Free Essay Sample on Business Entities, Contract Law & Vicarious Liability

Introduction

This paper will focus on underlined legislation, forms of business and considerable practices in business forms in dealing with a third party in a contract which, as a result, will reveal weaknesses and specific goals in each business entity, and lastly, elucidate on vicarious liability.

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Interpretation of a Business

Apart from making profits, another object of the business mentioned above, an organization is to empower the local community economically. This essay seeks to analyze the formation of three business enterprises, namely critically, sole proprietorship, partnership, and lastly, private and public companies. Furthermore, the legal responsibilities that these business organizations owe to multiple entities are also discussed with much emphasis laid on the legal contract formed between these business enterprises and the third parties and the ramifications of repudiating on the contract formed.

Sole Proprietorship

A sole proprietorship or sole trader is a business enterprise that is fully owned and registered under one individual’s name. Sole, proprietorship lacks the legal distinction between the owner and the business entity, meaning that the owner is solely responsible for the business (Gaylord). The sole proprietor keeps all the profits after paying the required taxes and its employees. However, the business’s day-to-day running is not solely vested on the proprietor, for he can either employer workers or work with the family members.

Sole proprietorship in the United Kingdom is regulated under the Companies Act of 2006, the insolvency act of 1986, and the UK Corporate Governance Code. Any person can start a sole proprietorship in the United Kingdom by:

Making an application to register the business entity with the HM revenue and customs department indicating their employment status for tax and National insurance.

After registering, the proprietor is expected to pay the subscribed fees required for the business to become operational.

Responsibilities

A sole proprietor owes certain responsibilities that they must meet. Firstly they are responsible for maintaining the business books of records. Secondly, they are expected to file without fail, the annual tax return for their self-employment, and any other work. Thirdly sole proprietors are expected to lodge their self-assessment tax return for each financial year and pay the requisite income tax and the national insurance policy. Those whose revenue turnover exceeds 83,000 pounds a year are required to register for value-added tax. Lastly, sole proprietors are expected to abide by the relevant labor laws and pay their employees’ salaries and wages. To meet their responsibilities, sole proprietors must adhere to the standard ethical requirements for business, such as forming good customer care and rapport and maximizing profits.

Partnerships

A partnership is a business enterprise formed by a minimum of two members with no maximum membership. A partnership is a relationship that exists between different persons carrying out a business with the common aim of making profits. In law, there are different types of partners, namely active partners and dormant partners. A partnership is a distinct legal entity; therefore, it can act on its own, for instance, borrows money from banks. (Ricketts and Tunnel). In the United Kingdom, partnerships are formed under the partnership act of 1890 and the limited partnership act of 1907.

The Responsibilities of Partnerships

Section one of the partnership act states that the sole intention of any partnership is to maximize the profits. However, most importantly, the partners’ core responsibilities are; paying all the taxes required by the government of the United Kingdom. The preceding also helps in operating the partnership business per the set of laws that govern the business organization. Maintaining and updating the books of accounts and submitting the annual audit report to the relevant authorities.

For the partnership organization to fully meet the responsibility duties that it owes the government, the public, and its customers, it must meet the following standards; first, the partnership must engage in the legal business and pay its dues owed to the government to avoid run-ins with the government. Second, the books of accounts must be audited to indicate whether the partnership is making profits or losses. Third, the partnership must have sound and reliable financial backup to boost it if it experiences a financial crunch.

Private and Public Limited Companies

The document of incorporation of the corporation indicates that the owner’s corporation can be both private. That is, it is limited and strictly restricted to few persons, and the public is barred from the day to day running of the business. Similarly, it can also be registered under a public affair that is open to any person interested in owning a business by purchasing the shares. Another distinction between the public limited company (PLC) and the private limited company is a PLC stocks are listed on the stock exchange markets and publicly traded. In contrast, private limited companies stocks are not listed on the stock exchange markets and are traded privately. These companies are formed under the companies’ act of 2006.

Responsibilities of a Private and Public

Both private and public limited companies owe responsibilities and duties to the government, the public, and they have corporate responsibilities. They are required to file the correct and genuine annual tax return reflecting the corporations’ true financial status. They must also submit to the government agencies audited and updated financial books for scrutiny. They must pay their employees dues and salaries, including payee. Lastly, they must engage in any charity activity of their choice in the community to give back to society.

Forming a Contract With a Third Party

A third-party contract means a contract between two or more parties whose performance is bound to benefit the third party directly. For a contract to be valid and legally binding, some elements must exist. The elements are offer, acceptance, and intention to create binding relations, legality, capacity, and consideration. These elements are critical, and the absence of any of them renders the contract between the third party and the organization null.

Terms of a Contract

Some key terms fall into different categories of a contract. A contract might be expressly agreed upon either orally or in writing. For example, a shopkeeper opens his shop for his customers and the landlord letting out his premises. A contract can also be implied by the law or via the conduct of the parties involved. These terms give the contract the necessary legal force required for the execution of a contract.

Types of a Contract

In law, there are several types of contracts: implied and expressed contracts, unilateral and bilateral contracts, unconscionable contracts, and an adhesive contract. Each type of contract has its limitations; for example, in adhesive contracts, one party is likely to be manipulated by another party with higher bargaining power. Similarly, fixed-price contracts tend to benefit the seller than the buyer. Finally, aleatory contracts that are not enforceable until the outside force occurs, for instance, insurance policy, tend to benefit the insurer if the risk does not occur.

Contractual Liability and Liability for Negligence

Contractual liability in insurance seeks to protect against the liabilities by the policyholder assumes when they enter into a contract. In contrast, liability for negligence is a civil matter in which the victim is tasked to prove that the defendant owes them a duty of care and the existence of a breach of duty of care.

Importance of Vicarious Liability

Vicarious liability arises when one party acts negligently on behalf of the other party who, while being held as secondarily liable for the omissions of the one party. For instance, a transport company held liable for its driver’s actions, which has caused an accident. It is important because it holds the employer responsible for the acts of the employee committed in the line of duty. Due to the enormous amount of cash required to compensate the victims, the employee might not have the required amount; thus, it is incumbent on the employer to pay. In summary, different business organizations are pegged on the various laws of the land, which guide them on various matters, e.g., forming a contract and different types of liabilities.

Conclusion

Based on the ideas of Gulshan (2009), a business can be interpreted as either an individual entity or a group of persons who have put proper measures to provide different goods and services, tandem with the framework of laws and regulations of the land governing, intending to make profits. Generally, there are several types of business organizations: sole proprietorship, partnership business entities, corporate business entities, cooperative organizations, charitable organizations, and voluntary organizations.