Every business is regulated by some kind of rules and ethics that an organization must obey. These rules are not designed by a firm. In fact, these external laws are made by the country's government to control a firm and ensure proper functioning. Also, it becomes the responsibility of the company to follow the rules. Such rules usually describe shareholders, staff, investors, customers, taxes, alliances, business structure, and so on, and how they are to be regulated and what measures & requirements are to be met. The drafted sample emphasizes on the comparisons of the organizations depending on the legal business form.
Introduction to Legal Aspects of Business
Every business is governed with some sort of laws and ethics which are need to be followed by a organization. These are not the rules which a company make these are external laws made by the government of the country to regulate a firm and asks them to follow those laws. Normally these rules define shareholders, employees, creditors, consumers, taxation, partnerships, company structure and etc. and how they will be governed and what measures and criteria will be followed (Pathak, 2013). Any frauds or cheating will be considered as violation of laws and certain action to the company, its owners, board of directors will be taken. So while initiating with a new company or business the owner should go through the legal aspects which could impact the firm in the future. Such kind of laws specify an organization that how they will work with their partners and contractors (Padhi, 2012). Comparison of the companies on the basis of legal business forms are included in these. Director is a person who guides and govern a company or a field of a company. Directors duties are the laws which gives power to the board of directors to anonymously takes decision in the company.
Businesses organizations are distinguished in many ways depending upon the criteria used. On way of classify companies are based on their ownership. Sole traders are one of the types of businesses. It is one of the most simple form of business organization and is defined as a business owned and run by a single person and are also called as sole proprietorship. There is no legal difference between the owner and the business. Owner is responsible for the supply of the required funds to run the business (Horrigan, 2010). Any financial activity which is commenced by a sole trader will trade under the name selected by the himself and or on his own name.
Assets are considered as the personal of the owner. For starting a business he needs a licence and registration process of this is not that complicated and is not that expensive. Once the name of sole trader business is registered it will prevent other people from using it.Person interested in starting a business can be form sole trader business as it does not need legal formalities. Profits generated will be going all to the owner because he is responsible for all the business losses and liabilities. Size of these can be small or bigdepending upon the number of employees or the area in which they are operating. Small retailers or grocers can be example of sole trade.
Legally sole trader is given a identity of a single individual, so every liability or the assets are considered as the personal of the owner (Sinclair and Lipkin, 2016). For starting a business he needs a licence and registration process of this is not that complicated and is not that expensive. Once the name of sole trader business is registered it will prevent other people from using it. When it comes to the tax norms they does not have to pay taxes separately but owner have to pay.
Case Study of Sole Trader
On evening, a person named John Mark is a member of a law firm which is responsible of taking care of accounts of a sole trader business of a furniture named Argon Furnitures. John receives a phone call from his subordinate that the owner of the company, 76 year old Victoria Wurtz, had a heart attack at his residence and now admitted to hospital. But there are two transactions which require Victoria's approval. This problem arise because in sole trader the decision making power is with only one single person. John was concerned about the health of Victoria but he has to also deal with the legal aspect coming in-between the company.
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Unlimited Partnership also refereed to as unlimited liability, it is basically a business which include joint owners that are in charge of liabilities and debts resulted through business. This kind of liability is not crowned and can be paid off by the personal assets of owner. Unlimited partnership exists in sole traders, if the company is not able to pay the debts owner's of the company will be responsible for this (Craig and Campbell, 2012). The government can grab or snatch the personal property or assets of the owner if the debts are not paid. In order to avoid this situation or to get away from this people establish limited partnership so that they could save their personal assets. For example, three people came with a business and invest $38000 in that business which they own with collaboration.
After a period of the time company arise with $330000 in liabilities and if they cannot repay it and the bank announce company as defaulters than all the three partners will be equally responsible for the repayment of the debts. This would result that all of them have to come pay $110000 each in addition to the initial investment they made. Unlimited Partnership companies have a complicated legal laws controlling or governing them. The registration of
these firms are done under Companies Act, and is a English law which is followed by most of the countries who were under the rule of UK. Unlimited partnership company's owner has a lots of pressure on them for handling all the things because he is responsible or liable for taking all the decisions of the firm. A unlimited liability company might be in loss because they are away form the market trends they are not aware about what their competitors are doing or up to (Lawson, 2014). These are the private organizations and are exempted from sending any financial year accounts report to government unless government is providing any subsidy to them. Unlimited companies don't have shares listed in the stock market and have small turn over.
There goals are limited to the certain level or extent as the investment made are limited as are made through personal assets. Unlimited liability companies trade in the local market and are well aware about the trends and the business environment. Future of the organizations are based on the decision making and the investment of the owners.
Limited Liability Partnership
Partnerships are the business structure through which a business is done and more than one people could have power of making decisions. A limited liability partnership is partnership all the owners of the company have a certain amount of liabilities or we can say they have limited liabilities. In the limited liabilities partnership one owner or one partner is not accountable for another owner's carelessness. This means that every partner shares equal benefits and losses of the business. In UK they are regulated by Limited Liability Partnership Act 2000 and this says that the company exists legally (Whitehead, 2014).Such laws quote that when it comes to the responsibility of the organization all the members have to be equally agree in going for any agreement but no individual is responsible for the each others doing.
In the matter of tax these types of companies are not liable for paying corporation tax and the profits generated are shared to all the partners as a self employed person.After this the partners have to give tax to the government personally (Frankel, 2011).This type of structure are generally used by the accountants , lawyers. For example, three five laws came together and starts a law firm. Limitations of these companies depends on the factors that where it was created. It ensure protection of your personal assets because partner are protected from any legal action.
Whatever you will lose assets in the partnership but not apart from it. It has other advantages also that there is no requirement of any minimum capital and there is no limitation of the partners require for opening it. Audit of the accounts.are not compulsory for a certain limit and if exceeding of that limit takes place than it is compulsory. Concept of this structure helps small business to grow faster and also play a key role for those people who don't have much capital in opening a business (McKevitt and Davis, 2013). Through this they could invest a limited amount of money along with other partners. Such companies has a good relation with the customers, as they are small and customer could directly can come in contact with its owners and could know them personally.
Duty to Act Within Powers
It is a position acquired by a person and are appointed through a lawfully system. So certain duties of are assigned to him in the law which gives him and the board of directors which CEO. MD and etc. Directors duties are specific commitments owned by the members of the board. Duty to act within powers means that director should only use his powers for the cause of the duties they were assigned. He should use his powers within the specified company's laws and should not try to work outside those. For example, a director who is also a shareholder could arose certain problems (Schulz and Wasmeier, 2012).These two positions are different so the director should make sure that he should perform his duties and should not face any conflict as a shareholder.
Constitution of the company has mentioned the duties of the director so he should be very much clear about those duties and should not perform something else or misuse his power. They have a duty to look after all the company and assign people o0r employee certain task so we could say they are the watch dogs for the company who make sure every thing is going according to the plan. Controlling of any organization is quite difficult task so a director with a ground plan and vision should be appointed at this post.They should follow only those path which are assigned to them. Through this purpose will be solved and the corporate disputes will be avoided. There are various allegations on the directors of different firms that they share a particular relationship with a shareholder group and leaks internal information which is a wrong practice.
A company of hospitality industry has a director who leaks the information about the upcoming burden on the company to some shareholders so through this information the shareholder sold out all their shares of this company (Broekaert, 2012). Due to this the organization shares starting going down and faces loss. Through this example we can see that its the duty of directors to act within powers. Directors should not deviate from the duties they are given and whatever the scene or whatever the problem is arising they should address that to the chairman of the company. Any misconduct of the directors can result into resignation of them from their post.
Duty to Perform the Success of The Company
Director's decision are likely to promote the success of the company as it benefits its members. This means that directors cannot focus on a specific people or a particular group, he cannot overlook them in any matter. This law claim to confine the shareholders value in a law. This is to define about the value of shareholders and the stakeholders. Directors duty is to maximize the value for shareholders (Lyons, 2013). This says that the directors should able to differentiate the importance between the shareholders, employees, customers and stakeholders.
It is one of the controversial section of the company law and many countries are obstructing this point from the law. During the crises many had failed to manage the risk and this lead to crisis. Other have adopted different ways by understanding the demands of the shareholders so that they could earn more and increase growth which was only possible through attracting shareholders. Directors has play the role of the leader and leads his company in right direction. They have a knowledge of making people know about the success of the company that at what position they are and should win the belief of the customers.
A organization recently will be coming with its new venture abroad, so they have that potential to develop that area through resources and work for increasing products and service which will automatically lead to increase in profits. In this era you might perform well but till people is not aware about your success your growth will be limited to that level only. Directors have wider approach and try to take decisions which would directly or indirectly impact the the performance of the company. When the shareholders show interest in the company by buying the shares of the firm which would increase price or value of the company. The director should generate or come out with the plan for shareholder which would give them some other benefits (Pickering, 2012).
Shareholders show the reputation of the firm in the market, more will be the shareholders more will be the profit margin. Directors should study the market an evaluate the internal and external members of the company and should work in favour of their interest and decides the priorities without neglecting any one of them.
Duty to Exercise Independent Judgement
Director is a position where he is liable to take most important decisions. He is at the position where he should work for the interest of any one shareholder. A company which is run by the two people or have the business in partnership so every shareholders have a right to admit the equal number of director (Hasler, 2014). A private investor will appoint the director on the board to safe their investments or the money they have given. If the appointed director's only work for the interest of those shareholders who has appointed him than he will be in trouble. Directors duty is to work equally for all the shareholders in the company.
He should be flexible in any situation and take relevant decision. Director's cannot ignore or can not get rid off his decision making role. They have a duty to assign agreements that will impact on the organization. Director's has been the full freedom in this but they cannot step back from their role (Hawley, 2011). Every director performs independent judgement in his decision making. Independent judgement means that they are independent in their work whatever they like which would benefit or was in something interest of the company can take those decisions. During the appointment of a director chairmen focuses on several issues because he knows that the person he is appointing will be the image of the his organization.
A loyal and experienced person always fits in this role and he is appointed as the directors (Geis, 2014). Company has lots of hopes from the newly appointed director so he should look into those hopes and perform according to those. Coordination with the other board of directors is must because they are the decision making board. Director should have a solid background and while making any decisions he should see every aspects or department of the firm because any wrong decision can harm the company in different ways like their image can be affect, variations in profit and losses are some.
Benefits of every person related to the company should be the aim of the decision made by him. Whenever he is making any decision he should not have only concentrate on the people who assisted them in recruiting him. Ignorance of those people would make those people away from the organization and by this they will have to suffer in achieving certain desired goals..
The Duty to Avoid Conflicts of Interest
There might be some decisions or situations where conflicts on any matter can be occurred. Person interest of the director can conflict with the interest of the company. For example a director wants his job location at the place near his house but company wants to send him in the other location, so this might created a conflict in them. A director try to avoid such situations in which conflicts of interest is occurring. While drafting a decision he should applies all conflicts of interest and conflict of duty so that the conflicts can be avoided. Through this commercial opportunities can be also be destroyed by the company (Subramanian, 2014). If anyone is the director of company and working with the same area for your own purpose would create conflict.
Any director using companies information for his own purpose is also the conflict of the interest. Director is using any information of the company and giving those information to the brokers or the people who are close to him through this they could invest in the shares of the company called as internal biding which is illegal.The investors of the company might have a different opinion on the specific topic will produce more of it (Reiser, 2011). Conflicts can occur on any topic so the vision of the director need to be clear and make sure ever employee or the external investors should know about the decision made.
If any conflict is happening it should be discussed and sorted out and still it is not solved it should be addressed to chairmen. Decision is only made when all people are equally agreeing on the particular issue and director should ask if anyone has a different opinion about the agreement or not agreed with it (Ribstein, 2011).They must give up their personal interest as the organizational interest should always comes first because they are appointed for the welfare of company. A directors is a person who is bold enough in taking risks and taking about the interests of the employees. He make sure that those interests never conflicts with each other and the priority is decided accounting to the interest of the shareholder, employees and customer..
In the above file which contains two task talk about the laws or ethics attached with the business in reference to the types of business on the basis of how many owners it has and what are their legal aspects which include sole traders, unlimited partnership, limited liability partnership. Their registration, liabilities, assets and how repayment of the debts take place and how pays it. Cash study of all three are included and those are based on the type of firms or businesses they are. In the task two duties of directors like duty to act within powers, duty to promote the success of the company, duty to exercise independent judgement and duty to avoid conflicts of interest are briefed according to the Company law. Role of the director's while making decisions are also defined.
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- Craig, T. and Campbell, D., 2012. Organisations and the business environment. Routledge.
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