Setting up a Company as a Sole Trader - Assignment Example

Introduction to Legal Framework Question In advising Pujah who has just inherited £10,000 on the type of company structure that he should use when starting up his company, I would advise him to use a sole trader company structure. This advice is based on the premise that a sole trader structure is not only relatively easy to start and manage, but one does not require large amounts of capital to run this type of a company. According to Maheshwari (1997), the single entrepreneur business ownership structure is recognized as most common business organizational structure. A sole trader is essentially an individual that carries on business activities on his own account and is singularly responsible for all the losses and profits that are made by his business. In managing the business enterprise, a sole trader is tasked with the responsibility of acting as both the risk bearer and the owner of his business. He is expected to use his own labor and skill as well as use his own capital in addition to his also being entitled to all the profits that the business organization is able to make. As a result of his having unlimited liability, a sole trader is personally responsible to all the creditors of the business enterprise and he alone bears the complete risk of the failure or success of the business organization. In the event that the business enterprise happens to be particularly large, a sole trader has the option of employing a large number of people to help him in effectively managing the business operations. He also has the option of borrowing funds to be used in financings the operations of his expanding business. Canwell (2005), points out that about 63 percent of all business organizations in the United Kingdom are noted to be run as single-person enterprises. Some of the advantages of this business structure include the fact that the registration of a small business in the United Kingdom is relatively straight forward, its record keeping is simple and the owner gets to enjoy keeping all the profits that are made by the business organization after paying taxes. Opting to operate as a sole trader provides the business owners with the opportunity of being able to test the market before they can go on to get involved in some of the more complicated forms of business structures. The main disadvantage with this form of business structure is that the current laws do not make any distinction between the sole trader and the business. It is this aspect that causes the trader to have unlimited liability. Having unlimited liability means that any debt that the business incurs and is unable to pay has to be from the business owner’s personal wealth. Another disadvantage of this type of business enterprise is that the business enterprise normally ceases trading in the event that the owner either dies or chooses to retire. However, in a number of cases the sole trader might choose to pass on the business to a relative or in the event that this is not possible, the business can be sold to another individual. In setting up a company as a sole trader Pujah should note that he will have to ensure that he pays income tax on any profits that happen to be made by the business. Each year, Pujah must ensure that he fills in a self-assessment tax return in which he is required to detail all his expenses and income. Immediately Pujah moves to implement his plan of starting a business, it is imperative that he registers as a self employed individual with HMRC (Govt.UK, 2014). Any failure on his part to ensure that he does this might have the unwanted drawback of causing him to incur penalties. If Pujah expects that his business enterprise will be successful in exceeding an average of about £60,000 on an annual basis as turnover, he is legally required to obtain and charge VAT to his clientele (Small business.co.uk, 2005). Of note also is that like all the other sole traders operating in the United Kingdom, Pujah must ensure that he obtains and pays National Insurance. To this end, it will prove to be simpler for him to setup a monthly direct debit with this bank to ensure that the monthly insurance payments are made in good time to avoid any resultant penalties that might arise from delays in their payments. The insurance contributions that he makes are normally paid along with the income tax and the amount of insurance he pays will be calculated based on his self-assessment tax return. Question 2: Common law, which is also variously referred to as precedent or case law is identified as being law that has been developed by judges based on the decisions that they make in various tribunals and courts. This is noted to be in stark contrast to the laws that are made by the actions of the executive branch or by means of the enactment of legal statutes. Most countries around the world today tend to follow two major legal traditions; these are civil law and common law. Common law traces its initial origins to Britain where it was widely applied to aid in the resolution of disputes during the middle-ages. From its origins in Britain, it eventually spread as it was applied within the colonies. The laws implemented in the higher courts such as the King’s Bench were enforced to supersede the decisions that had been made by the lesser courts. Common law has been used for a number of centuries in the United Kingdom, and in England the decisions that eventually contributed to the common law tradition were written down and compiled on an annual basis in a series of legal volumes that were made available for the judges to study. These laws were able to develop a widespread reputation for fairness in the court as well as in the protection of both private property and individual rights (Plucknett, 2001). Common law is generally uncodified and this essentially means that there currently exists not comprehensive compilation of legal statues and rules. Although common law is seen to rely on the use of some scattered statutes that are formed as a result of legislative decisions, it nevertheless largely based on precedent (Eisenberg, 1991). This means this means that judicial decisions are based on the prior decisions of some of the relevant and similar cases. These legal precedents are preserved in a multitude of various court records in addition to their being historically documented in collections of case law that are referred to as reports and yearbooks. As part of his duties, the judge is required to determine exactly which legal precedents will be applied in the determination any of the new cases that have been brought before him. It is on the basis of this fact that judges shape British law. Common law is a source of law in the United Kingdom as when it is applied to a case, common law essentially serves as an adversarial system in what is a heated contest that pits two contesting parties with a judge acting as the primary moderator. In line with the guidelines provided for by the stare decisis principles, courts are normally required to follow the initial reasoning applied in making the prior decision (Holmes, 2014). However, if it is established that the particular dispute in question can be regarded as being fundamentally distinct from all other previous cases judges can go on to create a precedent. The new verdict that is made by the judge in thereafter becomes a precedent and it legally binds all future courts. Although the application of common law can be perceived as being considerably easy, it is rather complicated as the decision of a court are considered to only be binding as applied to particular jurisdiction. To further complicate matters, some courts are at times afforded more power than others within a given jurisdiction. This is exemplified by the fact that in most jurisdictions, the decision made by appellate courts are considered to be binding on any future decisions that might happen to be made by the appellate court or any of the various lower courts that are located within the very same jurisdiction. The existing and frequent interaction between regulatory law, constitutional law and statutory law is also noted to bring about a considerable degree of complexity. Despite the frequently emerging complexities, the application of the principle of stare decisis ensures that similar cases eventually reach similar results (Plucknett, 2001). The common law ensures that all the laws that are used by courts in the United Kingdom remain common throughout the entire land. Of note however is that as it usually the Court of Appeal’s Criminal Division and the House of Lords that work to try and create the necessary legal precedents that chance to arise in the United Kingdom. At times, the English courts can opt to examine the decisions that have been made by other commonwealth courts. This enables the English courts to seek the necessary guidance and directions from these other courts. Question 3: The duty of care is noted to have arisen in the recently emergent tort of negligence. Traditionally, the actions presented in torts were essentially divided into trespass and trespass on the case. In this instance, trespass was applied in situations whereby injury was immediate, direct and foreseeable. However, this approach was problematic as there were no fundamental principles or test that could be applied to a novel sets of various facts. In a legal sense, negligence is broadly considered to be a legal failure by a given individual to do what a reasonable individual might chose to have done in a particular circumstance. It basically denotes the relationships and circumstances that the law happens to recognize as giving rise to what is an inherent legal duty for one to take reasonable care. A general failure by an individual to try and take the ascribed care can probably have the effect of causing the defendant to be legally liable to pay damages to a party that happens to have incurred loss or have been injured as a result of the breach of duty of care. For a plaintiff to be able to establish liability, the plaintiff must first be able to establish that the defendant in question owed a duty of care towards the plaintiff. The implementation of this law over a period of years has led to the establishment of the requirement that companies, people and government should ensure that they conduct all their affairs to the standard required by a reasonable individual (Steele, 2014). The general principle behind the duty of care is that one should not by actions or omissions harm those individuals to whom he owes a duty of care. If one should happen to fail in the standard of care owed, the individual will be liable for his acts of omission that have come about as a result of negligence. The main cornerstone of the principle behind duty of care was first expounded by Lord Atkin on the basis on the now highly dogmatic neighbor principle in Donoghue v Stevenson [1932] A.C. 562. In the case, a woman consumed a bottle of ginger ale and as a result suffered gastroenteritis and shock as a result of a decomposing snail at the bottom of the bottle. The plaintiff was found to have no action against the shop owner as the shop owner was found to have not been negligent in any manner. The question then arose as to whether the plaintiff can take against the manufacturer of the ginger ale. The court ruled in her favor an found that a duty of care was owed to your neighbor. In making his decision, Lord Atkin is seen to have been attempting to try and lay down a general principle that would be able to cover all the various circumstances in which the various courts had already held that there could be a reasonable degree of liability for negligence (Enright, 2002). In making the decision in this landmark case, Judge Atkin asserted that the rule that you should always love your neighbor can be legally interpreted as you must ensure that you do not injure your neighbor. In this respect you must always take reasonable care to try and avoid omissions or acts that you can reasonably foresee will have the effect of causing you to be liable for injuring your neighbor. Judge Atkin further points out that this assertion begs the question of who then should be considered to be my neighbor? The answer to which is that neighbors are persons that are directly and closely affected by any of an individual’s acts. The individual should reasonably contemplate that his actions or omissions that have been called into question can possibly having a negative damaging effect (Enright, 2002). When a court rules that a duty of care is actually owed in a given situation, it proceeds to take into account a wide range of other legal policy factors and principles. In the event that the situation in question happens to be a new whereby the relationship in question is not categorized as being an established relationship that includes an inherent duty of care, it is possible for the court to opt to take into consideration a number of other factors that include; the defendant’s control over the situation that is responsible for having caused harm, the moral and ethical considerations including the various human rights considerations that are evident in the situation, the nature of the harm that has been suffered by the plaintiff whether it is physical, mental or economical. In addition to this, a court might also wish to examine the coherency and consistency of the legal relationships and principles that are can be applied to the situation in question. Question 5: According to contract law, a contract is formed in the event that two or more parties are taken to have agreed. It is regarded to be the moment that all the prior preliminary exchanges of proposals and ideas, negotiations, discussion and bargaining eventually become a legally binding contact. The creation of a contract is often comes about when the offer that is made by one party becomes accepted by the other party. An offer is generally an expression of what is a general willingness to accept to enter into contract on certain terms that are crafted with the primary intention that immediately the individual that they happen to be addressed to accepts them, they will immediately become binding. This individual is referred to as the offeree (Marsh and Soulsby, 2002). The term “expression“ as used in this definition can take a number of different forms such as newspaper, letter, fax, conduct or email as long as it is able to clearly communicate the primary basis on which the individuals preparing the contract, who can also be variously referred to as the offeror, is currently prepared to enter into contract. In the case of Smith v. Hughes (1871) LR 6 QB 597 is noted to have emphasized that what should be considered to be important is how a person that is considered to be reasonable might actually perceive a certain given situation and not the actual intentions of a certain given party. This is primarily as a result of common sense as all the parties in a given contract would not wish to intentionally go ahead and breach their side of a given contract if by doing so, they would be made culpable to damages, such a situation can be seen to also be in stark contrast to the clarity and certainty principle as is applied to commercial contract and how this will affect the contract in question. An offer in contract law can be distinguished from a general willingness by an individual to negotiate or deal. An offer is required to be an unequivocal, clear and direct approach to another party to contact. In this sense, lawyers refer to certainty of terms as being a condition of a valid offer. The parties in a contract negotiation are not bound to accept a contract and occasionally one party can dispute whether the other party has accepted an offer. In general the acceptance of a contract is deemed to have not occurred in the event that a number of factors are seen to hold true. These are the response given is noted to have a number of strings attached to it, the response that is given by one party does not communicate a general readiness to be bound and if the offer that has been made is fundamentally bound on lies. Of note also is that I the person that has made the contract has indicated how the other party must accept the contract, the other party is required to accept the contract under those conditions so as to successfully create a contract (Marsh and Soulsby, 2002). An invitation to treat are applied to its use in contract law is basically an action that is made by a given party that although it might appear to be a contractual offer, it is in the real sense an invitation for others to make an offer of their own. This distinction is noted to be of critical importance because if a legitimate contractual offers becomes accepted by another party, this has the effect of immediately forming a binding contract and the terms that had initially been offered in the original contract cannot be further negotiated without first obtaining the consent of both parties. In this regard, an invitation to treat is perceived to be a request for expression of interest (Dooley, 2006). There are a number of examples of an invitation to treat and the classic example of this is when a given shop owner happen to put what is a very low price on a product that is on display in shop window. If a customer picks up the item and proceeds to take it to the counter for purchase, the shopkeeper is not legally required to sell the item to the customer. In strict legal terms, the customer is seen to be making an invitation to treat by offering to purchase the product in question with money. In this respect, a shopkeeper that might have mistakenly happened to price a product to cheaply is found to not be legally required to sell a product at the price that is indicated. An indication to treat can be regarded as a tool that is used to start off negotiations and show the exact terms that one of the parties in the negotiations might be willing to accept. This is in contrast to an offer whereby one party is generally prepared to be legally bound in the event that the other party accepts the terms presented. Bibliography Canwell, D. 2005. BTEC First Business. Cheltenham: Nelson Thornes. Dooley, D. 2006. Business: Book 2. Oxford: Heinemann. Eisenberg, M. A. 1991. The Nature of the common law. Harvard University Press. Enright, C. 2002. Legal technique. Annandale, N.S.W: Federation Press. Govt.UK. 2014. Choose a legal structure for your business. Accessed at Holmes, O. W. J. 2014. The Common Law. Lanham: Start Publishing LLC. http://www.smallbusiness.co.uk/starting-a-business/ideas-and-business                             -planning/22779/how-to-become-a-sole-trader.thtml https://www.gov.uk/business-legal-structures/sole-trader. Maheshwari, R. P. 1997. Principles of business studies. Pitambar Publishing. Marsh, S. B., & Soulsby, J. 2002. Business law. Cheltenham: Nelson Thornes. Plucknett, T. F. T. 2001. A concise history of the common law. Union, N.J: Lawbook Exchange. Small business.co.uk. 2005. How to become a sole trader. Accessed at Steele, J. 2014. Tort law: Text, cases, and materials. Read More