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Law Assignment Question

Q1. An acquaintance of yours wishes to set up a business with his friend and intends to run the business as a general partnership. Present him with a series of arguments which will persuade him that running the business through a limited liability company would be a much better option.

Q2. Employers have a duty to ensure that their employment practices comply with the law. The consequences of not complying with the law can lead to employees making expensive claims against the organisation.

The Equality Act 2010 (EA 2010) brought previous equality legislation under EA 2010 and strengthened some of it. Advise your client, who employs 100 people, what steps he needs to take to comply with this law and avoid the expensive claims referred to above. Where appropriate, refer to other legislation.

Law Assignment Solution

Limited Liability Company: An edge over a Partnership Firm

The first step towards executing the idea of starting a business is deliberating over the kind of business structure to be chosen. The reason why the choice of the business structure is considered so fundamental to the success of the business is that it charts the future course of the business and the choice is likely to vary from country to country.

It is appropriate at this instance to understand and highlight the difference between the two important kinds of structures- a company and a general partnership. In a general partnership, a partner is not immune from being held liable for the acts of other partners i.e. each partner has an unlimited liability which is not the case with a Limited liability company (Spadaccini, 2007). Moreover, the personal assets of the partners working in a partnership firm do not enjoy protection as much as they would in an LLC. As a limited liability company (LLC) strongly benefits both the primary forms of business organizations- partnership and companies, it is now regarded as 'a new set of wheels'; 'driving force' and 'alternate corporate vehicle' (Ministry of Corporate Affairs, 2011). An important feature of the above-described structures is:

Separate legal personality is an important feature which also requires to be understood while deciding the nature of the business model. In simple terms, it means that the existence of Limited liability would not be dependent upon the existence of the members who are natural persons. The idea of a separate legal personality was conceived to highlight the distinction between the company and its members. Among several other important objectives, one of the primary objects behind this concept was that in case of any default made by the organization as a whole, the blame should not lie with only an individual (Mangal, 1995).

Limited Liability Company: A Primer

The concept of a Limited Liability Company came into being as a synthesis of the two most popularly followed forms of business structures.

A Limited Liability Company is a hybrid between a corporation and a partnership firm that, as it is clear even from the name, provides the leverage of limited liability and affords its members the flexibility of organizing their internal structure as a partnership based on a mutually agreed agreement (Martin M. Shenkman, Starting a Limited Liability Company, 2003). It provides the members of LLC a certain amount of latitude while deciding upon method of internal management of the organisation whose foundation lies on the alignment of common objectives, at the same time it limits the liability of the members as it happens in a partnership firm, which is somewhat similar to the independent legal existence of a company (Sachdeva, 2009).Advantages over Partnership Firm

A Limited Liability Company is certainly advantageous over a partnership firm for several reasons. However, it is important to gain insight into the current needs of the acquaintance before recommending a particular business structure. Now, the objective in the present case is to set up a new business with some friends. Since the objective is to start a new business with a close group of friends; it is feasible to run the business as a Limited Liability Company in comparison to a partnership firm. In the following paragraph, the particular advantages of a Limited Liability Company have been discussed in detail:

1. Limited Liability: The reason why people prefer to register their business organization as a limited liability company where the liability of members is limited to the share/contribution to the company/LLP. Therefore, the most important advantage of conducting business through this model is that the owners of the company are only exposed to a limited amount of liability. As opposed to a sole proprietorship or a partnership firm, where there the personal assets of the partners are always in play, a Limited Liability company protects the personal assets of the owners.[1] The reason why the personal assets are accorded such protection is that the liability of the owners or member of the LLC is determined by the value of the shares held by the owners. Since, in the present case, a recommendation for a new business is involved, it is imperative to take into account the risk factor. The concept of Limited Liability Company allows the owners to continue to protect their personal assets even though the LLC goes bankrupt. More so, in case the organization has to clear its debts, only the assets of the company would be used for any such purpose and not the personal assets of the members.

Pass-through taxation: Due to the concept of pass-through taxation, a Limited Liability Company is not taxed in a similar manner as a Corporation…………………………

[1] J. H. Rayner Ltd. V. Deptt of Trade and Industry (1989) 3 WLR969 HL.

 

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