You are a solicitor who specializes on small business expansion and startup.
V-Engines, a small company owned by Homer, is his business.
He designs and builds engines and has recently leased large warehouses with offices due to an increase in his order books.
He is unsure whether he will continue to operate his business solely or to have limited liability.
He already has two workers in the workshop, and he has determined that he will need two more.
Homer should be able to identify the types of business that he can operate.
Homer should be aware of any regulations that he will need to follow if he changes his business structure to become a company.
Also, Homer must be aware of his legal obligations in relation to the people he currently works with and the ones he wants to recruit.
Homer could set up a company if he chooses to do so.
This assignment has the following learning outcomes:
Find and solve legal problems facing businesses.
Enhance your self-learning abilities by being able analyse a law report or piece of legislation effectively and to deal with complex cases and problem scenarios.
This report is about Homer’s small business, V-Engines.
He is responsible for designing and building engines to support other businesses.
Homer leased large warehouses with offices to accommodate the increased number of orders.
Homer isn’t sure if he should remain a sole trader or get a limited liability.
He currently has two employees who are self-employed in the workshop.
He requires two additional people to help him in his office full-time.
This report will cover the options Homer has for business ownership. It will include sole ownership, partnership, limited liability companies, legal corporations, and legal entities that can be used to choose between limited liability ownership or sole ownership.
We will discuss his legal responsibilities in each type of business.
This report will cover the benefits and drawbacks of each business.
This report describes the law and obligations with respect to current or upcoming recruits.
Homer’s legal responsibilities as a director of a company and his disqualification from the same will all be discussed.
Analysis of Business Formation
Sole Trader: This is when a single trader operates a business. The sole trader is an individual who owns the business and is responsible for all its activities.
All profits and debts will be borne entirely by the sole proprietor.
This arrangement is less costly in terms of making any decisions.
The owner retains full control over all assets and is not required to report to any higher-ranking employer.
The sole trader of any business is liable for all work. In order to recover debts, assets can be seize to recover them.
Although they may employ others to work diversion, the sole proprietor of the company will remain the owner.
A sole proprietor benefits from the human resource management and recruiting costs.
If the company is in any legal proceedings, or the owner is against the company, the creditor could force the owner of personal assets to pay the company’s debts (Wang & Poutziouris (2010)).
Legal Responsibility as A Sole Trader
Personal responsibility traders must be able to handle extra income to cover any expenses.
He must settle all company debts by the end of each financial year, even though he does not earn enough from sole trading.
All legal proceedings against the company are personal to the sole trader.
The sole trader will pay income tax returns. He or she must also show tax returns every year.
It is the sole trader’s responsibility to register the business and provide documentation and licensing (Fletcher 2010).
Advantages of sole trading
It is very affordable to start a business as a sole trader.
The sole owner is able to direct the company’s business affairs and make all decisions.
They operate independently from the rest of the company and without the hassles associated with long hieratical steps.
After paying all liabilities, the owner retains the entire profit.
The sole proprietor has the right to keep all official data confidential.
Owners can provide personal services to their potential customers.
Solo ownership does not require lengthy payments so it is simple to wind down the business.
There are disadvantages to being the sole trader
The sole trader may also be at risk.
Due to the high cost of retaining employees, it can be difficult for sole proprietors to keep high-calibre employees.
A sole trader can have difficulties raising funds and expanding the business.
The sole trader can’t reap the advantages of economies of scale because they must charge higher prices for their products and services in order to cover the costs (Rams, Theodorakopoulos and Jones, 2008).
Regulation of sole ownership companies
While the sole proprietor must comply with certain regulations and legal requirements in order to establish the business, as it is an independent business activity, there are no lengthy procedures for forming a Sole Ownership Company.
Like all companies, it will need to get a licence and permits. However, the requirements for sole ownership companies vary from one state or another.
The sole ownership company will pay taxes in the self-employed category (Langevoort & Thomson (2012)).
Limited Liability Company means that the company has less liability and/or debts than sole ownership.
It is a company that has two or more owners and an agreement to divide the income among them.
The person responsible for the limited liability will distribute income between partners and limit liability.
This arrangement has tax benefits, and income can be tax deducted.
However, the owner can’t transfer his interest. In order to raise large capital in certain companies, it is necessary to transfer stock stocks on stock exchanges (Moll 2010).
Limited Liability Ownership – Legal Responsibility
Each member of the company is responsible in proportionate to the company, but is not personally liable.
Personal liability rests with the Limited Liability Company Manager (Hiller, 2013,).
The advantages of limited liability ownership
Limited liability ownership members have protection from the company’s debts.
Any loss that the Company suffers will not be covered by the personal assets.
It is possible to choose a different percentage of profit sharing; however, it should not be included in the ownership ratio between members.
It is not required to conduct meetings or give details about the meetings, as it is in company law for larger companies.
However, it offers all the same benefits to corporations.
Because the company isn’t treated differently from other corporate bodies, the company can avoid double taxation. Members pay their taxes separately based on their income.
Members or partners with limited liability ownership have better credibility than those who own solely the lender or supplier (Ribstein (2008)).
Limited Liability Ownership: The Disadvantages
Because it is not part of other corporate bodies or follows the procedures of company acts, its potential for growth is limited and it doesn’t attract good investors.
There are no uniform laws that govern limited liability ownership. Each state treats it differently.
Because it is a limited liability, with a restricted number of members and without a proper corporation identity, it dissolves easily in the event of financial loss to the company, bankruptcy or insolvency of any of its members.
The limited liability ownership does not include shareholdings nor is it listed in the stock market, so there is little to no market for the company.
While these companies are simpler than those of major corporations, they are still more complex than those formed by partnership firms (Guinnane.
Regulating Limited Liability Ownership
A unique company name must be provided. This should be recorded with the state regulations.
The article of organisation must be filed. This will include all information regarding the company, including its address, legal authority, business and members, as well the legal authority that is authorized to manage the company’s affairs.
An agreement should be reached regarding the finances, rights, organization, responsibility, and rules and regulations that will ensure the smooth running of the business.
After the formalities have been completed, the company can announce its business in the local newspaper (Steele 2007, 2007).
Legal Obligation to The Company’s Members
Homer may have legal responsibilities towards his employees, as well as future hires.
Because they are in the business of building engines employees face few health risks. These issues must be addressed by the safety and health rules.
Employer is responsible for paying the agreed amount to employees and giving correct information about employee’s legal rights.
He has the duty to establish trust and confidence between employer and employee (Foster 2007, 2007).
Responsibilities of Directors in A Company
Directors have some duties and obligations towards employees and the company. They are required to act in the company’s best interest and good-faith.
Directors have a duty not to profit secretly from their positions or use sensitive or unpublished information.
Maintain accurate books and accounts.
The shareholding and contracts of the company must be made public.
Post et al.
Disqualification of Directors
If a director of the company is found unsound or insolvent, or sentenced to a term of not less than six months, he will be disqualified.
Non-payment or failure to file the financial statement covering the three most recent financial years will also result in disqualification (Shopovski and al.
Legal Problems for Businesses
There are many legal issues that could arise at the time of sole ownership. These include tax and debt payments, which are entirely on the person for whom he has no protection.
The company dissolves upon the death or incapacity of the sole proprietor.
Similar to LLC, LLC also faces legal issues in relation to its formation. The taxation is restricted to the shares proportionately of members. Any remaining debt is borne solely by the company.
The state norms dictate that regulations and registration fees are higher.
Conclusion and recommendation
This report focuses on the business opportunities Homer can use to expand his engine-building business.
Two options were available for running a business. One was a sole-trader, the other was limited liability.
It discusses the legal responsibilities, benefits and disadvantages for each business type.
Homer was asked about the regulations that must be followed in order to form the company. He also discussed his legal obligations towards his current and future employees.
Homer must fulfill some of his responsibilities in order to be able to become a director if he chooses to create a company.
According to this report Homer should form a Limited Liability Ownership to reduce the risk of his business.
As LLC members may be multiple, so liability will also split between the members.
This type of company has double taxation.
Members of the company have good credit with lenders.
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