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European Comparative Company Law

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Questions:

Task 1: Outiline and explain the contents of employment contracts and the legal liabilities of managers and directors?

Task 2: Demonstrate the ways in which European Union Law affects the conduct of business in the United Kingdom?

Task 3: Identify and explain the main sources of law affecting business and policies relating to customers, related companies and employment?

 

Answers:

Introduction

The following assignment intends to bring out the critical issues relating to the functioning of legislations applicable to the business world in the United Kingdom (UK) and the influence and applicability of the prevailing regulations and directives of the European Union (EU) on such legislations.

In this assignment we will closely review the legislations relating to a Partnership Firm and Limited Liability Partnerships (LLP); the distinctions between employment and contractual labor and the liabilities of the management of a company arising out of such contracts and the directives issued by EU relating to different types of legal systems.

The whole assessment of the related issues will be done on the basis of the prevailing legislations in this regard prevalent in the UK and the applicability of EU directives in such a legislative structure. Each of the three questions will be addressed and explained separately in the light of applicable regulations issued by proper authorities (Novaković and Kreća, 2013).

Task 1

This task involves advising three friends about the matters that they should take into consideration while deciding about the type of business they should choose while they are starting. The choice is between a partnership firm (an unincorporated form of business) and a LLP (incorporated body). To ascertain which one to opt for, we should have a close look at the advantages and disadvantages that these two offer in the present dynamic business environment which can be done with the help of a point wise analysis of the distinctions between these two. But first we should understand what a LLP is and how is it different from a normal partnership firm?

What is a LLP?

A LLP is an incorporated form of organization which has a separate and distinct entity of its own just as an incorporated company. It is a body corporate which is a legal person in the eyes of the law (Andenæs and Wooldridge, 2009). So, why the word partnership if it is similar to a corporate form of organization? The answer is simple; it provides diversity with much ease in doing business. A LLP extracts the advantages of both forms of incorporated and unincorporated form of businesses. It combines the flexibility of a partnership business and the concept of separate legal from a company form of organization (Hurt). Two of the most striking features of a LLP are:

  • The liability of the partners are limited as regards to their contributions towards the assets of the LLP in the event of winding up of the LLP, and
     
  • The demarcation of management and ownership. The members may be the managers, but the existence of management and ownership are separate (Ingle).
 

Effects of EU regulations on the business community of UK

Thus, a seEffects of EU regulations on the business community of UKter and the limitation of the liabilities of the partners, gives LLP a better competitive edge over a normal partnership firm. To evaluate the viability of the two forms of businesses we need to have a close look at the points of distinction between them.

Points of Difference

Partnership

LLP

Governing Statute

Partnership Act, 1890

LLP Act, 2000

Organizational Status

Unincorporated

Incorporated

Registration

Optional

Compulsory  

Relationship of Partners

Governed by the Laws of Agency. Partners are agents of each other.

Fiduciary. Partners are agent of the LLP.

Liability of Partners

Unlimited or as agreed upon by the partners in the partnership deed.

Limited to the extent provided in the Document of Incorporation.

Designated Partners

No such designation in a partnership.

At least two designated partners required who will be responsible for compliance of the applicable regulations and disclosure of information to the Registrar (Legislation.gov.uk, 2015).

Constitutional Document

Deed of Partnership

Document of Incorporation.

Commencement of Business

Business can be commenced after the execution of the partnership deed.

Business can commence only after obtaining a Certificate of Incorporation from the Registrar (Legislation.gov.uk, 2015).

Legal Entity

A partnership firm does not have a separate legal entity.

A LLP is a separate legal entity independent of its members.

Management & Ownership

Management & ownership are same.

Management & ownership are separate.

Membership Requirements

Minimum 2 and maximum 20.

Minimum 2 and there is no upper limit.

Registration of Member changes

Can be done internally without involving any registration requirement (Legislation.gov.uk, 2015).

Changes in the composition of membership should be registered with the registrar.

Audit requirement and filing of documents.

No such requirement.

Required under LLP Regulations 2001 and GAAP.

Rights & Taxation

Profits are distributed among the partners according to their contribution who pay individual income tax for their income.

Profits are distributed equally and the members pay individual income tax (Legislation.gov.uk, 2015).

Applicability of Companies Act

Not applicable.

Certain provisions are applicable.

Perpetual Succession

No.

A LLP has a perpetual succession as it is independent of its members.

Dissolution

A partnership can be dissolved when the deed expires of by simply termination the deed.

Proper provisions of the LLP Regulations, Companies Act has to be followed for voluntary winding up or suo moto winding up by the Registrar (Legislation.gov.uk, 2015).

Registration for VAT

Not applicable.

As a LLP is formed as a body corporate, it can register itself for VAT.

Binding effect of acts of the Partners

Acts of partners are binding on the other partners. Personal liabilities distributed jointly and/or severally (Legislation.gov.uk, 2015).

Acts of members are binding on the LLP even if a partner acts outside his authority provided in the partner’s agreement. There is no personal liability of the partners arising for contracts or debts of a LLP and of other members (Legislation.gov.uk, 2015).

 
 
Therefore, it is clear from the above points that LLP’s offer much more advantages than that of a normal partnership firm. Thus, a LLP is a much more suitable option while setting up a new business.
 
 

Effects of EU regulations on the business community of UK

Irrespective of the form and nature of the business organization, the effects of applicable EU legislations have rocked the business environment of UK. After UK joined the EU, gradually stringent laws of the EU were being thrust upon the UK. Such laws became to be known as the “Red Tape” (Business for Britain, 2015). The business community started losing billions of pounds due to such stringent norms of EU. This forced the business community to make representations to the UK government and to the European Council (UK Government, 2015).

A rough estimation proved that more than 50% of the legislations in UK which have an impact on the economy of the country are affected by EU laws (Open Europe, 2015).  It is estimated by the agency that around 33.3 billion pounds per year present a cost to the UK economy as a result of such EU regulations. Thus, to start a new business every aspect of the prevalent and applicable legislations should be considered and given due importance (Innertemplelibrary.org.uk, 2015).

Task 2

In this task we are required to advice a friend about the difference between an employee and an independent contractor. To understand this we need to closely examine this from the viewpoint of the employing organization. We also need to understand the capacity in which any particular person is serving the organization (Beer and Schils, 2009). We will demonstrate this below.

Who is an employee?

Employees are persons whose employment is governed by an employment contract. An employee is entitled to a few specific employment rights and responsibilities and has a few obligations towards an employer which are different from an independent contractor (Hammond and Hammond, 1919). The capacity in which he serves his employer also differs from that of an independent contractor.

Essentials of a valid Employment Contract

As stated above, employment is governed by an employment contract; we now need to ascertain the contents of a valid employment contract. An employment contract exhibits the nature of relationship an employer and an employee has between themselves. The contents of the contract largely depend upon the nature of the business undertaken and the type of job to be offered by the employee (Jolly, 2009). Thus, the contents can be enumerated as below:

  • Full details of the employer and the employee
     
  • The date on which the contract is being executed
     
  • Clear explanation of the designation to be held by the employee
     
  • Performance required by the employee
     
  • Benefits. For these a separate statement is given by the employer known as the “Written Statement of Employment Particulars”
     
  • Compensation to be given to the employee
     
  • Other applicable elements and miscellaneous matters
     
  • Termination clause. It provides the conditions and the pre-conditions for the termination of the employment contract (Moore, 2013).
 

ployment Rights and Obligations of an Independent Cont

Liabilities of Managers and Directors

As the directors and other managers are solely responsible for the working of an organization; liability towards the employees generally falls in their lap too (Jolly, 2009). The liabilities are as follows:

  • To protect the interests of the employees
     
  • To provide a financial and social shield for the employees
     
  • To motivate them
     
  • Ensure proper working environment is provided
     
  • To put in place an effective channel of communication to promote proper co-ordination of the whole working process
     
  • Not to thrust the employees in a hazardous environment or work without proper protection
     
  • To ensure that all the benefits are received by the employee as stipulated in the written statement
     
  • To ensure that no default takes place on behalf of the company resulting to any breach in the terms of the employment contract (Lehmann and Tatsiramos, 2012).

Employment Rights and Obligations of an Employee

An employee is a worker in a company and enjoys certain benefits and has a few predetermined obligations out of his employment which are different from non-employees. The following are the rights and obligations that an employee has:

  • Employment contract includes the “Offer Letter” and the “Appointment Letter”.
     
  • The “principal” is known as “employer” and the contracted person is known as “employee”.
     
  • An employee is entitled to a salary and is regarded as a part of the organization.
     
  • The services of an employee are exclusive for his employer and serves on a continuous basis. Before resigning an employee is required to give a minimum notice period to the employer.
     
  • An employee has legislative protection against unfair termination of his/her employment.
     
  • Statutory sick leave is granted to an employee along with other leaves such as parental leave and shared parental leave which are treated as paid leaves (Lehmann and Tatsiramos, 2012).
     
  • An employee has the right to terminate his employment relationship with the company or the employer without incurring any extra liability.
     
  • An employee does not make profits or loss during his employment tenure.
     
  • Flexible working request right and time off is allowed in case of emergencies.
     
  • Redundancy pay under statute.
     
  • Fixed working hours of work and employees cannot be substituted by someone else. Working material is provided by the employer.
     
  • Applicable deductions of tax and National Insurance Contributions from their salary.
     
  • Company policies and rules are applicable to employees.

Who is an independent contractor?

An independent contractor is a self employed person and is his own principal. An independent contractor runs his business himself and is solely responsible for the profits and losses of the work or business done (Mariz, Llinares and Westermark, 2011). This is the major reason why they are not included in employment laws of the UK. They are hired for a particular job on a contractual basis. Their employment ceases on the completion of the work or by terminating the contract (Innertemplelibrary.org.uk, 2015).

 

Employment Rights and Obligations of an Independent Contractor

Although, independent contractors are not covered by the applicable employment laws, they still do have a few rights while under the contract laws (Blanpain, Dickens and Andersen, 2008). Following are the rights and obligations of an independent contractor:

  • The binding agreement is generally the “contract for employment”.
     
  • The compensation is in the nature of contract price payable by the company.
     
  • The relationship of employer and employee does not exist and the contractor does not form a part of the organization.
     
  • The services of an independent contractor are not exclusive.
     
  • He is not entitled to statutory leaves from employment such as parental leaves and cannot be fired.
     
  • He is not under “Pay As You Earn” (PAYE) scheme and no deductions are done from the contract price.
     
  • Termination of contract will attract extra liabilities on part of the independent contractor.
     
  • No requirements of registration under HMRC.
     
  • Income is in the nature of business income and is assessed differently under the tax laws.
     
  • He makes a profit generally on the completion of the job.
     
  • An independent contractor is not provided any training by the company engaging his services to perform the job.

Thus, the above points make clear the points of distinction between an employee and an independent contractor. The liability of the managers and the directors of the company are limited to the terms of the contract only.

Task 3

With the UK becoming a member of the EU in the 1970’s a whole lot of European laws became applicable to UK. In case of any contravening provisions, the EU laws always prevail over the UK laws. Laws made by the EU are applicable to all the Member States and has resulted in the integration of EU laws with the laws of the member states. This has resulted in competencies changing hands from states to the EU. Monism and Dualism are theories of this process of integration of international laws with the national laws of a country (Bekker, 2010).

Monism

Under the monist system of legal integration it is believes that the national laws and the international laws are in a unity and is uniform throughout the boundaries of the state. In such a scenario, both the national and the international laws are accepted and this harmonized integration is the essence of the legal system prevailing in the country (Bohne, 2011).

Generally, this integration is achieved by a treaty or an agreement between a member state and the EU. In such a scenario the international law is incorporated and is automatically binding on the domestic laws. The moment an international treaty is ratified, international laws automatically becomes a part of the national law. After such ratification, any domestic law which is in contravention of the international law is termed as null and void (Martinico and Pollicino, 2010).

Dualism

This is just the opposite of monism. Dualism system contemplates that national laws and international laws are different and international laws should be translated for the purpose of their integration. This system claims that in order to be applicable in any particular state, an international law has to be translated in domestic parlance and should also accept the domestic law as its part; otherwise the international law cannot be considered as a law in the domestic country. Further, if a treaty is adopted by any state and the national law is ignored or is not incorporated in the treaty then it amounts to a violation of the national law. But this fact itself does not render the treaty to be a part of the national law (Ciongaru).

In case of UK, the principle of “immediate applicability” takes place. Immediate applicability means the automatic integration of the EU laws into the national legislation. Dualism has found its place in UK, as ratification of treaties is done according to the European Communities Act, 1972 which has been voted by the British Parliament (Ghosal, 2011). The International Treaty of Adhesion is an example. The legal relationship of UK with the EU has been made effective by various provisions of the European Communities Act, 1972 (Business for Britain, 2015).

Distinction between EU Regulations and Directives

The treaties undertaken by the EU and its member states are multifarious and are made effective through different legal instruments. Some of them are applicable and binding to all the member states and some of them are applicable only to a few specific states (Canova, Coutinho and Kontolemis, 2012).

What are Regulations?

A regulation is a piece of legislation which is applicable to all the member states of the EU. It is binding on all the states and is applicable directly without the need of any king of ratification or any form of national legislation (Europa.eu, 2015).

What are Directives?

Directives can be defines as overall goals or objectives which the member states are required to achieve. The path, strategies and policies are left to the member states to decide upon. Thus, the function of EU in giving directives is same as giving an assignment to the member states which they are required to complete by employing their own methods (Europa.eu, 2015).

Conclusion

All the three tasks relate to the undertaking or doing business activities in the EU and the applicability of various national and international laws in each case. All the three tasks bring out a single and important fact that the EU exercises a considerable amount of influence on the business environment of the country; be it in the starting of a business or while undertaking business activities or be it the applicability of the various international regulations and their integration with the national laws.

 

References

Andenæs, M. and Wooldridge, F. (2009). European comparative company law. Cambridge, UK: Cambridge University Press.

Beer, P. and Schils, T. (2009). The labour market triangle. Cheltenham, UK: Edward Elgar.

Bekker, P. (2010). Making Transnational Law Work in the Global Economy. Cambridge University Press.

Blanpain, R., Dickens, L. and Andersen, S. (2008). Challenges of European employment relations. Alphen aan den Rijn, The Netherlands: Kluwer Law International.

Bohne, E. (2011). Conflicts between national regulatory cultures and EU energy regulations. Utilities Policy, 19(4), pp.255-269.

Business for Britain, (2015). EU Business Regulation. [online] Available at: https://businessforbritain.org/eu-excessive-business-regulation-2.pdf [Accessed 23 Jul. 2015].

Canova, F., Coutinho, L. and Kontolemis, Z. (2012). Measuring the macroeconomic resilience of industrial sectors in the EU and assessing the role of product market regulations. Luxembourg: Publications Office of the European Union.

Ciongaru, E. (n.d.). The monistic and the dualistic theory in European law. [online] Available at: https://www.ugb.ro/Juridica/Issue1EN/10_Teoria_monista_si_dualista_in_dreptul_europeanCiongaruEN.pdf [Accessed 23 Jul. 2015].

Europa.eu, (2015). EUROPA - Regulations, Directives and other acts. [online] Available at: https://europa.eu/eu-law/decision-making/legal-acts/index_en.htm [Accessed 23 Jul. 2015].

Ghosal, V. (2011). Reforming rules and regulations. Cambridge, Mass.: MIT Press.

Hurt, C. (n.d.). The Limited Liability Partnership in Bankruptcy. SSRN Electronic Journal.

Ingle, D. (n.d.). Hybrid of Partnership and Corporation IE: 'Limited Liability Partnership' & Critics.SSRN Electronic Journal.

Innertemplelibrary.org.uk, (2015). Legal Research - EU Law. [online] Available at: https://www.innertemplelibrary.org.uk/news/FAQeu/DifferencesDirectives.htm [Accessed 23 Jul. 2015].

Jolly, A. (2009). Business insights, Europe. London: Kogan Page.

Legislation.gov.uk, (2015). Limited Liability Partnerships Act 2000. [online] Available at: https://www.legislation.gov.uk/ukpga/2000/12/contents [Accessed 23 Jul. 2015].

Legislation.gov.uk, (2015). Partnership Act 1890. [online] Available at: https://www.legislation.gov.uk/ukpga/Vict/53-54/39/contents [Accessed 23 Jul. 2015].

Lehmann, H. and Tatsiramos, K. (2012). Informal employment in emerging and transition economies. Bingley, UK: Emerald.

Mariz, S., Llinares, J. and Westermark, K. (2011). EU regulations. BMJ, 342(jan11 2), pp.d136-d136.

Martinico, G. and Pollicino, O. (2010). The national judicial treatment of the ECHR and EU laws. Groningen: Europa Law Pub.

Moore, M. (2013). Company Law Statutes 2011-2012. Hoboken: Taylor and Francis.

Novaković, M. and Kreća, M. (2013). Basic concepts of public international law. Belgrade: Faculty of Law, University of Belgrade, Institute of Comparative Law, Institute of International Politics and Economics.

Open Europe, (2015). Open Europe. [online] Available at: https://openeurope.org.uk/impact/cutting-red-tape-must-be-a-key-plank-of-any-eu-reform-agenda/ [Accessed 23 Jul. 2015].

Publications.parliament.uk, (2015). House of Commons - The EU Bill and Parliamentary Sovereignty - European Scrutiny Committee. [online] Available at: https://www.publications.parliament.uk/pa/cm201011/cmselect/cmeuleg/633/63304.htm [Accessed 23 Jul. 2015].

Rotondo, E. (2013). The legal effect of EU Regulations. Computer Law & Security Review, 29(4), pp.437-445.

UK Government. (2015). [online] Available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/371088/Cut-eu-red-tape_one-year-on.pdf [Accessed 23 Jul. 2015].

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