Assignment on legal aspects of a business
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Transcript of Assignment on legal aspects of a business
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Table of Contents Introduction: .................................................................................................................................... 2
Part a: .............................................................................................................................................. 3
1. Terms to consider for setting up a private limited company: ................................................. 3
Some steps that should be followed: ....................................................................................... 3
Documents that are needed to complete the registration: ...................................................... 3
Types of private limited company .......................................................................................... 4
Advantages and Disadvantages of setting up a private limited company: .............................. 4
2. Terms to run a private limited company: ................................................................................ 5
Choosing company Name: ...................................................................................................... 7
Company Address ................................................................................................................... 7
Directors' responsibilities ........................................................................................................ 7
Financial duties ....................................................................................................................... 8
Legal responsibilities .............................................................................................................. 8
Prescribed Particulars: ............................................................................................................ 8
Memorandum and articles of association: .............................................................................. 9
Set up for corporation Tax: ..................................................................................................... 9
3. Termination of the private limited company: ....................................................................... 10
Company name and Trademark ............................................................................................ 10
Use of “Limited” ................................................................................................................... 10
Vote for termination:............................................................................................................. 11
File the proper termination form: .......................................................................................... 11
Cancelation out of state Registration: ................................................................................... 11
Getting Tax clearance: .......................................................................................................... 11
Compulsory liquidation: ....................................................................................................... 12
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Part b ............................................................................................................................................. 13
Purpose of the private limited company: .................................................................................. 13
Terms followed to be successful: .............................................................................................. 13
Conclusion: ................................................................................................................................... 15
References ..................................................................................................................................... 16
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Introduction
Private limited company is the form of business where two or more person starts their business,
which is limited by their share of investment in the business. This is a popular to do business
under private limited company. This form of entity has less risk and high profitability over sole
proprietor and public limited company (Lee, 2012). The success comes when joint investment
comes together in the market. So when two or more individual agreed to start business under
private limited company their liabilities are limited by their share. The act of private limited
company has detail process and regulation to set up this business.
Part a:
1. Terms to consider for setting up a private limited company:
Private limited company aside from the sole business is the popular form of business structure in
the UK. In this limited company the liability of members is limited that means the capital of
company is separate from personal assets of the owner of the business. But for the sole traders
their whole assets are liable for the business (Jasper, 2001).
So we can define private limited company as a business formed by one or more than one
individual whose liability is limited by their share.
Some steps that should be followed:
1. To set up or to start a limited company is moderately an easy task. There are some ways
to start.
2. Registering a limited company personally the cheapest but lengthy way
3. Taking the help of an advisor such as lawyer or an accountant
4. Using a company formation agent(Campbell, 2015)
Documents that are needed to complete the registration:
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1. Memorandum of Association: this comprises the names and addresses of the subscribers
who are starting the limited company.
2. Articles of Association: plans the directors‟ powers, and any shareholders‟ rights, etc.
3. Form IN01: covers details of the director(s), company administrator (optional), details of
any shareholders, and details of the share capital (Belyi, 2013).
Company formation mediators will have ready-made duplicates of these papers.
Types of private limited company
The liabilities of a limited company are limited to the shareholders. The actual liabilities of
shareholders depend on the type of limited company.
1) Limited by shares: The members form a private limited company, which is limited by shares,
and they are called shareholders. Every member is liable for the value of the share they were
issued but not paid for.
Such as a shareholder has 250 shares actually valued at $1 each. They have formerly paid for 100
shares i.e. $100 so if the company fails they are liable for up to the original value they haven‟t
paid for, i.e. $150.
2) Limited by guarantee: When a limited company is limited by guarantee then the members of
the company financially back it up to an approved amount. The members of this company aren‟t
called the shareholders (Dine, 2007).
Advantages and Disadvantages of setting up a private limited company:
A private limited company has many advantages over other entities
-Private limited companies can start the business immediately by issuing of the certificate of
incorporation.
-One director is needed to set up a private limited company
-It is not obligatory to hold annual general meeting but if they wish they can
-The limitations on lending or loans to its directors are less difficult in a private company
-This has fewer provisions regulating director‟s dealings
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-It has the opportunity to raise funds issuing shares
Some disadvantages of a private limited company are as follows
- The privacy is less in a private limited company than other forms of business
-The formulation cost regarding laws and regulation is higher
-Do not offer or sell share to the community
-Private limited company cannot list them on share market
So after analyzing all the information regarding the advantages of corporation of private limited
company it can be said that private limited company setting up cost and process is complex than
sole proprietary but easy than public limited company.
Sole proprietorship does not require formation and it is simplest structure. Limited liabilities
partnership is a way to protect businesses own properties. It has simple structure and involves
less administration than public limited companies. Partners are limited and their liabilities too
(Anderson and Kumpf, 1976).
2. Terms to run a private limited company:
Requests of Limited Companies
There are some extraordinary level wants which all limited companies must fulfil:
The company must be registered at Companies House
The company‟s annual accounts must be trailed at Companies House
An Annual Return (Form AR01) must be completed each year to ensure Companies House
records the most up-to-date information about the company. This is subject to a modest annual
fee.
HMRC must be informed if the company has any profits or taxable income on an annual basis.
Every limited company must complete an annual corporation tax return. Any liabilities must be
paid within 9 months of the company year end.
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All company employees must pay income tax and National Insurance Contributions (NICs) on
any income they receive.
A private limited company is the business running by one or more partners. This will be clear if
we discuss how private limited companies work.
Partners: Private limited companies must have at least 2 and not more than 50 shareholders. In
this company partners can be either physical person or legal individual. Partners are given shares
for their capital investment.
There is an important role of director in a private limited company. They are legally bound to
have a director a physical person, who can be selected from the partners of the company. It is
important that private limited company cannot be managed by legal person.
The committee have their wish either to hold annual general meeting or not, but the function of
general meeting is to modify the rules regulations or approve and dismiss members. Any
decision they take must be approved by at least three fourth of the company‟s shareholders.
Some exceptions are there for changing nationality, adding partners, changing business status as
general partnership, limited partnership or to replace the manager.
The ordinary general meetings function is to take decision for other activities of the company
rather than those involving changing the status or approve new members or shareholders.
Capital: Share capital is the vital part of a private limited company. How much will be the price
of each share, how much each shareholder pay foe defined time limit, and the profit share
distribution calculation, all are related to the capital. Private limited company can freely
determine the minimum price of share. Thus the capital is made up with the contribution of
money or anything intellectual or material. The capital is divided into equal share or value. It is
common that private limited company is a fixed capital company, but sometimes they can be
variable capital companies.
Taxation: All registered companies are subject to pay tax to the government. They have to pay
tax under the company tax law.
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Choosing company Name:
To run a private limited company a unique name must be selected. The name of the company
selected by the committee should not be exactly the same as another registered company name in
the companies house register.
Other factors to be considered
The name should not contain a sensitive word or expression but permission
It can‟t have the connection with government or any authorities
The name can‟t be invasive
Certain rules should be followed about the display of name. The company‟s house have to
register first and then have to take permission to where they can display their name.
Company Address
A company‟s registered office is from where mainly all important works are done, specially
the decision making. It is also used for official communications, eg where all the business
letters are sent.
Some rules for business address are here:
It must be a physical address
It must be located in the same country where it is registered. A company registered in
UK, must have its business office in UK.
One can use PO Box, but a physical address and postcode must be added after the PO Box
number.
One‟s personal address or address of a person who have contact with Corporation Tax can be
used here for communication. But it should also follow the above rules (Belyi, 2013).
Directors' responsibilities
The main duties of directors are to make sure company‟s success and lead them into the
strategic goal. So a director has to do different legal and financial responsibilities.
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Financial duties
As a company director one must have track all accounting related transaction. Though a
business accountant can keep track of all these, but a director also should be concerned about
it. In short director has the responsibility to ensure that all tasks are done:
Good accounting record keeping so that accounts can be prepared that can give the clear
and fair picture of the financial condition of the company.
Another one is to provide correct account of the company and filing on time with
company‟s house.
Director has to submit the tax return of the company to the HMRC and also pay any tax
due.
The account of staff payment and any deduction of the income of the employee should
also be considered by the directors.
And the most important duty of directors is to be solvent, otherwise it will be in vain to
run a business.
Legal responsibilities
A director is responsible for all the investment and their ROI
Any changes in any particular areas of board of directors should be notified by directors
to the Companies House.
Change in companies registered address should also be notified by them to Companies
House (Campbell, 2015).
The main duty of a director will be working on the interest of shareholders. So the
director cannot get involved in any activities that damage the company.
Prescribed Particulars:
Companies‟ statement of capital contains the information about shares which is known as
the „prescribed particulars‟.
Prescribed particulars are those which describe the rights of each types of share known as
class of share owned by each shareholder. These shares must includes
Shares of dividend they give
Is those are exchangeable („redeem‟) for money
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Is there any right for vote on company matters?
And the number of vote it get
Memorandum and articles of association:
While registration of the company is started the agreement of all shareholders must be taken and
then the companies have the rules and regulations about how the company will run.
In this part it is necessary to make a „memorandum of association‟. This is the statement signed
by all shareholders where they confirming that they are agree to form the company. His is the
document of exact wording which can‟t be changed (Campbell, 2015).
„Articles of association‟
This is the document of written rules about running the business that all shareholders have given
their agreement. Some companies also use standard articles also known as model.
Set up for corporation Tax:
After starting up the business, company should provide specific information to the tax house
within three months. If fail penalty may be received.
For taxing, the HMRC will send companies unique taxpayer reference to the registered office.
They send a letter that tells that
Help HMRC by giving information they need about the company.
Suggestion for opening online account in HMRC for company tax return and business tax
The company should provide to HMRC
Starting date of the business
Name of the company and the registration number
The main address of the business or the head office location
Description about what kind of business it is
Future date when the company make its annual account
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Therefore, the main reason for providing information is to give actual status so that no mistake
will happen (Jasper, 2001).
3. Termination of the private limited company:
Company name and Trademark
A trademark is a whole different thing than the company name. Using a company or business
name does not protect the right of trademark. For having a trademark one has to register
differently (Jasper, 2001).
Use of “Limited”
Most UK based company normally finish their company name with limited or ltd, Though some
company use „Cyfyngedig‟ and „Cyf‟ if they have registered their company in Wales.
Company working with charity or sports can leave the word limited when the company is limited
by guarantee and if their article of association describes:
Not able to pay its members, eg through dividends
Have to spend their income for promoting the brand image.
One can exchange his registered name by using a different name which is referred as
“business name”. But there are some rules also which must be followed.
Business name
„limited‟, „Ltd‟, „limited liability partnership, „LLP‟, „public limited company‟ or „plc‟
cannot be included
It should be same as the existing trademark
No delicate word can be used unless it is permitted
Business name can be included on one‟s stationary and communication. Again one must
include their partner‟s names with which they work with, definitely the company name and
one‟s personal name if he is a sole-trader (Lavine and Mandel, 1938).
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There in boundary when a company terminate its business and switch to another. But they must
obliged to follow and take some duties and responsibility. At the termination process the
company should follow some important steps to limit the liability for lawsuit and fees. In this
process the company has to inform its creditors by notice several months before about the
termination.
To dissolve the company it needs the help of the secretary of state or the corporation in the state
by filling a form or two.
Officially terminating the business also needs to inform creditors by notice that the business is no
longer can makes profit (Lee, 2012).
Vote for termination:
The first step starts in the inside of the business. If the members or shareholders of the company
officially agree to close the business than it will happen. The members can vote to terminate the
business following the procedures set out in the documents such as articles of incorporation,
article for organization, bylaws, and operating agreement. The vote for termination of the
business should be recorded in a resolution of a meeting.
File the proper termination form:
Next task is to visit the state division website to collect the dissolution form. This form will be
called the certificate of termination or cancellation or similar. The form is about total information
about the company so that the company is identified. Some states can also ask for amount of
assets or liabilities. A small amount of fee is charged for the form (McGee and Williams, 1995).
Cancelation out of state Registration:
When the corporation has registered outside of the state to do business, the company then need to
file a form to withdraw the right to do that business in that state. This is a type of form called
application of withdrawal, certificate of termination of existence.
Getting Tax clearance:
Companies are liable to the state for doing business. If the company has tax due to the state it
should pay the due and take clearance. Without clearance the company cannot be approved to
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terminate. To get the clearance of tax agency the company submit a request and then the agency
inform that whether the company have to pay tax or not(Mercer, 2010).
Compulsory liquidation:
The term compulsory liquidation refers that the selling out of assets of accompany or a process to
distribute the proceeds to the creditors under the law.
How does it happen?
The procedure starts when the petition for winding up is presented in the court. It has the serious
consequence for the company and mostly the petitioner is the creditor of the company.
The liquidator:
After winding up order has been made an official receiver is appointed as liquidator. The
responsibility of a liquidator is to collect and measure the asset distributes proceeds to the
creditors and if any surplus remains distribute to the persons entitled.
Pay to the liquidator:
As the winding up expenses the liquidator‟s fees are paid up and this is from the assets of the
company
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Part b
Purpose of the private limited company:
In the world the business is for the providing service and goods to the customer in return of
money. The main purpose of a company is to make money by doing business. For this the
investors of the company takes different risks and thus they have the opportunity of returns
(Roach, 2009).
The purpose of my business: As I am setting up a private limited company the purpose of my
business is to make profit providing better product as well as better service.
The name of the company: As stated above the rules and terms about naming of a private
limited company, I have followed the terms to naming my venture as “Rico Tec Ptv Ltd”.This
business of technological equipment‟s.
Terms followed to be successful:
The success of business depends mostly on the initial set up procedure of the company. This is a
private limited company and has more than one partner and or shareholders. So according to the
arguments stated above some facts can be identified as the success factor of the company-
Register the business under the law and properly stated the business name, location,
Capital amount, Numbers of members, purpose of the business (UK business objectives in
computing, telecommunications and information policies, 1987).
Keeping a written document of rules and general functions process, share value
statement, share dividend policies, and the policies about members.
Running a business smoothly without doing any illegal things and not violating the
government rule.
The success also depends on the proper activities of a director of the company. The
directors responsibility will be maintained very strictly so that any bad thing happen in the
company.
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The proper utilization of capital is highly considerable aspect that can make the company
successful.
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Conclusion:
The private limited company played a great role in the business world. Registration of the private
limited company is not so much hard and any willing person can make this company under the
law. This company law limits the liability of shareholder by their invested share capital. So their
personal assets doesn‟t affected by any loss of the business. Each shareholder is only responsible
for their capital invested. The success of this business depends mostly on the directors, and the
shareholders can be that directors.
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