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Nature, Formation, and Management of Business Organizations


This report aims to thoroughly examine the different types of business organisations available for Sam to choose for IOM Solutions. After operating as a sole trader for eight years, Sam has determined that the growth of demand and need for adding employees has necessitated an expansion of the business (Wang, 2021, p. 9). This report will provide a comprehensive overview of the various business organization types in the UK, including their legal implications and requirements.

To make an informed decision, it is vital to consider the advantages and disadvantages of each organization type, as well as the legal consequences that come with each choice (Pinilla-Roncancio and Rodríguez Caicedo, 2022, p. 5654). For example, a sole trader operates as a single individual with unlimited liability and ease of setting up. On the other hand, a limited company provides limited liability and increased credibility but has more complex legal requirements and obligations. In order to identify which is most appropriate for Sam and IOM Solutions, the report will look at the possibilities of a sole proprietorship, partnership, limited liability partnership (LLP), and limited company. The recommendation will be based on a thorough analysis of the business’s goals, operations, and financial situation.

Businesses & Organisations in the UK

A person can pick from a number of different business entities in the UK, including a sole proprietorship, a partnership, a limited liability partnership (LLP), a private limited company (Ltd), and a public limited company (Plc) (Wang, 2021, p. 9). The nature and management of a company are subject to different types of regulations, including company, commercial, employment, tax, and consumer law, among others. Business transactions are subject to the laws of contract, consumer protection, and competition, among others.

The concept of business liability in negligence refers to the liability that a business may incur for the negligent acts of its employees or for its failure to take reasonable care in the provision of goods or services to consumers (Wang, 2021, p. 9). This liability may arise from the principles of vicarious liability, where an employer may be answerable for the acts of its workers, or from the principles of business liability in negligence, where a business may be responsible for its failure to take reasonable care.

Company directors have a variety of responsibilities, liabilities, and tasks, including the duty to act in the best interests of the company, the need to use reasonable care and skill, and the commitment to abstain from conflicts of interest. The termination of a partnership may occur due to the agreement of the partners, the death or bankruptcy of a partner, or the mutual agreement of the partners. The memorandum of association (MOA) and articles of association (AOA) are vital pamphlets that outline a company’s structure and governance, including the company’s objectives, the capital assembly, and the rights and duties of the shareholders and directors.

The Companies Act 2006 is a crucial piece of legislation that governs the formation, registration, and management of companies in the UK. This act sets out the requirements for the construction and registration of companies, including the submission of the MOA and AOA, the appointment of directors, and the maintenance of proper records (Pinilla-Roncancio and Rodríguez Caicedo, 2022, p. 5654). The act also sets out the responsibilities of directors and shareholders, including the requirement for directors to act in the business’s best welfares and for shareholders to exercise their rights in accordance with the MOA and AOA.

Employment law is another critical area that affects businesses in the UK. The Employment Rights Act 1996 groups out the rights and responsibilities of employers and employees, including the minimum rights to paid, rest breaks, and minimum wage. The Equality Act 2010 prohibits workplace discrimination based on race, gender, sexual orientation, and other protected characteristics. Employers must comply with these provisions, and employees can bring claims for discrimination or breach of their employment rights.

Tax law is also a key consideration for businesses in the UK, with companies required to comply with various tax obligations, including corporation tax, VAT, and employment taxes. The UK has a complex tax system, and businesses must ensure that they comply with their tax obligations to avoid penalties and fines. Companies must also ensure that they comply with consumer protection laws, including the Customer Rights Act 2015, which cliques out the privileges and responsibilities of consumers and businesses regarding the provision of goods and services.

Competition law is another area that affects businesses in the UK. The Rivalry and Markets Consultant (CMC) is the UK’s ombudsman, examining and enforcing competition law. The CMA can fine businesses that engage in anti-competitive practices, such as price fixing, and can also require firms to divest assets or take other steps to restore competition in the market. Companies must be aware of their obligations under competition law to avoid penalties and fines.

The Legal Business Structure of UK Companies

A sole trader is a sort of business structure where one person is in charge of running and owning the company. This form of business is easy to establish as no formal registration process is required. The sole trader assumes complete responsibility for all debts, obligations, and taxes the business generates. If the company cannot pay its debts, the sole trader’s assets can be used to settle them. While operating as a sole trader offers flexibility in decision-making and ease of formation, it also comes with some disadvantages (Wang, 2021, p. 9). The sole proprietor is personally liable for all business obligations because they have limitless liability. They also have partial access to capital, and the capacity to transfer ownership is restricted.

General Partnership

A general partnership is a commercial structure in which two or more individuals come together to operate a business (Pinilla-Roncancio and Rodríguez Caicedo, 2022, p. 5654). All partners in a general partnership, members have unlimited personal culpability for the association’s debts and liabilities, meaning that each partner is personally responsible for paying back any debts or meeting any obligations incurred by the partnership. If the association cannot pay its debts or meet obligations, each partner’s assets may be used to satisfy those debts or obligations.

Forming a general partnership is relatively straightforward, as it only requires an agreement between all partners (Wang, 2021, p. 9). This agreement can be formalized through a written partnership agreement, which outlines the terms and conditions of the partnership, such as the division of profits and losses, the responsibilities of each partner, and the process for making decisions. However, the absence of a written agreement does not prevent the formation of a general partnership.

A general partnership offers ease of formation and flexibility in decision-making, as all partners have equal input and control over the business. Additionally, profits and fatalities are communal among all associates so that each partner can benefit from the business’s success.

However, there are also several disadvantages to consider. In addition to unlimited liability for debts and obligations, partners in a general partnership have limited capacity to transfer ownership, meaning that they cannot sell their interest in the league without the agreement of all other partners (Sánchez-Monedero et al., 2020, p. 460). Furthermore, partnerships are taxed as a single entity, with each partner being overtaxed on their segment of the proceeds generated by the coalition. This can lead to a higher overall tax burden for partners than other business structures such as a limited liability company or a corporation.

Limited Partnership

A Limited Liability Partnership (LLP) is a unique business structure combining elements of a general partnership and a limited company. Unlike a general partnership, where each partner is fully liable for the business’s debts, in an LLP, the liability of each partner is limited to the extent of their capital contributions. This means that in the event of insolvency, the partners’ assets are protected and they will not be held responsible for any debts beyond their capital contributions. This feature of an LLP assures partners that their personal assets will not be at risk in the event of business failure. With this protection, partners can concentrate on growing the business without fearing personal financial loss.

Formation of LLP

To establish an LLP, the partners must file a registration with Companies House, the government responsible for incorporating and supervising limited liability partnerships in the UK. The registration process requires submitting several vital documents, including a statement of partnership details and a view of capital and ownership. These documents provide information on the structure and operation of the LLP, as well as the distribution of capital and profits among the partners. Unlike traditional companies, LLPs do not have a MOA or Articles of Association, which outline the internal rules and governance of the company.


LLPs in the UK are considered tax-transparent entities and taxed as partnerships. This means that the LLP is not taxed, instead, each partner is taxed on their portion of the partnership’s profits (Pinilla-Roncancio and Rodríguez Caicedo, 2022, p. 5654). The partners must report their share of the LLP’s profits on their tax returns and pay tax on that income at their tax rates (Sánchez-Monedero et al., 2020, p. 460). It is important to note that each partner is also responsible for their share of the partnership’s debts and other obligations, which can have tax implications.


One of the key benefits of an LLP is that the partners have limited obligation, meaning they are only responsible for the arrears of the LLP to the range of their wealth contributions. This protects the partners’ assets, as they cannot be seized to pay the obligations of the LLP in the event of insolvency (Wang, 2021, p. 9). This limited liability structure allows partners to take on business risks without exposing their assets to those risks. It can also make LLPs a more attractive option for individuals considering entering into business partnerships, as it offers a level of protection not available in traditional leagues.


Dissolution of an LLP

An LLP (Limited Liability Partnership) can be dissolved under certain circumstances, much like a general partnership (Freudenreich et al., 2020, p. 10). The dissolution of an LLP can occur either by mutual agreement among the partners or due to the departure of one of the partners from the partnership.

In the event of a mutual agreement among the partners to dissolve the LLP, the partners must follow the steps outlined in the LLP agreement and the applicable laws. This may involve the distribution of assets, settling debts, and filing the necessary paperwork with the relevant authorities (Lelik, 2023, p. 45). If a partner leaves the partnership, the remaining partners must decide how to continue the business (Sánchez-Monedero et al., 2020, p. 460). They can either find a new partner to replace the departing partner or dissolve the LLP or distribute the assets.

Advantages of an LLP

The primary advantage of an LLP is the limited liability protection it provides to its partners. Unlike a general partnership, each partner’s assets are protected in the event of financial issues or lawsuits against the LLP. Another advantage of an LLP is its ease of management and flexibility. LLPs are considered less complicated than other business structures, as the partners have more control over the decision-making process (Pinilla-Roncancio and Rodríguez Caicedo, 2022, p. 5654). The tax rules for LLPs are also similar to those for general partnerships, making the tax process relatively straightforward.

Disadvantages of an LLP

One of the disadvantages of an LLP is that it is not as widely recognized as a sole trader or limited company (Sánchez-Monedero et al., 2020, p. 460). This can be a disadvantage for those who wish to establish their business in a well-known and established structure. Another disadvantage of an LLP is the limited access to finance. Unlike limited companies, partners in an LLP are not allowed to sell shares in the LLP, making it difficult for the LLP to raise capital (Lelik, 2023, p. 45). This can be a significant drawback for businesses that require a lot of money to grow and expand.

Recommendations for IOM Solutions

Based on the information provided, the best option for Sam is to form a Limited Liability Company. This option offers the best flexibility, liability protection, and tax advantages (Wang, 2021, p. 9). As IOM Solutions has grown in size and demand, Sam must protect his assets if the company becomes insolvent. Additionally, the limited company structure allows Sam to raise capital by selling shares in the company, which will be necessary if Sam is looking to expand the business.

In conclusion, several different business organizations are available in the UK, each with legal and financial implications. Sam and IOM Solutions’s best option is to form a Limited Liability Company, which offers flexibility, liability protection, and tax advantages. This structure will allow Sam to grow the business and protect his assets if the company becomes insolvent.


Lelik, A., 2023. The Need for Amendment of Section 172 of the Companies Act 2006 Due to Game Changer ESG: Double Enlightened Shareholder Value Approach for Sustainable and Purposeful Companies. Available at SSRN, pp. 43-52

Pinilla-Roncancio, M. and Rodríguez Caicedo, N., 2022. Legislation on Disability and Employment: To What Extent Are Employment Rights Guaranteed for Persons with Disabilities? International Journal of Environmental Research and Public Health, 19(9), p.5654.

Wang, J., 2021. Competition law & e-commerce: change is coming? New Law Journal, 171(7930), pp.9-10.

Sánchez-Monedero, J., Dencik, L. and Edwards, L., 2020, January. What does it mean to solve the problem of discrimination in hiring? The UK’s social, technical, and legal perspectives on automated hiring systems. In Proceedings of the 2020 conference on fairness, accountability, and transparency (pp. 458-468).

Freudenreich, B., Lüdeke-Freund, F. and Schaltegger, S., 2020. A stakeholder theory perspective on business models: Value creation for sustainability. Journal of Business Ethics, 166, pp.3-18.


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