Business Law in Finance and Accounting - Essay Example

Running head: Business Law in Finance and Accounting 10th June Section Barbara, Helen and Maureen business organization Given the fact that the three partners have been working together for the fixed period, the type of the business organization that they currently operate is a joint venture. In a joint venture, parties agree to come up with a new entity by contributing their assets. Additionally, the partners are responsible for controlling their assets and they share profits equally. Being one of the forms of partnership, joint venture is for a limited period and when the partners repeat the activity they are undertaking they are treated as ongoing partners (Alix, 2014) . Upon the dissolution of the ongoing partnership, the assets are distributed equally. By continuing with the current form of business organization, Barbara, Helen and Maureen will experience various advantages and disadvantages as discussed below. Advantages Synergy. By combining their strengths, the three partners have sufficient potential to deal with the business challenges and achieve their objectives. Given the fact that each of them has a certain skill, they will be able to undertake various responsibilities for example marketing and innovation without incurring extra cost of hiring external personnel. Fewer regulations. As compared to corporations, joint ventures are subject to fewer regulations. This implies that the three partners owning Sweet Pleasures will not be restricted to undertake most of the activities (Sarah and Vida, 2013). Additionally, the partners will not incur high costs such as undertaking an initial public offer (IPO) which public companies engage in. As far as taxation is concerned, Sweet Pleasures, is exposed to fewer taxes, thus the partners are able to make high profits in future if they continue to work as a joint venture. Easy to form. Joint ventures are relatively easy to form. This is based on the fact that during their formation, the partners do not engage in extensive process. However, during the initial stages, considerable thought should be put while looking for the best partner who has a positive mentality towards business activities (Lucy, 2013). Accessibility of capital. By operating as joint venture, Sweet Pleasures will have stronger potential of accessing greater amount of capital (The Company Warehouse). Based on their interest in business activities and future expansion, financial institutions will likely be in a position to provide adequate funds to the partnership. Disadvantages Liability. By working jointly, the partners are liable for the actions of other in the partnership. This implies that if a partner fails in his or her roles, other partners are also seen as failures and are made to compensate in case damage occurs. Occurrence of disagreement. Since the partners share business decisions, disagreements are likely to occur. This may make the business acidities to delay. Limited life. The type of partnership adopted by the Sweet Pleasures may end upon the death or withdrawal of one of the partners. Section 2 Private limited company entails a form of business organization that is held by relatives, family or friends. Even though the private companies may issue stock and attract shareholders, there are not allowed to participate in public exchanges. Additionally, they are not allowed to undertake an initial public offer. Another point to note for the private limited companies is that the shareholders are not able to sell their shares without the approval of other shareholders. In their efforts to set up a private limited company, Barbara, Helen and Maureen will experience some advantages and disadvantages as discussed below. Advantages Limited liability. This implies that if their company experiences a financial problem while undertaking normal business operations, the partners’ personal assets as well as those of other shareholders will not be at risk of being seized by banks or other type creditors. As indicated in the case of Salomon v A Salomon & Co Ltd [1896], the court held that the shareholders were not liable for the Solomon Company outstanding debts. Continuity of business operations. This means that the business will not be affected by the status of the three owners. Scope of expansion. Based on the fact that it is easy to raise capital from banks and other financial institutions, the business is likely to expand in future thus experiencing high sales and sustainable profits. Low number of shareholders. Private limited companies require a minimum number of two shareholders in order to be registered and start operating. Since Sweet Pleasures is made up of three shareholders, it is therefore easy to be transformed to a private limited company. Disadvantages High establishment cost. As compared to partnership and sole proprietorship, private limited companies require more money and time to be incorporated (DuBois, 2011). This implies that Sweet Pleasures will need for funds if it needs to become a company. Limitation of share transfer. The transfer of shares in a private limited company by a shareholder is not possible if other shareholders have not approved the process. Higher overall taxes. Based on their expansive business activities, private limited companies are exposed to higher taxes. Since the dividends paid to shareholders are not deductible, the income from business may be taxed twice. Close regulations. Private limited companies are closely monitored by local agencies, state and federal governments. This means that to comply with the regulations, the company may be required to engage in more paperwork. Limited growth. Even though the private limited company has a chance of getting more funds, their growth is limited since maximum shareholders are only 50. Section 3 One of the most important assets in a company is its name. While deciding to change a company name of when starting a new business, the name should be carefully chosen. To ensure that it meets statutory requirements, a company should be formed with a great care. According to Company, Limited Liability Partnership and Business Regulations of 2015, a private company name must end in limited. The purpose of using the term limited is to give a warning to the third parties dealing with the company that the liability of the members is limited. This implies that Barbara, Helen and Maureen will require changing the name Sweet Pleasures to Sweet Pleasures Limited. Since the partners have not formally registered, they are not likely to face any challenge. However, it is essential that before they embark on the registration process, the three partners should check for the uniqueness of their company name to avoid similarity. One of the key issues that may make a company to face the Company Tribunal is making opportunistic registration that entails use of a name that already exists. This means that care must be taken to ensure that the name that the company adopts is not like that of an already registered entity. In this way, the company will face the risk of being sued for passing off. Section 4 For any business to succeeded, it must have adequate funds to undertake various activities. Funding is usually in the form of money even though values like time and effort can also be included in the act. As businesses grow, they are exposed to various types of funds. These include venture capital, credit, grants, taxes, donations, savings, issuing of shares and bank loan. This means that before seeking the type of the fund that a business needs, management must consider the costs that will be incurred by the funding as well the benefits that will emanate (Ewan, 2014). In their efforts to expand their capital base once they form a private limited company, Barbara, Helen and Maureen are focused at raising additional capital to support their business. The partners are considering bank loan and issuing of shares. The two methods will ultimately have implications on the running of the company as discussed below. Issuing shares Through issuing of shares also referred to as equity financing, the company will engage on selling some of it ownership interest to raise more funds to cater for expansion. Since as a private company it will not be allowed to participate in an IPO, it implies that it will issue its shares to friends or few investors. One of the major advantages of equity funding is that the company will not have to repay the finance or pay interest on it. Shares represent the ownership of the company and once individuals will buy shares, they will become owners of the company. This implies that the shareholders will need to be consulted while major decisions are to be made for example selling of the company (Mahoney, 2000). This indicates that Barbara, Helen and Maureen will no longer make business decision on their own. The shareholders will also be entitled to dividends. As noted in the case of Sidebottom v Kershaw, Leese & Co Ltd [1920] 1 Ch 154, the shareholders either majority or minority are part of a company and their rights should be upheld. Once the company issues shares, it will not only attain new finance as the major implication, but also it will experience other issues. First, a mechanism to trade shares will emerge, market valuation for the company, improved business profile, motivation of staff by the use of share option or shares and improved public image for the company. The company will also be under legal obligation to elect directors who will be responsible for overseeing the day-to-day activities of the business. Before the company embarks on issuing shares, the management team will need to hire qualified financial analyst to oversee the entire process. This will involve issuing of prospectus whose objectives will be to act as the marketing tool for the company shares and setting out the price of the company shares as well as the amount of capital that the directors hope to raise. Bank loan In the contemporary business atmosphere, banks have become major sources of funds for expansion. Once the new private limited company that Barbara, Helen and Maureen is formed, it will be eligible for bank loans. This implies that the company will need to provide its credit history that will be considered before the loan processed. In most cases, the banks ask for collateral, which can be in the form of assets and personal guarantees. This means that the new company will likely acquire the loan using the assets that it owns. One of the advantages that the company will enjoy by using bank loan as the source of funds is that it can negotiate a repayment holiday at the beginning or repaying the loan. Since the loan can be tied to the lifetime of the company asset, the business may raise quite a large amount of funds that will result to higher expansion. The new company will however face some demerits when it acquires the loan. First, loans are not flexible. This means that the company may be paying interests yet it is not using the funds. Secondly, the company assets will be at risk if it fails to repay the loan. Thirdly, if the customers fail to pay on time, the company may face problems in making monthly repayments an aspect that can damage its credit worthiness. Reflection While I was researching and preparing for this work, I used various textbooks, which provided me with adequate information. For example, Law for Business Students 8th edition exposed me to various concepts of laws that are applied during the formation of a private limited company. The book Introduction to Business Law by Lucy Jones provided me with important information touching on various steps of business law. I also used the UK Government Legislation portal in order to properly understand the business laws applied in various aspects ranging from registration, taxation and termination. The two cases that include Sidebottom v Kershaw, Leese & Co Ltd [1920] 1 Ch 154 and Salomon v A Salomon & Co Ltd [1896] provided me quite a lot of information that related to the rights of shareholders and the advantages of forming a limited company in relation to other forms of organizations. This research touched on UK business law. In this regard, I noted it was appropriate to use the website www.companieshouse.gov.uk that has a lot of information such as on how to start a company, running a company, making annual returns and closing a company among other information. The website was able to effectively open and the information in it was easy to understand. The law review journal, Contract or Concession? An Essay on the History of Corporate Law, guided me in the understanding the history and the application of corporate law. In this way, I was able to relate the information in the journal and the requirement of this research. References Alix, A .2014. Law for Business Students. New York: Pearson Education Limited Ewan, M.2014. Business law. London: Pearson. The Company Warehouse. Advantages and Disadvantages of Partnership. Available from http://blog.thecompanywarehouse.co.uk/2010/03/01/advantages-and-disadvantages-of-partnership/ Information of UK Companies registration. Available from www.companieshouse.gov.uk Lucy, J. 2013. Introduction to Business Law. Oxford: Oxford University Press DuBois, A.2011. The English Business Company after the Bubble Act. London: Sage. Mahoney, P. 2000. Contract or Concession? An Essay on the History of Corporate Law, 34 Ga. Law Review 873 Salomon v A Salomon & Co Ltd [1896] Sarah R and Vida A. 2013. Business Law Keenan & Riches. New York: Pearson Education Limited. Sidebottom v Kershaw, Leese & Co Ltd [1920] 1 Ch 154. Read More