Course: HND in Business
Introduction
Laws associated with business provides the guidelines that are used to conduct the operational activities to the prevailing as well as new organisations, for ascertaining fairness of the business conduct. These provisions also provide protection to those parties that are weaker and ensure that unfair practices are prevented (Mann, and Roberts, 2011). The following discussion would focus on exploring the various legal aspects that are associated with the formation of business organisations, and provide detailed description of the different processes that are needed to be taken into consideration while legally managing and funding the organisations.
Table of Contents
- Introduction
- Different Types of Business Organisations Legally Formed
- Sole Proprietorship
- Advantages and Disadvantages of Sole Proprietorship
- Limited Company
- Advantages and Disadvantages
- Advantages and Disadvantages
- Partnership
- Advantages and Disadvantages
- Critical Assessment and Evaluation of the Different Types of Business Organisation
- Legal Management and Funding of the Business Organisations
- Recommendation of Obtaining Legal Advice and Support for Disputes
- Legal Solutions for Businesses for Resolving Legal Dispute
- Evaluation of Effectiveness
- Legal Solutions
- Legal Advice
- Support for Dispute Resolution
- Conclusion
- Reference List
LO3: Examine the formation of different types of business organisations.
Legal Solutions Handbook
Question 1. An explanation and breakdown of how at least three different types of business organisations are legally formed
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Different Types of Business Organisations Legally Formed
Business organisations are primarily entities which focus towards conducting commercial enterprises by offering products and services which would be adequate in fulfilling the necessities and requirements of the customers. The major types of business organisations that are legally formed include Sole Proprietorship, Limited Liability Company and Partnership.
Sole Proprietorship
A sole proprietorship indicates the kind of legal establishment where the ownership and control of the business is under a single person only. The owner has the advantage of keeping all the profits that the business generates (Segal, and Choi, 2016). In the similar way, the owner is also liable for any kind of debt that may arise through the business processes. As a result of the same, the owners are liable for settling the issues associated with debts, using the own finances and personal assets.
Advantages and Disadvantages of Sole Proprietorship
The advantage of sole proprietorship is that the business can be set up with minimal financial expenditure, during the initial stages. The overheads of business for the business are generally minimal particularly due to the small size of the businesses (Chowdhury, 2013). However, the major disadvantage lies on the aspects that if the businesses does not make significant profits or keeps collecting or accumulating debts, then under such circumstances, the owners have the exclusive liability for the entire outstanding payments.
Limited Company
Limited companies comprise of those incorporates that comprise of their own legal entities as well as status. These organisations have distinction from their owners and when these enterprises get incorporated, they need to comprise of a constitution that would facilitate the shareholders and director of the firm in regulating their association (Kampanje, 2012). Theseenterprises could be limited via the shares that the shareholders ownapart from the financial responsibility, which is primarily limited to the sum of values and amounts of the shares, they own.
The limited companies are of two kinds, namely public limited and private limited.
Public Limited Company:These include those limited liability entities that have the opportunity to freely sells and trade its shares via the stock exchange. The enterprises are needed to recruit at least two directors, apart from an organisational secretary. These entities are also required to file their annual returns at the time that has been stipulated to them (Alleyne, Weekes-Marshall, and Broome, 2014).
Advantages and Disadvantages
The chief advantage associated with the establishment of a public limited company lies in the aspect that these enterprises are able to raise their finances via the achievement of the sales of their shares that are purchased by the public (Kampanje, 2012). The disadvantage lies in the aspect that the financial disbursement that is needed to establish a public limited company may not be affordable for the small businesses and therefore, they might experience difficulty in raising the principal required for the initial investments.
Private Limited Company:These enterprises include the ones that are mostly small privately held business entities, the liability of which is limited via its shares, as the operations are privately conducted and small in size, while the business is limited by its possession of the limited numbers of the shareholders (Romero, 2014).
Advantages and Disadvantages
The main advantage that is associated with these organisations is the constrained liability of the members regarding the amounts of shares that they possess. The disadvantage of such companies includes the process being time consumption and more expensive (Koon, and Ali, 2011).
Partnership
Partnership comprises of those business entities that has more than one party as its owner. Furthermore, the relationship between these owners is overseen via the partnership deed that is developed for them. These partnership deeds have the definition of the structure and scope of the partnership that exists between the owners (Lee, 2011). Moreover, these partnership deeds also postulate the responsibilities of every partner of the company, along with other aspects such as share of the losses, profit distributions, and investment responsibilities of each partner. The partnership businesses include the unlimited liability that is associated with the business processes, which also comprises of the debts that may be associated with the business and each partner has personal liability to the same (Bexell, and Mörth, 2010).
Advantages and Disadvantages
The key advantage that is associated with this organisation is that each member has the liability to incur the debt and it is not completely borne by a single person. In addition, the partnership business allows the opportunities of making more investment as the same is managed by all the partner (Seitanidi, Koufopoulos, and Palmer, 2010). The prime disadvantage that is associated with the partnership business comprises of the risks associated with the frictions and disagreements that may arise amongst the partners or the management.
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Question: Critically assess and evaluate the different types of business organisations explained previously.
Critical Assessment and Evaluation of the Different Types of Business Organisation
The business of sole proprietorship can be set up with minimal financial expenditure, during the initial stages. This is considered as a common practice amongst the small and medium enterprises (SMEs) which generally take up the status of the sole proprietorship, particularly during the preliminary period of their operational functioning (Singh, Chaudhary, and Arora, 2014).The limited companies have the limitation of the guarantee that are owned by the guarantors and therefore, are required to bound the liability to a particular fixed price that is otherwise called guarantee. The company is required to pay this guarantee, when they are not capable of paying the debts (Alleyne, Weekes-Marshall, and Broome, 2014).
Several of the small entities that emerge initially as the sole proprietors gradually adopt the structures of partnership businesses for the further expansion of the operations processes. Such collaborations have the advantage of communal responsibilities that is shared between the different partners, which is otherwise not achievable by the via the business of sole proprietorship. There also exists the clause whereby the partnership may not be of unlimited liability. This implies the deed of Limited Liability Partnership (LLP) and the same has emerged to become a common practice of the business environment. Such partnerships comprise of those partners that have limited liability in the business process and in such partnerships, the negligence of any partner does not comprise to be the liability or responsibility of the other partners (Aaronson, 2011). Due to this, the limited partners are able to forego their rights associated with the involvement in certain areas of the decision making processes that are majorly against the limited liability towards the business debts or the processes associated with the same. Nowadays, LLPs are being commonly adopted by several of the business professionals like law firms, doctors, and similar such ventures.
Question: Explain how at least three different types of business organisations are legally managed and funded.
Legal Management and Funding of the Business Organisations
In sole proprietorship, because the business owner has no legal separation from the operations of the businesses, therefore, the individual is held personally liable for the various aspects that are related to the business processes, like the finances and so on (Shaharuddin, et al., 2012).Due to the distinct legal entity of the limited companies, they have the option of entering any kind of contract, of being prosecuted, or sued, or assist with the naming process. The owners of any limited company have the protection of the limited liability and their responsibility also comprises of the business debts which would have the values similar to the initial investments that the owners have made for the organisation(Koon, and Ali, 2011). These enterprises also hold the rights of being limited by the shares or the guarantees. In partnership companies, the partnership deed that is developed explicitly postulates the personal commitments of each of the partner, towards the debts of the business (Seitanidi, Koufopoulos, and Palmer, 2010).
The shares of the private limited companies cannot be publicly traded and thereby implicates that these companies do not have the approval of listing their shares on the stocks exchange. Additionally, there exists no minimum investments of the principal that is associated with the establishment of the private limited companies.As opposed to the private limited companies, the public limited companies require very minimal investments of finances (Koon, and Ali, 2011).Several of the SMEs have been operating under the label of private limited company and this facilitates them in seeking protection from personal liabilities and decreases the personal risks, as well as allows them the option in raising funds via the share sales.
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Question: Recommend how a business could obtain legal advice and support for disputes arising in a range of areas. Give examples to support your recommendations.
Recommendation of Obtaining Legal Advice and Support for Disputes
There are three major kinds of methods that can be used by businesses for dispute resolution and these include the following:
1. Mediation: The goal of this method encompasses involving a neutral third party for helping the disputant in coming to a consensus by themselves. Instead of imposing any kind of solution, the professional mediator works with the conflicting parties and thereby explores the interests that underlie their positions (Goldberg, et al., 2014).
2. Arbitration: In the process of arbitration, a neutral third party is assigned as a judge with the responsibility to resolve the dispute. The disputant gets the opportunity of negotiating virtually any aspect of the process of arbitration that also comprises if the lawyers are needed to be present at the time and the standards of evidences that are to be used (Pinkham, and Peng, 2017).
3. Litigation: This is considered as to most familiar kind of dispute resolution and the civil litigation comprises of a defendant facing off against a plaintiff, before a jury and judge or just a judge. Lawyers generally dominate the litigation process and the same often ends in the settlement of agreement that takes place during the pretrial period of preparation and discovery (Lumineau, and Oxley, 2012).
Question: Compare, contrast and evaluate legal solutions for businesses to resolve a legal dispute arising
Legal Solutions for Businesses for Resolving Legal Dispute
The terms and conditions of any kind of employment is largely regulated via three fundamental ways and these include legal enactment, interaction process between the employees and employers, and unilateral actions by the employers. The legal disputes that are associated with employment can be resolved via the process of mediation or litigation, based on the kind of dispute the employee has experienced (Menkel-Meadow, et al., 2018).
Contractual disputes are considered to be time consuming and unpleasant, apart from being expensive. The best measure that can be used for resolving the legal disputes associated with contracts include the Alternative Dispute Resolution (ADR) techniques (Mackie, and Mackie, 2013). The first step of avoiding any kind of disputes associated with contracts, would be to have clear wording in the contract that would reflect the intentions of the parties. However, in instances of legal disputes related to contracts, ADR provides the guidelines for resolving the said dispute (Lumineau, and Malhotra, 2011). ADR techniques employs inclusion of an external third party that shall act as an alternative to the litigation process.
The comparison between the methods that have been suggested for the disputes associated with employment and contract, implicates that there is a need for a neutral third party individual who would provide neutral guidance to both the parties that would steer towards a favourable resolution for both the parties (McArdle, 2014).
The contradiction that lies in the suggested measures that in mediation, the third party does not impose any kind of solution, while in case of litigation or ADR, the third party acts as a judge for the resolution of the dispute (Wang, 2014).
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Question: Evaluate the effectiveness of the following: Legal solutions, Legal advice and Support for dispute resolution.
Evaluation of Effectiveness
Legal Solutions
The primary degree of overall performance within the legal solutions is whether or not the final contract certainly and absolutely memorializes the reason of the events with respect to the unique transaction. Sometimes it is not adequate for the parties to have excellent ideas about the desires and functions of the connection if the contract does not offer a clean and unambiguous avenue map for the events to comply with if you want to achieve their objectives.
Legal Advice
The primary degree of overall performance within the legal solutions is whether or not the final contract certainly and absolutely memorializes the reason of the events with respect to the unique transaction. Sometimes it is not adequate for the parties to have excellent ideas about the desires and functions of the connection if the contract does not offer a clean and unambiguous avenue map for the events to comply with if you want to achieve their objectives.
Support for Dispute Resolution
Support for dispute resolutions can help the justice gadget in a country function more effectively. It regularly saves expenses and time and will increase personal pride. For instances that cross lower back to the courtroom, however, the entire value and time may additionally increase. Opportunity dispute decisions can also have indirect benefits. It could grow the effectiveness of courts through decreasing bottlenecks. And it can enhance trust inside the felony device, which can also increase foreign investment.
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Conclusion
Legal aspects that are associated with the formation and continuation of business processes, have been detailed in the discussions above. The various kinds of legal organisations and the manner in which they are legally funded and managed have also been detailed. The processes associated with resolution of the legal disputes, from varied perspectives, have been discussed.
FAQ:
- What are the different types of business organizations?
- What factors influence the choice of business organization?
- How are these different business organizations formed?
- What are some common ways to resolve legal disputes?
- How do I choose the right legal solution for my dispute?
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