Every business run its regular operations under specific legal framework and each establishment is legally bound to follow the framework which is set up by the country. Generally, law refers a system of rules which are developed by a country to govern its various social, business and state activities. Business law is a legal framework that includes the rights, conduct and relations of persons and businesses employed in trade, merchandise, commerce and sales (Marson, 2013). Business law is a part of civil law which deals with formation of new business establishment and issues that emerge as existing business interact with other companies, public and the government. This legal framework clearly states the rules and regulations that should be conducted by the stakeholders regarding business. This write-up will describe laws for setting up business in UK and describe briefly about independent contractor and employee relationships. In addition, the significance of monist and dualist legal system and differences between EU regulations and directives will discuss in this report.
UK laws are distinguished intofrom two parts criminal law and civil law and civil law is covering the business situations. Though a person can establish business in UK without a formal presence, it is well to go with formal structure for getting benefits within UK. In UK, the main types of business are sole trader, partnership, limited company and business partnership. It is necessary to understand the legal responsibilities of a business owners regarding general partnership or limited liability Company before setting up the business.
1.1. General partnership
According to the Partnership Act 1980, ‘partnership is the relation which subsists between persons carrying on a business in common with a view of profit’ (legislation.gov.uk, 2015). In partnership business, partners are severally and jointly liable to own property and debt in common. Under the Partnership Act 1980, the agreement between or among the partners may be conducted by in form of written or oral. The lowest number of partner is two and highest number of partner is unlimited since 2002.
1.1.1. The process of setting up general partnership business in UK
Setting up a partnership business needs to follow a simple structure and process. It is advised that members of the business should be careful about the registration of the business for avoiding uncertain situation. For setting up the partnership business, it is required to:
Ø Select a name
Ø Select a ‘nominated partner’
Ø Register with HM Revenue and Customs (Gov.uk, 2015).
Select a name: First of all, a name must select for the partnership business. The name of the business must not be same as another business. Currently in UK, no central database of partnership business exists. It is advised to search local business directories to avert using a similar name. It is advised not to use any ‘offensive’ or ‘sensitive word’ such as ‘Authority’, ‘Council’, ‘Chartered’ or other special status in choosing name. It is not allowed to use trademark terms such as ‘Tesco retail shop’. Partnership are not incorporated so that the terms ‘plc’, ‘limited’, or ‘ltd’ cannot allow to use as business name.
Nominated partner: During formation of a partnership business, one of the members must be declared as ‘nominated partner’ who is responsible for registering the business, keeping business records and managing the partnership tax return.
Register the partnership business with HMRC: The partnership business and its partners must register with HM Revenue and Customs. Members of the partnership are individually responsible for national insurance and income tax through Self Assessment. Register with HM Revenue and Customs in online or by fulfilling the paper form SA400, the nominated partner will be consequently enlisted with HM Revenue and Customs for self assessment tax. A partnership does not require notifying Companies House, or conducting any accounting requirement or administrative activities as like limited companies.
I recommend my friends to follow these processes in setting up partnership business (unincorporated) in UK which provides them legality in doing business.
1.2. Limited Liability Company
UK law recognises two major type companies; public limited company and private limited company. A limited liability company is hold a separate legal entity where company’s finance is separate from the business owners personal finance and can own property, debt and sued (Martin, 2010). Both are recognised as limited liability company whereby ‘Limited’ or Ltd’ use private limited company and ‘plc’ uses for public limited company. Both companies must be publicly registered and regulated by the Companies Act. A limited liability company should have minimum one director to deal the business and a company secretary to ensure that all rules and regulations are followed properly and official records maintained properly.
1.2.1. The process of setting up new limited liability company in UK
Setting up limited liability company is required to follow a well structured formal process which is time consuming than partnership. The processes of establishing limited liability company are described below:
Registration the limited liability company: Companies House is the government authorise legal regulatory body for register limited liability company in UK. The company itself required to be registered with Companies House before starting limited liability company. In registration process, the following documents will need to be submitted to complete registration;
Ø Memorandum of Association: This includes company name, address of the registered office, objective of the company, limiting the liability of owners, amount of share capital.
Ø Articles of Association: The articles describe how the company owns and govern. It includes liability of members, power and responsibilities of directors, maintaining records of directors’ decisions, the process of appointing and removal of directors, share related issues, dividends distribution, ways of communication, shareholders rights etc (Newman, 2013).
Ø Form IN01: It contains details of company secretary, directors, shareholder details and share capital details.
Requirements of limited liability company: There are some requirements that every limited liability company must fulfill:
Ø The company should be enlisted or registered by Companies House
Ø Annual accounts must be submitted to Companies House
Ø Every year the company must be done an Annual Return (Form AR01)
Ø Informing HMRC when gaining any taxable income or profits
Ø Annual corporation tax return must be completed by every limited company
Ø Each employee of a limited company must pay National Insurance Contribution and income tax for the income they take.
My suggestion to my friends is that without following these processes limited liability company cannot be possible to own and govern. So, they must be fulfilled these regulatory processes to set up limited liability company.
In this section, the meaning of an employee and independent contractor will discuss. In addition, the differences between an employee and independent contractor will discuss at the later part of this section.
2.1. Meaning of an employee
An employee refers a person who works in a given service of other individual under an implied or express contract of hire where employer possesses the right to control works performance in details. In other words, anyone who is rendering services for another person or an organisation under a written or implied contract for specific salary or wage (Murray, 2015). According to Employment Rights Act 1996, an employee is an individual who has joined into works under a contract of employment. The key characteristics of an employee are:
Ø A person is hire for a salary, wage, payment or fee for specific works
Ø Contract is written or implied
Ø Employer has total control over the work of person’s.
Ø There should have mutuality of obligation between parties.
2.2. Meaning of an independent contractor
The term independent contractor refers a business or an individual that renders services to other business or individual. Independent contractor is not considered an employee rather it is separate business entity. In UK, a worker who does not work as an employee, he will consider as an independent contractor whereas the contract between the employer and him will be a contract for services (Opkins, 2010). According to HM Revenue and Customs, an independent contractor will work for his client organisation under a contract for services. IR35 status determines whether worker is an employee or independent contractor. Independent contractor is taxed separately. The key traits of independent contractor are:
Ø Independent contractor is free from other’s control or direction
Ø Independent contractor is responsible to client for result of assigned work
Ø Independently pays taxes
Ø Is not eligible for overtime
2.3. Differences between an employee and an independent contractor
The key differences between an employee and independent contractor are given below:
Ø An independent contractor contracts to render definite services to a client according to contractual conditions. Whereas, an employee is hired by an employer to render services on a regular basis and he/she is eligible for wage, payments, fee or salary.
Ø Client’s has no control or direction over the activities of an independent contractor. On the other hand, an employee is legally bound to abide by order of the employer.
Ø An employee get a number of statutory protections such as healthcare, insurance in his/her service and independent contractor’s job receives has less protected in the UK.
Ø Usually independent contractor use their own methods in rendering service. An employee can be trained for providing services in a specific manner.
Ø Independent contractor makes profit or loss but employee can realize either it make profit or incur loss.
Ø An independent contractor is taxed separately compare to an employee and is liable for doing that payment himself.
Ø The relationship of an independent contractor basically remains upon the completion of the agreed service and expected result. While an employment is a continuous performing of services for an indefinite time.
These aforementioned issues are the core differences which have seen between an employee and independent contractor.
This part will briefly explain the meaning of monism and dualism and significance of these legal systems in national and international law. In addition, the meaning of EU regulation and directive and their differences will describe in this section.
3.1. Monism and dualism
Monism and dualism are two principles in school of law and those terms are used to explain two separate theories of the connection between international law and national law. Many states in EU are partly dualist and partly monist in their actual implementation of international law in their state systems.
3.1.1. Monist legal system
According to Klamert (2014, p.73) monism means those international and national laws are both elements of the same legal system. Under this system, both international rules and domestic rules are accepted by a state as their legal system. For example; in case of treaty whether an action considered as illegal or legal. In pure monist theory has claimed that all international laws should get priority over all national legal norms. In pure monist state, there has no need to translate international law into domestic law rather it is just incorporated which effects automatically in state laws.
Significance of monist legal system
EU law does not indifferent type of relation which must be implemented by domestic law and European law. It assumes monism and provides respect it from EU member countries. An important characteristic of moist is immediate acceptability of EU law. European Union law establishes the connection between member country and community. Monist system is established the idea of only one legal order element that prevails over national law and international law and vice versa.
Most of the European states have provided in their constitutions acceptability of international laws as a part of their domestic system. For example, Austria, Netherlands, Italy, Germany and France are approved monist system in their legal system. Netherlands and France gives importance international treaties as similar or sometimes superior over domestic legislation. Moreover, European Union law has developed based on the idea of monism and needs compliance for all member countries of the EU and only agreeable idea of integration.
3.1.2. Dualist legal system
According to Boczek (2005, p.6) dualism means the domestic law and international law are intrinsically completely independent and separate legal system and these laws are operating at different subjects, different levels and regulate different matters. In dualist legal system, international law is not allow directly to apply and it should be translated into domestic law and any contradiction of international law with domestic law must be translated away. UK is the example of typical dualist country and there has no effect in Scottish domestic law signed any treaty by UK unless it is made part of it.
Significance of dualist legal system
Many countries in EU are followed dualist system and as a consequence, national and international legal system cannot intersect in any situation because both two systems are regulating a definite domain of legal relations. So that dualist system has no immediate acceptability like monist system and therefore, an international treaty would not have perfect effect in national law. The rules of domestic law must be implemented in the state law and in conflict with international commitment or treaty; no obedience will attract international liability of that country. In Ireland, UK, and Scandinavian countries, international law is only applicable as domestic law after exclusive law of application is considered by the legislator.
3.2. EU Regulations and Directives
EU regulations and directives are two major forms of EU laws that can be approved by the European Union. Those laws are come from while the member states representatives will gather in Brussels, the head office of EU. The definition of EU regulations and directives and their differences will discuss briefly in below.
EU Regulations
According to Europa, regulation is binding legislative act that must be applicable across the EU. These EU regulations are binding completely and may not be applied partially, selectively or incompletely. This legal act tied up the member states, the institutions and the individual to whom it consigned (EUR-Lex, 2010). For example; if a regulation was approved it should have legal impact in the UK, though the government of UK should not have approved any domestic legislation depicting the element of the regulation. Article 288 of the Treaty on the Functioning of the European Union (TFEU) has addressed the general application of EU regulations.
EU Directives
According to Europa, a directive is a legislative act that determines a goal that all EU members must work to achieve. It will set out the policy that requires to be attained. To attain this policy or goal, EU countries must approve the relevant domestic legislation according to the ‘Directive’ within specific time period set in the directive (European Law Monitor, 2013). EU directives are used to establish competition rules, free movement, labour law, health and safety, working conditions, free trade, common social policies, across the EU. Directives basically set out minimum standards that must be applied at national level but member countries are free to apply more than directive. Directives are mostly implemented in UK by Statutory Instruments and occasionally by Acts.
3.3. The difference between EU regulations and directives
There are several differences between EU regulations and directive. Lelieveldt and Princen (2015) have described some major differences those are as follows:
Ø EU regulations are directly applicable to the member countries but directives need to be passed upon national law by the Member countries governments.
Ø Regulations and directives can be used for distinctive purposes. For instance; regulations passed a single set of standards and directives passed a minimum level of standards and it may differ among EU countries.
Ø Regulation has no flexibility whether directive gives a degree of flexibility.
Ø Transposing directive is complicated considering the language of EU countries compared to apply regulation (BBC, 2009).
Ø Regulation is a law or a rule but directive is an order listing goals which require to be completed.
These aforementioned issues core differences between EU regulations and directives.
Business Law plays the vital role in the legal system within a country regarding business establishment, employment rights and responsibilities, independent contractor’s rights and responsibilities. This law has described clearly the rules and regulations which are essential for smooth operations of business within the state. In addition, the law also specifies the rights and obligation that helps to avoid unaccepted situation. Many countries in EU are following monist system and many are following dualist system. Every country has established its legal system considering various national and international factors. It is the duty of business entrepreneurs and citizens respect the legal system of the state and obey accordingly.
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