault. It assists manufacturers to provide safe and high quality product to buyers. It leads to ensure safety of general communities and duty of care take place (Lehto and Nysten-Haarala, 2010). From the conclusion, it can be said that one party is liable even it does not have any contractual relation with another, for example manufacturer and consumer. Therefore, manufacturers producing product for consumption are required to take duty of care which provides evidence that product is safe for the purpose of consumption (Gray, 2010).
From the report, it can be concluded that, business law plays significant role for successful running of business. It helps to ensure ling run survival of company with greater profitability. It can also be said that, tort of negligence ensure safety of both party thereby they can fulfill aim of contract and can abide by the law. In addition to this, trading as partnership proves to be effective that facilitate to raise money on the basis of requirement. It leads to increases overall rate of return and also minimize risk of partners to a great extent.
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- Ilter, D., 2012. Identification of the relations between dispute factors and dispute categories in construction projects. International Journal of Law in the Built Environment.
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