The business organization takes three forms which include sole trader, unlimited partnership, and limited liability partnership. These forms of business have to meet and observe certain legal requirements in their operations.
A sole trader is a form of business owned by one person and is easy to set up and keep it running as it requires minimal legislation, record keeping, and accounting work. Existing legislation on sole proprietorship in the UK includes Acts of Parliament passed by the Parliament to ensure that the form of business is on track as noted by Horngren (2014).
These legislations include Trade Descriptions Act which criminalizes any activity that provides false information about the services or goods offered by the sole trader. Such activities include the inclusion of ingredients, location of a manufacturing site or associating with other brands that have no entitlement to the product or service description (Moran 2013). The Sales of Goods Act ensures that goods and services offered by the trader are of quality as stated by the trader. The act dictates that the business must perform as it describes itself and provide customer satisfaction.
The Supply of goods and services Act ensures that the proprietor commits to providing reasonable services and goods that match the cost, skill, and time required in the process. Another legislation passed includes the Data Protection Act which provides direction for traders on collecting external personal data. This Act requires business owners to provide the nature and purpose of the information sought.
Other legislations include the Consumer Protection Act that makes the proprietor liable in case of distribution of faulty products or services that may harm users. This act protects consumers from traders that provide services and products that do not meet the expected safety standards (Horngren 2014). The Pricing Marking Order make traders to provide the price tags on goods provided. Legislation on a sole proprietorship is wide and encompasses the protection of the environment and health. Some legislations regulate planning and situation of the business premises.
This form of business involves joint ownerships of a business who are all responsible for any debt and liabilities of the business. The legislative Acts may include any errors that may result from negligence, misinterpretation or any disclosure of confidential information. The UK statutory offenses on unlimited partnerships levy hefty liabilities on company directors which increase potential legal actions on them (Gale 2016). Unlimited liability increases potential bankruptcy on the individual company owners if they are not insured. Company owners are not treated separately from the company; therefore, they are required to acquire personal insurance.
The companies Act makes the company indemnities part of director’s responsibility which makes them responsible for anything that happens within the company although they may not be involved in running the company (Gale 2016). UK laws on unlimited partnership are getting more hostile as shareholders and government are seeking directors to be held responsible for their actions. The act provides a broad range of criminal and civil offenses on directors that are increasingly changing with the changes realized in the business community. Directors can be charged through this order for offenses including corporate mismanagement. Laws governing the unlimited liability are expected to increase and get stricter within the next half a decade as experienced in the last decade.
The Company Law Reform Bill regulates the decision making of the directors by determining the effect it will have on the company stakeholders such as the employees, customers, and the environment.
This form of business make the company liable for the debts, and all liabilities incurred by the company and the stakeholders of the company are not legally liable. The company and the stakeholders are separate with the company; therefore, they are not burdened with debt incurred by the company as explained by Bamberger & Jacobson (2015). This form of business has had legislations passed to regulate business practices and responsibilities.
The legislations passed to regulate this kind of business includes the Limited Liability Partnership Act regulating insolvency and winding up of a company. Through the act, regulations can be applied through modifications of the laws that are appropriate to the company in the event of insolvency or winding-up process as explained by Conviser (2014). The Act also provides guidelines on the application of the insolvency and winding up process on how to apply to find adjustments to the law so as to accommodate the changes.
The 2009 Provision of Service Regulations applies the Company law enacted in 2006 into LLPs. The provision regulates company activities such as limiting of investments made, appointments made to the management, quality of services and professional obligation insurance.
In 2016, proposed amendments to the Limited Liability Partnership Act were in effect with changes made to the Company Law. Some of the changes introduced include increased accounting limit which will be used to determine the size of the company. This regulation will exempt LLP to companies that do not meet the audit threshold. Another change proposed included a limitation to the number of accounts information required to be filled by small size companies. This small size limited liability companies are expected to produce credible information. Therefore, they would be required to provide additional proof to support their accounts information (Bamberger & Jacobson 2015).
These accounts and audit regulations proposals sought to provide flexibility to LLPs by providing guidelines on filling of a balance sheet to show profits and loss made or follow a standardized method of accounting. The companies would also be expected to disclose all annual accounts returns without exempting any.
The Companies Act 2006, provide statutory duties and responsibilities of directors within the company. The directors have a general responsibility for the general functioning of the company. The government guides directors on how they could achieve their duties. The guidelines include; acting on company’s interest, obeying the company’s constitution and base it to make decisions, uphold honesty in dealings with company’s property, uphold diligence and responsibility and have the ability to accommodate external advice that could be useful for the operations of the organization (Balotti & Finkelstein 2010). These factors determine the success of the duties that are expected of the directors. Some of the duties expected of them include:
Directors are required to act according to the constitutional provisions through exercising powers in areas that require their input. All powers must be legally binding under the 2006 Companies Act. For example, the directors can break a tie in board decision making. Under the Act, directors are expected to hold consultations with fellow directors.
Directors are legally responsible for acting on behalf of their company. The company limits the powers of the directors by providing scope for their powers and sustaining these powers over time. Previously directors could only act within the constitution and were barred from performing duties that were not within the requirements, but these limitations have gradually been removed for effective operations of the directors. This resulted in the formulation of clauses to validate activities of directors by providing a wide range of directors’ powers. The Act provides access to company objects unless the company limits the said access. Under the Act, companies specify restriction imposed by the powers of the directors and the company. Any company that lacks the constitutional restrictions has the protection of the Act while conducting all its activities.
The company constitution provides and defines powers given to the directors and also specific activities to the company. The articles delegate the functions of the company to the directors to make decisions and manage affairs that they deem fit for the operation of the organization. Directors have powers to borrow up certain amounts, refuse registration of transfer of shares and forfeiting of shares (Kostant 2009). The directors have powers over the general operation of the company. Any restriction imposed by company constitution must be followed as part of the duties of the company’s directors.
Powers provided by the company’s articles prevent the company from interfering with the board’s activities. The board of directors is the overall decision-making body and any agreement reached cannot be questioned by the members of the company. The rule of law manages the applicability of activities of the directors acting on behalf of the company in dealing with third parties. These powers are regulated by the Act through an establishment of agreements between parties acting on behalf of the company and the company.
Powers delegated to the directors do not give them the authority to act on their own rather act collectively as a board. The managing director has more powers as they could act on behalf of the board, for example in the negotiating tables.
Some of the specific powers given to the directors include the right to inspect company’s minutes, records, and accounts. They also have powers to make provision for employees with the intent of benefiting both current and former employees. This also promotes the success of a company as members get an approval of the board. Directors have the power to call for the general meetings
Directors are responsible for promoting the success of the company for the benefit of the whole company. According to the Company Act 2006, the directors are expected to refer to six factors stated by the act in promoting the success of the company which includes:
Likely Consequences Arising From Decisions Made
This duty can be achieved through analyzing the possible consequences of any decision made in achieving the long-term and short-term goals of the company. Any decisions that may affect the operations of the company require thorough consultation from the different company stakeholders because in the event of wrongdoing all of them would be held responsible. This required directors to document every decision which is used to protect them in the event of a breach of duty filed against the company. Directors are encouraged to make routine documentation to ensure that all factors are considered in the decision-making process (Horngren 2014).
Interest of Employees
The directors should prioritize the interests of the company’s employees by ensuring that company information is documented well. This requires consultation in the decision-making process in matters that may affect their presence in the organization.
Need To Foster Stakeholder Relationships
These stakeholders include the employees, customers, suppliers and other direct stakeholders to the company. These relationships ensure efficient operations of the company by holding consultations with these stakeholder segments on matters that affect them. This ensures that all decisions made are fair and achievable by the organization. This builds trust in stakeholder relationship as they form a crucial part of the company.
Need To Determine Impact Of The Company
In the establishment of the organization, the company should be able to research on the possible impact it will have on the surrounding community and the environment. These impacts may include the creation of employment opportunities or through corporate responsibility programs that would positively impact the community. The community could also be negatively impacted by the company through pollution if the company manufactures products. Environmental pollution affects the community living in the locality through gas emission, waste production or noise pollution (Balotti & Finkelstein 2010). The company directors need to strategize on mitigating the negative impact of the presence of the company while improving the positive impact.
Need To Maintain Or Improve Company Reputation
Directors need to establish the state of the company reputation to formulate strategies that could be used to improve or maintain it. This ensures high standards of business conduct within the business entity. Reputation is important as company knowledge can be modified to influence opinions and views about the company (Dine & Koutsias 2014). Reputation is an important element in the operations of the company as stakeholders such as the customers choose a company by checking on this element to ensure that services and products they receive meet the standards described by the company.
Need To Act Fairly Among Company Stakeholders
Company directors are expected to involve the different stakeholder in processes that require their input. Stakeholder participation should be fair, and their contributions need to be included in the relevant processes that require their input. Discrimination against stakeholder segments should be avoided at all cost as it could culminate to the company reputation (Dine & Koutsias 2014). Companies need to be to be transparent in their operations to ensure that the image and reputation are upheld.
Company directors are expected to make decisions on their own without being a subordinate to other influential stakeholders. Director could still seek advice from other directors or stakeholders but make their judgment for understanding how other people view a given issue. Directors are expected to act by company’s constitution which discrete decisions made by the company as noted by Bruckner (2010). The company’s shareholders have the power to control over discretion of directors powers.
Directors need to meet the standards required in carrying out their duties and responsibilities. The act incorporates regulation through common laws that have developed over the past decade. The Act expects directors to show high standard in their skills and care in their duties than has previously been expected of their knowledge and experience gained. In appointing directors, their skill should be well defined to ensure that the company reaps the maximum benefit (Ward 2013).
The increase in the number of companies led to the evolution of laws that regulate the sector. Directors are facing stricter competency tests and through the Court of Appeal, directors’ role have become well defined. Some of the court judgments extracts expound the expectations of the directors, and they include their collective or individual in gaining and maintaining company knowledge and understanding the scope of the company to ensure that they carry out their duties as expected the company constitution.
Directors have a duty to act with a due diligence which involves paying attention to detail to company operations. They are responsible for making sure that activities of the company run as expected (Ward 2013). With regards to the act, the responsibilities of the directors such as attending board meeting are relaxed, and they are not forced to attend the meetings. Directors could only attend such meetings on circumstances where their input can be incorporated into the company’s processes. The traditional duty of skill and care among companies is rapidly being replaced by new court judgments. The new standards are strict, and the old standards are becoming unreliable hence companies are seeking court judgments in the event of mismanagement in the company.
The introduction of the Company Directors Disqualification Act allows the court to dismiss persons acting as directors if they are deemed unfit to hold office. This duty requires that the courts have sufficient evidence that the individual lacks the capacity to hold the said positions. In the recent years, the extent to which the law expects the directors to carry out duties other than delegating them is a diligence issue that affects the operation of the company as explained by Loughrey (2011). Directors are expected to have vast knowledge on the operations of the company to ensure that they understand the scope of the business to assist in the decision making process and regulation of company’s operation.
References
Balotti, RF & Finkelstein, JA 2010, The Delaware law of corporations and business organizations: text, forms, law. New York, Aspen Law & Business.
Bamberger, MA & Jacobson, AJ 2015, State limited liability: company & partnership laws. Frederick, MD (7201 McKinney Circle, Frederick, MD 21701), Aspen Law & Business.
Bruckner, MJ 2010, corporate directors’ fiduciary responsibility. [Washington, D.C.], Association of Trial Lawyers of America Education Fund.
Conviser, RJ 2014, Agency, Partnership & Limited liability companies. Available at https://subscription.westacademic.com/DocumentDisplay.aspx?DocID=23834.
Cox, JD & Hazen, TL 2016, Business Organizations law. Available at https://subscription.westacademic.com/DocumentDisplay.aspx?DocID=24498.
Dine, J & Koutsias, M 2014, Company Law. Basingstoke, Palgrave Macmillan. Available at https://public.eblib.com/choice/publicfullrecord.aspx?p=4763381.
Freer, RD 2016, The law of corporations in a nutshell. New York Press
Gale, S 2016, Limited liability partnerships. Surrey, Wolters Kluwer (U.K.) Ltd.
Horngren, CT 2014, Principles of management accounting: a sole proprietorship approach. Englewood Cliffs, N.J., Prentice-Hall.
Knell, A 2016, Corporate governance: how to add value to your company: a practical implementation guide. Amsterdam, Elsevier/CIMA. Available at https://www.books24x7.com/marc.asp?bookid=15324.
Kostant, PC 2009, Business organizations. Boston, Little, Brown, and Co.
Loughrey, J 2011, Corporate lawyers and corporate governance. Cambridge, Cambridge University Press. Available at https://site.ebrary.com/id/10476477.
Moran, M 2013, Forms of business organizations. Rochester, Graflex.
Pettigrew, AM 2013, Innovative forms of organizing: international perspectives. London, Sage Publications. Available at https://public.eblib.com/choice/publicfullrecord.aspx?p=254720.
Poggi, G 2011, Forms of power. Cambridge, Polity Press. WEBSTER, H. K. (2014). Fiduciary duties of nonprofit directors and officers.
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Ward, RD 2013, Saving the corporate board: why boards fail and how to fix them. Hoboken, N.J., J. Wiley. Available at https://www.123library.org/book_details/?id=8084.
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