Assignment on legal aspects of a business

ASSIGNMENT

Legal aspects of business

L E G A L A S P E C T S O F B U S I N E S S

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Table of Contents Introduction: .................................................................................................................................... 2

Part a: .............................................................................................................................................. 3

1. Terms to consider for setting up a private limited company: ................................................. 3

Some steps that should be followed: ....................................................................................... 3

Documents that are needed to complete the registration: ...................................................... 3

Types of private limited company .......................................................................................... 4

Advantages and Disadvantages of setting up a private limited company: .............................. 4

2. Terms to run a private limited company: ................................................................................ 5

Choosing company Name: ...................................................................................................... 7

Company Address ................................................................................................................... 7

Directors' responsibilities ........................................................................................................ 7

Financial duties ....................................................................................................................... 8

Legal responsibilities .............................................................................................................. 8

Prescribed Particulars: ............................................................................................................ 8

Memorandum and articles of association: .............................................................................. 9

Set up for corporation Tax: ..................................................................................................... 9

3. Termination of the private limited company: ....................................................................... 10

Company name and Trademark ............................................................................................ 10

Use of “Limited” ................................................................................................................... 10

Vote for termination:............................................................................................................. 11

File the proper termination form: .......................................................................................... 11

Cancelation out of state Registration: ................................................................................... 11

Getting Tax clearance: .......................................................................................................... 11

Compulsory liquidation: ....................................................................................................... 12


Part b ............................................................................................................................................. 13

Purpose of the private limited company: .................................................................................. 13

Terms followed to be successful: .............................................................................................. 13

Conclusion: ................................................................................................................................... 15

References ..................................................................................................................................... 16


Introduction

Private limited company is the form of business where two or more person starts their business,

which is limited by their share of investment in the business. This is a popular to do business

under private limited company. This form of entity has less risk and high profitability over sole

proprietor and public limited company (Lee, 2012). The success comes when joint investment

comes together in the market. So when two or more individual agreed to start business under

private limited company their liabilities are limited by their share. The act of private limited

company has detail process and regulation to set up this business.

Part a:

1. Terms to consider for setting up a private limited company:

Private limited company aside from the sole business is the popular form of business structure in

the UK. In this limited company the liability of members is limited that means the capital of

company is separate from personal assets of the owner of the business. But for the sole traders

their whole assets are liable for the business (Jasper, 2001).

So we can define private limited company as a business formed by one or more than one

individual whose liability is limited by their share.

Some steps that should be followed:

1. To set up or to start a limited company is moderately an easy task. There are some ways

to start.

2. Registering a limited company personally the cheapest but lengthy way

3. Taking the help of an advisor such as lawyer or an accountant

4. Using a company formation agent(Campbell, 2015)

Documents that are needed to complete the registration:


1. Memorandum of Association: this comprises the names and addresses of the subscribers

who are starting the limited company.

2. Articles of Association: plans the directors‟ powers, and any shareholders‟ rights, etc.

3. Form IN01: covers details of the director(s), company administrator (optional), details of

any shareholders, and details of the share capital (Belyi, 2013).

Company formation mediators will have ready-made duplicates of these papers.

Types of private limited company

The liabilities of a limited company are limited to the shareholders. The actual liabilities of

shareholders depend on the type of limited company.

1) Limited by shares: The members form a private limited company, which is limited by shares,

and they are called shareholders. Every member is liable for the value of the share they were

issued but not paid for.

Such as a shareholder has 250 shares actually valued at $1 each. They have formerly paid for 100

shares i.e. $100 so if the company fails they are liable for up to the original value they haven‟t

paid for, i.e. $150.

2) Limited by guarantee: When a limited company is limited by guarantee then the members of

the company financially back it up to an approved amount. The members of this company aren‟t

called the shareholders (Dine, 2007).

Advantages and Disadvantages of setting up a private limited company:

A private limited company has many advantages over other entities

-Private limited companies can start the business immediately by issuing of the certificate of

incorporation.

-One director is needed to set up a private limited company

-It is not obligatory to hold annual general meeting but if they wish they can

-The limitations on lending or loans to its directors are less difficult in a private company

-This has fewer provisions regulating director‟s dealings

http://www.bytestart.co.uk/what-is-a-memorandum-of-association.html

http://www.bytestart.co.uk/articles-of-association.html

http://www.bytestart.co.uk/forming-a-limited-company-overview-of-form-in01.html


-It has the opportunity to raise funds issuing shares

Some disadvantages of a private limited company are as follows

- The privacy is less in a private limited company than other forms of business

-The formulation cost regarding laws and regulation is higher

-Do not offer or sell share to the community

-Private limited company cannot list them on share market

So after analyzing all the information regarding the advantages of corporation of private limited

company it can be said that private limited company setting up cost and process is complex than

sole proprietary but easy than public limited company.

Sole proprietorship does not require formation and it is simplest structure. Limited liabilities

partnership is a way to protect businesses own properties. It has simple structure and involves

less administration than public limited companies. Partners are limited and their liabilities too

(Anderson and Kumpf, 1976).

2. Terms to run a private limited company:

Requests of Limited Companies

There are some extraordinary level wants which all limited companies must fulfil:

The company must be registered at Companies House

The company‟s annual accounts must be trailed at Companies House

An Annual Return (Form AR01) must be completed each year to ensure Companies House

records the most up-to-date information about the company. This is subject to a modest annual

fee.

HMRC must be informed if the company has any profits or taxable income on an annual basis.

Every limited company must complete an annual corporation tax return. Any liabilities must be

paid within 9 months of the company year end.


All company employees must pay income tax and National Insurance Contributions (NICs) on

any income they receive.

A private limited company is the business running by one or more partners. This will be clear if

we discuss how private limited companies work.

Partners: Private limited companies must have at least 2 and not more than 50 shareholders. In

this company partners can be either physical person or legal individual. Partners are given shares

for their capital investment.

There is an important role of director in a private limited company. They are legally bound to

have a director a physical person, who can be selected from the partners of the company. It is

important that private limited company cannot be managed by legal person.

The committee have their wish either to hold annual general meeting or not, but the function of

general meeting is to modify the rules regulations or approve and dismiss members. Any

decision they take must be approved by at least three fourth of the company‟s shareholders.

Some exceptions are there for changing nationality, adding partners, changing business status as

general partnership, limited partnership or to replace the manager.

The ordinary general meetings function is to take decision for other activities of the company

rather than those involving changing the status or approve new members or shareholders.

Capital: Share capital is the vital part of a private limited company. How much will be the price

of each share, how much each shareholder pay foe defined time limit, and the profit share

distribution calculation, all are related to the capital. Private limited company can freely

determine the minimum price of share. Thus the capital is made up with the contribution of

money or anything intellectual or material. The capital is divided into equal share or value. It is

common that private limited company is a fixed capital company, but sometimes they can be

variable capital companies.

Taxation: All registered companies are subject to pay tax to the government. They have to pay

tax under the company tax law.


Choosing company Name:

To run a private limited company a unique name must be selected. The name of the company

selected by the committee should not be exactly the same as another registered company name in

the companies house register.

Other factors to be considered

The name should not contain a sensitive word or expression but permission

It can‟t have the connection with government or any authorities

The name can‟t be invasive

Certain rules should be followed about the display of name. The company‟s house have to

register first and then have to take permission to where they can display their name.

Company Address

A company‟s registered office is from where mainly all important works are done, specially

the decision making. It is also used for official communications, eg where all the business

letters are sent.

Some rules for business address are here:

It must be a physical address

It must be located in the same country where it is registered. A company registered in

UK, must have its business office in UK.

One can use PO Box, but a physical address and postcode must be added after the PO Box

number.

One‟s personal address or address of a person who have contact with Corporation Tax can be

used here for communication. But it should also follow the above rules (Belyi, 2013).

Directors' responsibilities

The main duties of directors are to make sure company‟s success and lead them into the

strategic goal. So a director has to do different legal and financial responsibilities.


Financial duties

As a company director one must have track all accounting related transaction. Though a

business accountant can keep track of all these, but a director also should be concerned about

it. In short director has the responsibility to ensure that all tasks are done:

Good accounting record keeping so that accounts can be prepared that can give the clear

and fair picture of the financial condition of the company.

Another one is to provide correct account of the company and filing on time with

company‟s house.

Director has to submit the tax return of the company to the HMRC and also pay any tax

due.

The account of staff payment and any deduction of the income of the employee should

also be considered by the directors.

And the most important duty of directors is to be solvent, otherwise it will be in vain to

run a business.

Legal responsibilities

A director is responsible for all the investment and their ROI

Any changes in any particular areas of board of directors should be notified by directors

to the Companies House.

Change in companies registered address should also be notified by them to Companies

House (Campbell, 2015).

The main duty of a director will be working on the interest of shareholders. So the

director cannot get involved in any activities that damage the company.

Prescribed Particulars:

Companies‟ statement of capital contains the information about shares which is known as

the „prescribed particulars‟.

Prescribed particulars are those which describe the rights of each types of share known as

class of share owned by each shareholder. These shares must includes

Shares of dividend they give

Is those are exchangeable („redeem‟) for money


Is there any right for vote on company matters?

And the number of vote it get

Memorandum and articles of association:

While registration of the company is started the agreement of all shareholders must be taken and

then the companies have the rules and regulations about how the company will run.

In this part it is necessary to make a „memorandum of association‟. This is the statement signed

by all shareholders where they confirming that they are agree to form the company. His is the

document of exact wording which can‟t be changed (Campbell, 2015).

„Articles of association‟

This is the document of written rules about running the business that all shareholders have given

their agreement. Some companies also use standard articles also known as model.

Set up for corporation Tax:

After starting up the business, company should provide specific information to the tax house

within three months. If fail penalty may be received.

For taxing, the HMRC will send companies unique taxpayer reference to the registered office.

They send a letter that tells that

Help HMRC by giving information they need about the company.

Suggestion for opening online account in HMRC for company tax return and business tax

The company should provide to HMRC

Starting date of the business

Name of the company and the registration number

The main address of the business or the head office location

Description about what kind of business it is

Future date when the company make its annual account


Therefore, the main reason for providing information is to give actual status so that no mistake

will happen (Jasper, 2001).

3. Termination of the private limited company:

Company name and Trademark

A trademark is a whole different thing than the company name. Using a company or business

name does not protect the right of trademark. For having a trademark one has to register

differently (Jasper, 2001).

Use of “Limited”

Most UK based company normally finish their company name with limited or ltd, Though some

company use „Cyfyngedig‟ and „Cyf‟ if they have registered their company in Wales.

Company working with charity or sports can leave the word limited when the company is limited

by guarantee and if their article of association describes:

Not able to pay its members, eg through dividends

Have to spend their income for promoting the brand image.

One can exchange his registered name by using a different name which is referred as

“business name”. But there are some rules also which must be followed.

Business name

„limited‟, „Ltd‟, „limited liability partnership, „LLP‟, „public limited company‟ or „plc‟

cannot be included

It should be same as the existing trademark

No delicate word can be used unless it is permitted

Business name can be included on one‟s stationary and communication. Again one must

include their partner‟s names with which they work with, definitely the company name and

one‟s personal name if he is a sole-trader (Lavine and Mandel, 1938).


There in boundary when a company terminate its business and switch to another. But they must

obliged to follow and take some duties and responsibility. At the termination process the

company should follow some important steps to limit the liability for lawsuit and fees. In this

process the company has to inform its creditors by notice several months before about the

termination.

To dissolve the company it needs the help of the secretary of state or the corporation in the state

by filling a form or two.

Officially terminating the business also needs to inform creditors by notice that the business is no

longer can makes profit (Lee, 2012).

Vote for termination:

The first step starts in the inside of the business. If the members or shareholders of the company

officially agree to close the business than it will happen. The members can vote to terminate the

business following the procedures set out in the documents such as articles of incorporation,

article for organization, bylaws, and operating agreement. The vote for termination of the

business should be recorded in a resolution of a meeting.

File the proper termination form:

Next task is to visit the state division website to collect the dissolution form. This form will be

called the certificate of termination or cancellation or similar. The form is about total information

about the company so that the company is identified. Some states can also ask for amount of

assets or liabilities. A small amount of fee is charged for the form (McGee and Williams, 1995).

Cancelation out of state Registration:

When the corporation has registered outside of the state to do business, the company then need to

file a form to withdraw the right to do that business in that state. This is a type of form called

application of withdrawal, certificate of termination of existence.

Getting Tax clearance:

Companies are liable to the state for doing business. If the company has tax due to the state it

should pay the due and take clearance. Without clearance the company cannot be approved to


terminate. To get the clearance of tax agency the company submit a request and then the agency

inform that whether the company have to pay tax or not(Mercer, 2010).

Compulsory liquidation:

The term compulsory liquidation refers that the selling out of assets of accompany or a process to

distribute the proceeds to the creditors under the law.

How does it happen?

The procedure starts when the petition for winding up is presented in the court. It has the serious

consequence for the company and mostly the petitioner is the creditor of the company.

The liquidator:

After winding up order has been made an official receiver is appointed as liquidator. The

responsibility of a liquidator is to collect and measure the asset distributes proceeds to the

creditors and if any surplus remains distribute to the persons entitled.

Pay to the liquidator:

As the winding up expenses the liquidator‟s fees are paid up and this is from the assets of the

company


Part b

Purpose of the private limited company:

In the world the business is for the providing service and goods to the customer in return of

money. The main purpose of a company is to make money by doing business. For this the

investors of the company takes different risks and thus they have the opportunity of returns

(Roach, 2009).

The purpose of my business: As I am setting up a private limited company the purpose of my

business is to make profit providing better product as well as better service.

The name of the company: As stated above the rules and terms about naming of a private

limited company, I have followed the terms to naming my venture as “Rico Tec Ptv Ltd”.This

business of technological equipment‟s.

Terms followed to be successful:

The success of business depends mostly on the initial set up procedure of the company. This is a

private limited company and has more than one partner and or shareholders. So according to the

arguments stated above some facts can be identified as the success factor of the company-

Register the business under the law and properly stated the business name, location,

Capital amount, Numbers of members, purpose of the business (UK business objectives in

computing, telecommunications and information policies, 1987).

Keeping a written document of rules and general functions process, share value

statement, share dividend policies, and the policies about members.

Running a business smoothly without doing any illegal things and not violating the

government rule.

The success also depends on the proper activities of a director of the company. The

directors responsibility will be maintained very strictly so that any bad thing happen in the

company.


The proper utilization of capital is highly considerable aspect that can make the company

successful.


Conclusion:

The private limited company played a great role in the business world. Registration of the private

limited company is not so much hard and any willing person can make this company under the

law. This company law limits the liability of shareholder by their invested share capital. So their

personal assets doesn‟t affected by any loss of the business. Each shareholder is only responsible

for their capital invested. The success of this business depends mostly on the directors, and the

shareholders can be that directors.


References

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