Business law refers to the laws that regulate the commercial transactions in a business. It is also known as “mercantile law” or “commercial law”. It operates in two defined areas viz. Commercial organizations being governed through laws of company, partnership, bankruptcy and agency and the other area is commercial transactions being regulated by contract laws. This law is applicable on a company carrying its business to provide protection and resolve the legal disputes by taking references from judgements passed. This report exhibits the English legal system and its sources, the role of government in law making, application and importance of key laws applicable in case of a new business and evaluation of the outcomes of law on a business.
“The nature of English Legal System”
The legal system in UK is divided into three parts viz. English Law, Scots Law and Northern Ireland Law. English Law is the common legal system of England and Wales, which has its two branches; criminal law and civil law. The constitution rule decides the legal matter by the application of Acts of Parliament, regulations and bye-laws. Further, it is also has public and private law. However, UK does not have a single written constitution and the existing constitution is unwritten. The constitution has defined the rights of the UK citizens. The highest authority to pass the order or judgements in the matters of civil and criminal is with the Supreme Court. Apart from this, European Union law is applicable to the extent of EU treaty obligations. The Crown is the unelected head of the state and exercise only the ceremonial rights and power relate to issues of national security, defence of the monarchy and deployment of the armed forces. Crown has the ultimate power and authorizes the government to exercise the power on her behalf. Further, the Royal Assent is necessary to pass a bill and enact as an Act.
The sources of UK law are as follows:
- Primary Sources: These sources contain the information which have not been used or interpreted earlier. Primary sources are:
- Case Law: These are the judgements or order passed by the courts, therefore, termed as radical primary sources. Case laws are published in the law report describing the facts, issues and decision and the concept on which the judgement is passed. The English law uses the decisions passed by the courts for making legal decisions in the future. The decisions by the superior courts are of biding nature and it is not compulsory for the judges to take references of the case law decided by the sub-ordinate courts.
- Legislation: The constitution of UK is partly written and the parts which are not written have been passed in the Parliament and enacted as Act. These laws extend to the whole UK. The highest authority is with the Westminster Parliament. It has a right to enact laws and because of the supreme authority, the applicability of any Act passed by it can not be challenged in any lower courts.
- Secondary Sources: The content or information which has been created by a person who did not have the first hand information. The sources are as follows:
- Legal encyclopaedias: Halsbury's Laws of England and Wales is the authentic and authoritative encyclopaedia of UK law. It covers exhaustive information of law that have been extracted from the written constitution and different sources of law. It is arranged in a formal and easy manner and can be used to decide a legal dispute.
- Parliamentary Publications: These are prepared to apprehend the intention of the government to enact a law or to perceive the reason for implementing a legislation. These information can be obtained from command papers, debates of parliament and papers published by House of Commons and House of Lords.
- Non-Parliamentary Publications: The reports and consultation papers published by various departments and agencies of government are called non-parliamentary publications.
- Law Commission: It has been constituted to monitor and review the existing laws and provide a recommendation in the such laws. The commission discuss its recommendation with the general public, experts and other interested parties for their views on the review report. The report is then complied and uploaded on its official sites to provide a fair and simple understanding of the law.
- Law Journals: These journals have in-depth information of laws and prepared with an objective to provide the amendments.
The government has a role to decide on the matters that are necessary for managing the things at country level. It forms various commission to monitor the existing laws in the legal system to ascertain the reform that needs to be done in the system. The commission submits a report to the government made on the basis of the analysis and suggest the updates in the laws. Along with this, it decide the impact of the laws before enacting them on the UK citizens and corporations.
A company is required to abide by the laws that are applied to it. Laws protect the interest of the entity and is important to a business. It holds people, businesses and government accountable for their actions. The key legislation that a new business in UK is required to follow are mentioned below:
- Employment law- Employment Act, 1996 and Equality Act, 2010 are the laws related to the worker/employees, that a company should follow in UK. These laws should be abide by to create an environment at the workplace which treat its employees fairly. Employment law includes matters of minimum wage, leave, termination of employment, pensions etc.
- Consumer Rights- A business engaged in selling a commodity or service to the consumer, then it becomes mandatory for such company to comply with consumer law. It is also applicable in case, where the company is buying goods or services from other businesses. Sale of Good Act, 1979 and Distance selling regulations must be abide by the companies in UK. The Act expresses that, an entity must sell only those goods which are described and fulfil an adequate level of quality standard. In case, the product fails to meet these criteria, the company is liable to refund the amount. Direct selling regulations issue the legal implications in case of services or product being offered over the telephone, online or through any long distance method. In this type of transactions, a consumer is unable to see or try the product, therefore, the entity must furnish complete information.
- Competition Law: The main of Competition law is to prevent any unfair trade practices by the business by promoting fair competition. These are enacted with an objective to save entities to control scenario of predatory pricing, price gouging etc. Also, for supervising the mergers, acquisitions and joint ventures of large companies. There are mainly two types of anti-competitive practices prohibited under UK and EU law viz. Anti-competitive Agreements and Abuse of Dominant Position in the market. Competition Act, 1998 and Enterprise Act, 2002 are the laws applicable on the businesses operating in UK.
There are laws other than the laws mentioned above, that affect the activities of business. The following laws will must be abide by a business in UK for conducting its business legally:
- Data Protection Act, 2018: It came into effect on 25thMay, 2018. The Act contains the regulations for the protection of general data. The Act regulates, how the business entities should process the personal data. The other objectives of enacting this Act are to co-ordinate and implement data privacy laws across Europe, protect and authorize the UK citizens data privacy and mould the traditional approach for data privacy. The General Data Protection Regulations, are applicable irrespective of nature and size of the entity, however, some areas of business may make it necessary to implement these regulations. Further, this Act provides the offences which were not previously mentioned, for acquiring or disclosing the personal information deliberately, without the approval of the data controller or obtaining such disclosure, or keeping the data so obtained without consent. Also, selling or offer to sell the personal information knowingly would amount to an offence.
- Contract Law: An agreement between two parties becomes a contract when it is accepted by the other party and is enforceable in law, such contracts have legal biding. In business, commercial contracts are entered with the suppliers for exchange of goods or services by paying the money. The contracts are regulated by Sale and Supply of Goods Act in UK. The provision of laws are implemented to protect the seller and buyer. It is applicable on the on the supply of goods and services and repair or replacement of goods and right to repeal or cancel the contract in case of faulty good or if the delivery of goods or services are not done according to the terms of the contract.
- Employment Law: The laws are applicable to manage and control the relationship between employers and employees. It regulates the rights of employees at the workplace and what an employer can expect or order an employee to do. It has the laws relating to recruitment, term and condition of employment, information required for the determination employment status, data protection, holiday pay and other entitlements, working time, health and safety at workplace, maternity and paternity rights, equal pay and so on.
- Intellectual Property law: Intellectual Property (IP) is an essential and fundamental part of business that needs to protected legally. The law governs the ownership of various IP such as patents, trademarks, copyright etc. it provides the provisions on the usage, commercial feasibility of such rights, marketing and distribution processes, infringement or duplication, exercising the ownership etc. Any disputes shall be resolved within the legal boundaries of relevant and applicable laws.
Case 1: In the given case, Bola and Tony have decided to set up a mobile mechanics business by investing £60,000 and £40,000 respectively. They are want to have a clearer insight about the establishing of their business in a partnership firm or a company. Also, the legal protection that they may sought from the laws that are applicable on and the privileges of the chosen form of business.
A company limited by shares is a separate legal person. There is a clear distinction between the company and its management. A company can own property in its own right, employ staff and can sue or be sued in its own name. The affairs of the company the company are managed by the shareholders and directors. The liability of shareholders is limited to the nominal price of the share that has been paid. The taxation system of a company is different from any other form of business and it pays tax on the income earned by it. A company can be limited by guarantee or it can be even an unlimited company.
Whereas, a partnership firm is an association of two or more people to carry a business together with an objective of making profit. For creating a partnership firm, there must be an agreement with the specified terms regarding the partnership. The properties of the firm will be held by the partners jointly and all contracts will be subject to the consent of all or any one acting for all. The liabilities of the firm is the liabilities of the individual partners. In other words, the partners are jointly and severally liable for the debts, hence can be sued for whole liability of the firm.
Advantages of a company are as follows:
- Company's funds are maintained separately from its owner's funds on the characteristics of separate entity.
- Owners are protected from personal liability.
- A Private Limited Company can easily raise capital or borrow the funds from the banks, financial institutions, members etc. without personal risk.
- A company has reliable and authentic legal model to guide and direct the shareholders and directors about their responsibilities and duties.
- A company has perpetual succession character, which means it continues to exist even in the event of death of all or any director or shareholder of company.
- It is required to pay taxes at a lower rate and can get additional tax benefits.
- Both profit making or non profit organizations can opt for this form.
The procedure to form a private limited company are as follows:
- Choose a suitable name for the company that does not resemble the name of a previously registered company.
- The promoter shall compile the required documents such as office's address, SIC code, details of the capital, name and designation of company's shareholders and directors.
- Prepare MOA and its must be subscribed by the shareholder, and also AOA, that will contain the by-laws i.e. internal regulations that need be followed by the management.
- File prescribed form with the Companies House.
- Obtain the necessary approval from the designated authorities.
- Hold the first board meeting in the initial week of incorporation of the company.
From the above report, it has been concluded that business law is must for every company to follow in its dealings. These laws are formed by the government by looking into the changes needed in the particular area of legal system. Further, there are many other laws that are applied to an entity such as employment laws and competition laws for better conduct of business activities by treating the employees equally and fairly and not involving in any unfair trade practices. Further, the companies should take references from the judgements passed by the courts. Along with this, there should be an appropriate and effective legal solution for every legal dispute arising in the conduct of business. It is required by the business to know about the impact non-compliance of various laws.