Analysis of Company Law - Case Study Example

Company Law Case Study Analysis Affiliation Business law constitutes a body of rules, whether by agreement contract, agreement, or nationwide or global legislation, that administer the transactions between persons regarding commercial dealings. It can either be for the regulation of commercial fields by the laws of partnership, firm, bankruptcy and agency or the regulations of commercial trades by the laws of agreement and other associated entities. I carried out a case study about three businessmen with varying capabilities, strengths in terms of finances and expertise. Task 1 A limited liability company is a commercial organization that joins the pass-through taxation of a sole proprietorship or partnership with the limited liability of an organization. However, it is not a corporation, rather, a legal type of a business that offers its owners limited liability at various jurisdictions. Advantages of forming a limited liability company (LLC) include; it involves protection of the company’s assets. It will offer a restricted liability security to them, as the owners, for they are not individually responsible for the company’s liabilities or debts. Therefore, creditors will not chase their personal assets, such as the building, savings accounts, among others, in attempts for them to pay the business debts. In addition, forming an LLC will offer a pass-through taxation, in that; they will not have to pay any taxes at the business level. Any company loss or income will be "passed-through" to them, as the company owners and recounted on their individual income tax returns. Any due tax will, therefore, be paid at the individual level (Martin, 2011, p.28). Another advantage is that there is heightened credibility, whereby, this form of accompany night assist their new company create reliability with its prospective vendors, partners, and customers, since they will the owners have made an official obligation towards the business (Hollowell, Miller, Clarkson &Cross, 2012, p.58). In addition, if needs limited compliance requests in that, the company will face lesser state-enacted yearly requirements than other forms of corporations. It also has a flexible management structure, such that, they will be free to form any business structure that they will agree on. Therefore, the owners can choose to manage the company or have managers to do so for them, unlike in major corporations that have board of directors and managing officers manage them. Lastly, this kind of a company has less restriction, in that, it they will not be limited on whom an owner can be or the number of owners that they would be expected to have. They should form a partnership company because, since they are three, this kind involves two or more individuals and any debts, profits, and decisions associated with the business will be a shared responsibility. Task 2 A company promoter is the person who takes essential steps to form a business organization. He/she imagines an idea of beginning a joint stock business and work-up on it to grow the idea and eventually creates the joint stock company. Simply put, a company’s promoter is the individual who realize the prospects to make money, examine such intention, gather and invest in it and thus offer a profile of a joint stock company. The individual gives both the formation of the joint stock company and nurture it until it stabilizes. As the company’s promoter, Steve will be responsible for identifying the idea for starting the company. Moreover, since they all have agreed on joining their different expertise in fitting floors, both for commercial and domestic use, the next step will be to do thorough investigation. The investigation will be about the company’s services and products, that is, their quality and efficiency and whether the standards meet customer’s needs. Also, it will entail researching on their product’s market demand. He will also investigate whether the demand demand of their product, and their respective competitors. The obtainability of power labour and the required raw materials are also other areas that he will be researching on (French, 2014, p.539). In addition, he will be expected to acquire appropriate individuals who will be ready to act as first administrators of the company. The administrators should also be willing to sign the memorandum of the relationship. Another task is that he will be the one to choose the company’s bank, its auditors, underwriters and its legal advisers. Finally, he will be required to formulate the company’s important documents (Tyagi & Kumar, 2003, p.93). Steve will not have any personal financial risks in being the company promoter, since the entire company will provide for all financial requirements. The only risk he might be exposed to is if the company records losses or ends up being unsuccessful when he had invested his personal moneys, of, in this case, 15,000. The limitation on individual accountability allows owners to alleviate their risk to the cash and property they fund to the business (Balling, 2004, pp. 263). Task 3 Since business partnership can run smoothly even without the availability of a written agreement, it is however important if issues that cause discomfort to members be addressed in writing. In this case, Steve contributed the most in terms of investment towards the company formation. Therefore, he can suggest an agreement, whereby, the earnings are distributed according to one’s capital contribution. If agreed, consented, and signed by all parties, it will ensure that no one ends up feeling as they are being treated unfairly. Also, there should be an opening, in which, if one wishes to top up their investments towards the company, it is possible. It will help each one of them to earn equally if they reach the same level, consequently avoiding any unnecessary feuds. Also, in case the business fails, they should share the remains according to the percentage in which each one of them contributed when forming the business (Cohen & Rosenzweig, p.20). My reasons include; in terms of tax liability, the Federal Tax Law states that a company’s members are solely accountable for their corresponding share of earnings. Therefore, in the event one of its members fails to meet the terms, the IRS holds no resort against the other members. Also, all jurisdictions enforce fiduciary duties on LLC affiliates that expect a minimum standard of behaviour. The fiduciary duty of loyalty guards the welfares of the LLC and other by imposing personal liability on a breaching member. Furthermore, the rules provide a membership rights, thus ensuring personal investment protection (Klein, 2007, p.12). Task 4 Decision-making is a crucial part in all businesses and it is also continuous, in that, decisions need to be made over and over regarding different situations or problems within a company. Just like any other business, their company will require a management structure to ensure its smooth running. All the three individuals own the company, making them both directors and shareholders of the company. However, the selected management team, which is an important part of every business, will be responsible for identifying and analysing the business’ aims and purposes. It will also be responsible for applying and administering the approaches the employees need to attain success (Shenkman, Weiner & Taback, 2003, p.228). Therefore, in order for Steve to ensure that he is not outvoted during any decision making in the company, all of them should agree on rules and regulations they can come up with. The rules should include a point, which states that no decision making can be passed without the three of them agreeing on it. Other rules should include ways in which certain decisions, representing specific areas should be made. Therefore, there will lack room to make decisions that favour one side while overruling the other. Alternatively, he can choose to become one of the managers, since they are only three, and therefore, he will be directly involved in decision-making. Either the company should opt to adapt to participative decision making, whereby, all of them are allowed to participate, by a small percentage or 100% in the overall company’s decision-making. This kind of involvement will benefit the business from the alleged consequences of motivation of improved contribution by the each one of them. In this procedure, every team member will have a chance to share their viewpoints, tap their expertise as well as state their concepts to develop team success and productivity. Its adaptation will not only see to it that Steve gets to participate in decision-making, but it will also ensure the satisfaction of the job. It will also affect, in a positive way, the obligations of the company, its alleged support, its citizenship conduct, the affairs in labour management, its profits and also the company’ overall performance (Ford, 1973, p.7). My reason for this advice is because I believe Steve has a right as an individual as well as one of the shareholders of the company to participate in its decision making process, which should be fare. Also, because the board of directors normally holds the control to regulate the business under a business constitution, an essential subject is what tools exist to guarantee the directors responsibility. UK law tends to be shareholder friendly, in that shareholder usually employs individual polling rights in the general conference. The general meeting comprises a chain of least rights to amend the business structure, evict members from the board and provide resolutions. Consequently, the directors owe a series of obligations to their businesses. The directors are, hence, expected to carry out their duties with proficiency, complete loyalty and in good faith to the firm. However, if the tools of polling do not appear to be enough, especially, for minority shareholders, directors responsibilities and other member privileges may be justified in court. The UK, hence, through the Takeover Code, sturdily safeguards the right of shareholders so that each can be treated and served with equal measure as well as liberally trades their shares (Muravyev, 2013, p.1345). Task 5- Reflection In my study, there are various areas that I was expected to cover in order to help them sort out the underlying issues and discomfort that some of them felt concerning their position and roles in the company. I carried out my research by use of journals, and textbooks, which I found to be the most convenient and more informative as compared to other sources for the topics covered. At first, I had to understand each question and their requirements. Identifying was quite tricky in that some of the questions lacked prior direct answers from the sources I had selected. I, therefore, had to carry out various reviews from different sources before settling for the ones that offered precise information. Although each question had had a common relation to Limited Liability Company, they also had varying requirements, which I had to evaluate and answer accurately. I also had to follow the already laid out format of the information, in that, I followed every question in the laid out order to ensure that every question’s response appeared in an orderly manner. Textbooks were one of the sources I chose when carrying out my research. And, although, they appeared to be a little tedious, in terms of getting the right book for every area that I was researching on, they turned out to be reliable. They were also very informative, in that in some books, I found many pages with defined information that I was looking for. It was also easy to access them, since the books are readily available from the local libraries and some in school libraries. I also used journals, which turned out to be more reliable than any other sources I have ever used before. They were easily accessible, as some of them, I acquired from a local library and others are offered online. It was easy to find relevant content from them and the fact that they are not so bulky allowed me to take as many I needed. All my sources were seemingly easy to comprehend. Bibliography Balling, M 2004, Objectives and theoretical foundations of the European Commissions 1999 action plan concerning the framework for financial markets, Journal Of International Banking Regulation, 5, 3, 9 Cohen, R, & Rosenzweig, S 2000, Investment advice to protect small-business profits, Fairfield County Business Journal, 39, 43, p. 20, MasterFILE Premier, EBSCOhost, viewed 17 March 2015. FRENCH, D. (2014). Mayson, french & ryan on company law. [Place of publication not identified], Oxford University Press. Ford, CH 1973, STRUCTURING THE ORGANIZATION FOR FAST DECISION-MAKING, Human Resource Management, 12, 2, pp. 2-14, Business Source Premier, EBSCOhost, viewed 17 March 2015. HOLLOWELL, W. E., MILLER, R. L., CLARKSON, K. W., & CROSS, F. B. (2012). Study guide to accompany Business law: text & cases : legal, ethical, global, and corporate environment, twelfth edition [by] Kenneth W. Clarkson, Roger LeRoy Miller, Frank B. Cross. Mason, OH, South-Western Cengage Learning. Klein, KE 2007, How to Protect Your Personal Assets, Businessweek Online, p. 12, Business Source Premier, EBSCOhost, viewed 17 March 2015. MARTIN, A. R. (2011). Limited liability company & partnership answer book. Austin [Tex.], Wolters Kluwer Law & Business. Muravyev, A 2013, Investor Protection and the Value of Shares: Evidence from Statutory Rules Governing Variations of Shareholders’ Class Rights in an Emerging Market, Journal Of Law, Economics & Organization, 29, 6, pp. 1344-1383, Business Source Premier, EBSCOhost, viewed 17 March 2015. SHENKMAN, M. M., WEINER, S., & TABACK, I. (2003). Starting a limited liability company. Hoboken, N.J., Wiley. TYAGI, M., & KUMAR, A. (2003). Company law. New Delhi, Atlantic Publ. Read More