The main purpose of business is
profit and investment for enhancing the fund so that person can expand
business. Business comprises of some important factors like product, investing
the fund in a market, employee and partnership. There are different forms of
business which will be analysed further and these types of business have been
named differently.
Sole Trader
In the opinion of Pinna (2017, p.341), sole trader
is a businessman who is dealing with all his trading individually. The sole
trading has both, positive and negative side. The person if want to start his
business then sole trading is the best option for him/her. Sole trader cannot
be considered as an employee of his own business. Sole proprietorship brings
the authority for the trader to be sole owner who is responsible for all
profit, loss and investment. In the opinion of Knowler et al. (2017, p.53), the negative side of sole trading comes
into the picture when trader has to file the tax. Trader does not have much
option to diversify his fund for tax saving plan. Businessman, has to
distribute the fund among his relative for tax saving. Therefore, trader has to count the liability
for himself only. The best part of this type of business is the trader has full
control on his decision. The sole trader specifically can use Tax File Number
for tax return. Trader does not have to open current account as it is mandatory
for other type of business, he/she can use his/her personal account number. In
the opinion of Mbira
(2015, p.141), trading does not have the flexibility to split the
business or splitting the profit and loss is not possible in sole business.
There is different form of sole trading such as Financial Planner who advises
about investment as per the condition of market. Landscaper is another example
having a small team of employee those look after plant and tree of the house
owner.
There is some rule to start business
as sole trader. For example, in UK, sole trader can start his business in his
own name and does not have to register. The name of business cannot be offensive;
trader must keep all the business document, document of tax filing of every year
very carefully. Trader should file the income tax every year. This statement
mentioned above is mandatory for the sole trader in UK. Trader can apply for
the trademark if he/she does not want other to do business in the name of
his/her business.
Unlimited partnership
In the opinion of Shinkai et al. (2015, p.136), the
unlimited partnership is also termed as general partnership. This partnership
possesses two members who shared their funds for the investment in business.
Two or more partners are taking business loan in equal sharing. As per the
United Kingdom Partnership law, the trader can borrow loan from the bank.
Partnership act 1890 said that the liability and profit both will be shared
equally in the partner because business has started in common.
There is advantage in general
partner-shipping. In the opinion of Nicholas (2015, p.340), trader does not have to finance for
business alone as more than one person is participating in the business. Task
of trading can be distributed among the members of the group. As the business
has tendency to have profit and loss as per the dynamic nature of market, the
liabilities can be shared to makeup the loss. Traders can conduct meeting in
different time to change the pattern of doing business to meet the target of
the business. As per UK government rule for partner-shipping business, there
are always agreement between the partners whether it is oral and written
agreement. This defines the condition from earlier for how to conduct business
and what would be the sharing in case of profit and loss. The borrowing
capacity becomes more for the trader, so they can take risk of borrowing large
amount of business loan from the bank. Mostly, skilled and known person always become partner which facilitate
them to keep the business private and even close the business if the
circumstances not allowing to continue it.
The first disadvantage of unlimited
partner-shipping business is clash of the thought among the partner of the
company. Sometime trader’s point of view is not accepted by other member of the
company. Thus, this disagreement leads to the mismanagement of the strategies
of trading. Liability becomes another factor when one trader’s action
increasing the liability and other has to suffer for this situation. As the
general partner-shipping in business does not follow the concept of ‘leader in
a group’, so it becomes difficult situation when there is need to force the
trader to uplift the business. Innocent trader sometime has to pay for the
illegal deed done by some mischievous trader. Trader breaking down the
partnership cost heavily for the other one because he has to value the asset of
the trader leaving the group.
Limited liability partnership
In the opinion of Hynes et al. (2014, p.65), the limited liability partnership can be considered as the alternative solution
of unlimited partnership where the trader are not responsible for misconduct of
other partner and trader has not to share the liabilities of other member of
the company. Limited liability
partnership act 2000 of UK has separated the trader among themselves legally,
by providing them the platform which keep the trader separate from liability
happened due to other trader. The section 2 of this act mention that business
in partnership can be done when two or more person starts the legal business
enroll their name on incorporation form which later has been submitted to
company house. Section 3 of this act mentions that, if the formalities have
been done then a certificate will be provided to the trader group for proving
that the documentation has been done successfully. The liabilities here mean
the loan taken from the bank which the trader’s group has to repay on the time
given in future. The liabilities are settle down with the business operation,
its profits and goods. Whenever the company’s owner or a group of traders have
due to pay in the future then it is called as liability.
There is more positive side of
limited liability partnership when it is compare to general partnership. In the
opinion of Coffee
(2015, p.66), limited liability partnership is a methodology due to
which the trader comes to the safe side when liability or misconduct of the
business comes into the picture. An irresponsible trader can do illegal
activity to enhance the profit and LLP (Limited Liability Partnership) is
saving the innocent trader from being trapped in this kind of situation. Person
has the authority to process individually to contribute in the business. Duties
are divided among the members of the group as per the experience and skill. In
the opinion of Dutta
(2016, p.107), most important advantage of LLP is the person has the
option to get the authority to not to have the right to take decision in
company’s business, but still he owes the interest of the business. The
business group would be benefited in tax saving because of limited liability
partnership.
The disadvantage of Limited
Liability Partnership is that tax department authorities are taking this
partnership just for tax saving purpose. Therefore, people who are in limited
liability partnership are not getting the special benefits of tax saving.
As per Pathak (2013, p.35) the
fiduciary duties and responsibilities of the directors are very clear and the
liabilities are devastating potentially in the private companies in the UK. The
fiduciary relationship is basically made up of trust. The duty of the directors
is to act in the interests of the company which should be honest and in good
faith. The duties arise under contracts, agreements of stakeholders and even
articles. The duties arise under the legislation Acts of the companies. The
duties that follow in these acts are of avoidable interests in conflicts, acts
of powers, promotional acts towards success and the act of judgmental independence.
According to Kemp (2014, p.490), these duties are the code of conducts for the
Directors and they should consider and abide by this. The Directors of the
Private companies are in the limelight so they should be aware of their duties
otherwise there may be steps or actions against him or her. In the private
company, there are various ways to resolve any sort of problems that lies in
between the organisation and the stakeholders. These acts should be kept in
mind before starting up any business organisation in the UK.
Act of Powers
Griffith and Dimitrova (2014, p.60)
stated that the Director's duty is to act within powers is under the Section
171 that demands his or hers extensive analysis according to the UK company
law. The Company Act 2006 has no difference with the Director's duty is a major
debate. The role of a Director is to benefit the members of the company as a
whole and not concentrate on individual shareholders. But in some major cases
like insolvency situations, he owns duties to both people like the creditors
and employees. Anghie (2015, p.150) said that the Directors are the principal
organs of management which acts as the beneficiary and holds a fiduciary
position. The Directors are delegated with the duty of to manage the general
affairs of the company. As per the Companies Act 2006 in the UK the Director
must be accordingly to the company's constitution and can only exercise powers
for the purposes they are conferred. As per Podell and Kirsh, (2014, p.1) the
Director has the power and the Company's purposes that will be widely drawn for
charity but not for companies that are nonprofit able which are limited to
subjects and powers. This Duty to act within powers codifies the principles of
which the Directors should exercise according to the granted terms and should
have a proper purpose which is under 323 and the 324 duty states to comply the
constitution that has general duty purposes, which is also under section 257.
Shete and Bansal, (2016, p.398) emphasized that the articles in association
include taking decisions according to the articles of the company and the
various other decisions that can be taken by a class of members if they have
the virtue of decision enactments by the company.
Promotional Act towards Success
Rauter, Jonker and Baumgartner
(2017, p.150) viewed that the Duty to promote the success of the company is
under the Section 172 of the Company Act. As per the 325, the duty should
enshrine and codify the preferred company as the principle to hold enlightened
value in stake holding. As per Frizzo-Barker et al. (2016, p.413) the director needs to act in a way that he or
she should be taken in a good faith which has to promote the success of the
Company and all the members listed under this factor should be benefitted. The
326 notes the highlighted areas of an important in particular which may not be
an exhaustive list as it has wider expectations of behavior in the business
like that of the employer of the company as well as the impact of the operation
on the environment and the community of the organisation or the company.
Majstorovic et al. (2016, p.1379)
stated that the No. 327 deals with the decision to promote the success of the
company which is for the faithful judgment of a good Director. It ensures the
decisions about the business along with its tactics and strategy for the
directors which are not a subjective decision by the respective courts which
are subject to good faith. The factors listed in the 328 are the duties of
reasonable care, diligence and skill which is under section 174 will be
applied. It wills not lip service to the factors that are sufficient but also
in few cases the Directors might take action with their respective duty in this
aspect. Governance, (2016, p.80) modified that the Director does not need to do
more than good faith but to exercise on especially skill, diligence and care
that requires if possible a good acting Director that will be liable for the
process of failure that might affect the decision in the course of action that
promotes the best way to the success of the Company. Shete and Bansal, (2016,
p.390) stated that the directors have to stand by the interest of the employees
which is as per the act no 329. The 330 attributes the altruistic part of the
companies which includes an interest of the communities as well as the
charities of the Company. The unselfish objectives always cannot prevail over
the selfish interest among the employee members. The purpose should always
include the benefits of the companies and the Directors must always try to
achieve that level to the purpose. Racheva and Kuznetsova, (2016, p.121)
mentioned that with a good faith in judgment is always required which benefits
the members. The 331 recognizes and promotes success as the company is
insolvent and under this mechanism, the liquidator contributes towards the
funds available to the creditors all with the help of the Directors. The
recognized company should have reasonable prospects and steps that help to
minimize loss to the creditors. The 332 is the modified duty towards an
obligation in the interests of the company creditors which is near to
insolvency.
Act of Judgmental Independence
According to Pitts (2016, p.55), the
duty towards the independent judgment is under the Section 173 of the Company
Act 2006 in the UK. The principles that are currently codified under this law
of Directors which state that they must exercise powers towards independent
without the help of subordinate powers and to the will of others either by
unauthorized or constitutional or by delegation to do so. These are under the
333 sectional duties. The section in the 334 states the Directors to not fetter
about the future exercises that help in acting the discretions like an
agreement which accordingly is entered by the company and in a way constitution
of the company is authorized. The 335 duty does not confer the Directors the
power to prevent a delegate or the power to the delegate over the directors as
per the constitutional company i.e. accordingly the articles on the draft model
with the association with the private companies share. The function of the
directors is to delegate according to the articles.
Acts to avoid interest in conflicts
Under section 175 of the Company Act
2006 of the private company lies the Act to avoid conflicts of interest. Here
the Director has to avoid situations which can have or might have indirect or
direct interests towards the possibility of a conflict with the Company's
interests. It also states that no advantage or exploitation can be done to an
opportunity, information or property even if it is immaterial to the Company in
particular. Perry-Kessaris (2016, p.90) viewed that the acts does not apply to
any arrangement or in a transaction that relates to the interests in the
conflicts in relation with the company. There is no infringement in the duty
even if there is a rise in situations that has a situation that deals with the
Company. The Directors should have authorization in matters and the
transactions cannot be done in this view. There are views on the authorization
to the Directors if the private company does not validate authorization with
respect to the matters proposed. The effective note on authorization will be
only required if the considered meeting is without any interest in the directors
as well as the counting directors. The voting would have mattered if it was
agreed to be counted by the Directors. Conflict in interests even includes
conflict in duties in this section.
There are various implications of a
breach of a Director's duty. The best ones depend on the circumstances that may
include to stop or force an act's injunction or maybe removal from the office
or if the Private Company may not take a decision then the stakeholders can
surely take the step to remove him or her from the Directorial position. The
Company Act has introduced new procedures that are statutory in nature and
claims the Directors any breach or default. The concern will enhance their
rights so that their claims may be derivative and in short term, it may result
in the disconnection of the shareholders in some cases which are or may be
hostile in nature.
The business has been started in
different way as per the need of individual and what is the future scope he plans
to expand his business. It has been discussed about the different form of
partnership and its advantage and disadvantage. Business has totally depending
upon the people and it matter more when some individual want to expand his
business. The independency in the business mentioned in the context is
contradicting the concept of partnership because whenever a person wants to
authorize himself in the business, he also has to detach himself from the
opinion of other people.
Task 2 has mentioned that how much the
director’s duty is important for an organisation. It is described in the
context that director should act impartially toward the employee of an
organisation. The context signifies that director’s activity is affecting the
objective of short term and long term goal of an organisation.
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