Company Law Assignment - Essay Example

Company Law Assignment Section A The client in question is a family with parents who want to incorporate their children in their business ventures, which include establishing a retail business, a farm and a mining venture that is speculative. Now that the client wants guidance on the best legal structure for each business venture that he has in mind, the paper will explore the most suitable legal structure to adopt for the retail business, and the legal structure for the farm will follow, and lastly, the paper will explore the most suitable legal structure for a speculative mining venture. Further, the text will analyze the merits and demerits of each structure. Various structure of business ventures exist in law, and it depends with the owner of the business to choose the one, which best suits his business. It is imperative to note that business structure decisions are the most significant decisions in any business set up (Boone & Kurtz 45). Though it is possible to alter the structure of the business in the future, the process is extremely expensive and difficult. A retail business does not require a lot of money to start, but the capital required can vary depending on the scale of the retail shop. For instance, a small scale retail shop does not require large capital to start and run. The small scale business can be financed by the owner from his savings; on the other hand, large scale retail business might call for external funding, maybe from loans (Boone and Kurtz 49). With that information in mind, the client is planning to venture into three different business endeavors with the help of his family. I would give the following recommendations as far as the business ventures are concerned. The Retail Business Anyone who wants to set up a retail business venture should be prepared to breathe, eat and dream work for his business to succeed (Boone & Kurtz 57). A retailer buys goods in bulk from wholesalers and resells the goods at a profit to consumers at the right size and an appropriate price. With reference to the amount of capital available for this family for the business ventures, I would suggest a sole proprietorship for the retail business venture. This business legal structure will allow the family to own its unincorporated business, and operate it without any interference from a third party. This business venture will allow parents to delegate responsibilities to their children for the activities of the business run smoothly (Pride et al. 67). The family will operate the retail business as an extension of itself. The organizational structure of a sole proprietorship business is attractive since the losses and the profits of the retail venture are entered in the owner’s tax returns. This business structure does not have a room for separate filling. The owner of the business is accountable for any business liabilities; thus, the head of the family will manage to involve his spouse and kids in the business, and exempt them from the liabilities of this business. Therefore, should anyone sue the business for injury, breach of contract or debts, the court can only levy the property of the head of the family, but not any property that belongs to the wife or children. As far as the relative flexibility of a sole proprietorship retail business is concerned, the business is easy, and its structure is easy to understand. Further, the business is highly flexible, because it is run the way the owner of the business decides. Liability of this business lies with the owner and nobody else, and he is accountable for the entire activities of this business (Pride et al 67). Sole proprietorship can easily attract funding from banks and other financial institutions. A retail business venture under sole proprietorship has several merits. The first advantage is that the business is less complex, and decision making process is uncluttered and fast than a partnership, or other business structures (Boone & Kurtz 78). Furthermore, the chief merit of a sole proprietorship is that it is the least expensive and simplest business structure because it requires a few things to run and bring profits. However, sole proprietorship has limited sources of capital, and it is also limited in terms of opinions for effective decision making (Boone & Kurtz 79). Further, in case of absence of the principal decision maker, the progress of the business might be affected adversely. A Farm In the case of a farm, I would advise the family to adopt the limited partnership legal structure of business venture. A farm is relatively complex compared to the retail business, and it requires diverse thoughts and ideas. Further, a farm business requires an enormous capital to run due to the purchase of machinery and inputs (Boone & Kurtz 81). The structure of a limited partnership is similar to that of a general partnership, and the tax implications of these two business legal structures are similar. As the name suggests, limited partnership allows for a partner to join the business and posses a business portion, without participating in the activities and management of the business. This structure of the business gives room for a single general partner who assumes the entire liability of the business. In this case, the family will be able to incorporate outside investors into their farm business venture, without the investors to the business liabilities. The relative complexity of a limited partnership is higher than that of a sole proprietorship, but it is still manageable by a family. Further, this business structure can attract outside funding from the limited partners, and since they do not take part in the operations of the company, the family can still influence their business the way they want (Pride et al. 62). However, this business might experience problems in case of a law suit since the partners do not take any responsibilities of the liabilities (Abrmowicz 47). Therefore, the general partner, and the head of the family takes the full responsibility alone. This business structure can raise enough capital from the contributions of the partners without borrowing from external sources. Speculative Mine Venture In the case of the speculative mining venture, the most ideal legal structure for this business is the general partnership; this stems from the fact that the level of risks involved in this business tend to be exceedingly high (Pride et al. 67). The family will need to outsource support from other people who will probably get involved in the management of the business directly. A mining venture requires experts to direct the search, and perhaps facilitate effective mining. Therefore, this process will require a complex business structure, which will ensure that the all the activities are well planned for before execution. Further, the business structure is ideal for a complex venture like because the partners will share the goods fruits, if the business makes a profit, and also share the perils in case of a loss. Therefore, the family can diversify their risk of losing everything in case of a failure in their mission. Thus, a partnership will be the best option for the mining venture. Further, the family can manage to share liability with partners in the event that a person is injured while conducting the activities of the venture. However, the partners will take part in the management of the mining venture, and this might complicate and delay the decision making process (Abrmowicz 45). Furthermore, the family will have to bear the feeling of having to share the profits that will be ripped from the speculative mining venture. Section B Over the last decades, the duties of directors in companies have become dynamic; this has gone to the extent that directors might breach their duties without knowing (O’Brian 88). However, dynamic statutes and cases that change the duties of managers emanate from the emerging issues in the modern society, which must be addressed in all cases. Fortunately, in 2005, a reform to company law was proposed, and the codification of the duties of directors was incorporated the duties set and decided by case law while they maintain the statutory interpretation that existed before the reform. The stipulation in this Act extends to the non appointed directors who make decisions of companies and their operations. Also, covered by this Act are the de facto directors who act as unregistered company directors. It is extremely significant that all directors, despite the size of the company that they govern, familiarize themselves with their duties and comply with the duties without failure (Baxt & Baxt 55). The consequences of ignorance of duties by a director can result to disastrous consequences to the director and the business. Directors can never hide from their duties and responsibilities since the public and the media expose any weakness in a company more than they expose the strengths of a company. Anyone who is thinking of starting a company of whichever size, be it small, medium or large, should keenly consider the duties that they delegate to directors (Baxt & Baxt 67). For instance, companies run by family members might experience problems since the family member who gets appointed as the director might just relax as other people do things. Such inactive directors should know that being a director has more to do with direct involvement and active decision making in the running of the affairs of the company. This is contrary to enjoying the lavish feeling of being a director. It is worth noting that directors should be appointed with regard to their talents and this should reflect in the workload, which is given to directors. Although the company is a unique entity from its stakeholders and the directors, it is not easy to distinguish the person who owns a company and another person who runs the company. The duties of directors in companies include the duty to act within powers. Directors have the duty to act and make decisions without surpassing the authorities conferred to them by the Article of Association of companies (O’Brian 99). This duty helps directors to regulate the functions of the company and stick to the activities stated in the Memorandum of Association of the company. This duty helps protect the company from exceeding the authority and prevent any law suit on issues of jurisdiction. Further, directors have the duty to facilitate the triumph of the company since they are required to act honestly to the benefit of the stakeholders and the benefit of the company in the long term basis. Directors consider the interests of the customers, employees, the relations of the suppliers with the business, company impact on the community and environment, and preserve the company reputation through fair deals and conduct in the face of the public (O’Brian 109). In addition, directors are charged with the duty of exercising judgments, which are independent. The company and the director are two separate and different entities. Thus, any decisions and judgments regarding the operations of the company should be for the best interests of the company, but not to the interest of the director. Therefore, before taking any action or making any decisions, the director of a company should revisit all the required considerations to ensure that the decision will be in full faith and not malice. All the issues raised in the previous duty of a director should be considered with a lot of emphasis. Further, the directors of companies have the duty to exercise rational diligence, care and skills, which would be followed by any other rational director when faced with a similar circumstance (O’Brian 112). Such skills can be obtained from vast reading and keeping in track with all the current affairs; ignorance can make the director answer for the mistakes made by his employees due to misinformation. Further, the company can be made to pay for claims due to negligence or failure to comply with the law on certain issues like health measures and sanitary requirements as they are stipulated by the law. The directors have duties to refrain from conflicts between their own interests and the interests of the company. In the event that the company’s interests conflict with the interests of directors, the directors should always be willing to compromise their own interest to pave the way for the company’s interests to win (Baxt & Baxt 89). Furthermore, the directors have duties to declare the extent and nature of interests in any suggested arrangements and transactions, which involve the company. These interests include information, shares, and property regardless of whether the company could decide to seize the opportunity and benefit from the transactions. This ensures that the companies make maximum profits, and reap the most benefits from any transactions that are undertaken by the employees of the company. Directors have the duty to consult and obtain the necessary approval for any major transactions, which might involve investment of an enormous amount of capital from the company (Baxt & Baxt 91). In other words, directors should refrain from signing contracts on behalf of the companies without the full consent of the entire stakeholders. It is imperative for directors of companies to be well informed about their entitlements with respect to their title as directors; this includes voting and summoning people for meetings. A director in any company should be sharp and aware of the most recent updates of the records of the company, which he is working for. Directors should also be aware of the requirements of administration as stipulated in the Companies Act. Directors should also be conversant with other duties, which call for their attention with regard to the running of their company. This includes health, environment, taxation and the statutory law. Directors carry the responsibility of seeking help and assistance from stakeholders and other key individuals in the company when the company is faced by a crisis of finances. Such a crisis may place the business in a situation where it might not settle the debts it owes other business entities. Finally, directors have the duty of remembering their duties as stipulated in their contract of employment. It is advisable that any director in any company should keep in mind that he is a director and also an employee. Therefore, he should balance the two obligations to avoid creating a problem in the management of the company (Baxt & Baxt 97). In conclusion, various structures of business ventures exist in law; it depends with the owner of the business to choose the best for his business. With reference to the amount of capital available for this family, I would suggest a sole proprietorship for the retail business venture. In the case of a farm, I would advise the family to adopt the limited partnership legal structure of business venture. In the case of the speculative oil venture, the most ideal legal structure for this business is the general partnership. The duties of director in companies have been dynamic over the last decades. This has gone to the extent that directors might breach their duties without knowing. Anyone who thinks of starting a company of whichever size should consider the duties that they delegate to directors. Works Cited Abrmowicz, Witold. Business Information Systems: 12th International Conference, BIS 2009, Poznań, Poland, April 27-29, 2009, Proceedings. New York: Springer, 2009. Print. Boone, Louis & Kurtz, David. Contemporary Business. London: John Wiley & Sons, 2011. Print. Baxt, Bob & Baxt, Robert. Duties and Responsibilities of Directors and Officers. New York: AICD, 2005. Print. O’Brian, Maurice. Duties of Directors. Wellington: Wellington District Law Society, 1977. Print. Pride, William, Hughes, Robert & Kapoor, Jack. Business. New York: Cengage Learning, 2011. Print. Read More