Legal System And Laws For New Start-Up Companies: An Essay.

Key Legislation and Legal Advice for New Start-Up Companies

You are a trainee in ‘Legit Solicitors’, assisting Caroline Spencer, a partner in the law firm. The work relates to advising new start-up companies on the legal system and key legislation on a business that they are required to know and apply. Caroline Spencer wants you to provide a coherent and critical evaluation of the legal system and law, with evidence drawn from a range of different relevant examples to support your judgements. You have been asked to produce a handbook for new companies in order to support your business advice and guidance. The handbook must cover the following areas:

1. Explanation of different sources of law and laws that organisations must comply with it.
2. Explanation of the role of Government in law-making and how statutory and common law is applied in the Courts in England & Wales
3. A coherent and critical evaluation of the legal system and its effectiveness in terms of recent reforms and developments, with evidence drawn from a range of different relevant examples to support your decisions.
4. Illustrate how company, employment and contract law has a potential impact upon business, using specific examples.
5. Differentiate and analyse the potential impacts of regulations, legislation and standards on businesses and organisations.

You have completed your training at Legit Solicitors and has been fully employed in the firm as a legal adviser. Your first task is to critically review and evaluate the following legal cases using appropriate legal solutions in comparison with alternative legal advice.

(a)  Andrew is a sole trader in Manchester. He registered as self-employed for National insurance and Tax purposes. Andrew is now considering incorporating the business as a Limited Liability Company. 

(b) Thomas has been appointed as one of the board of directors of Golden Plc. Thomas is wondering whether he would be entitled to any pay for his services and would like to know how Golden Plc should relate with its employees. Thomas is also wondering as to what will happen where Golden Plc starts struggling to survive.

(c) TMT is a limited liability company in UK and it deals with the manufacturing and sales of household equipment. The Company has advertised various positions in the Metro Newspaper for employment. Paul who resides in Australia with his family has applied on line for the post of the Marketing director and likewise Paul’s wife applied for the same position.

The company after interview offered the job to the husband claiming he is the bread winner of the house and beside men are more energetic and stronger than a woman.

After 5 years, Paul was dismissed on ground that the Company is shutting its high level emission releasing plant which has caused serious pollution in the area and also TMT is cutting down its work force because it is not growing and the company is spending above its revenues.

After 10 years of Paul’s dismissal, TMT leaked his personal details to certain organisations and individuals. Paul also registered a company using TMT logo and symbol. Discuss the legal implications of the above scenarios.

(d) Without prior consultation with employees, ‘MPP Ltd’ made it known at the beginning of February that all employees are to start compulsory overtime from the month of March. Apart from Michael, a member of a trade union known as ‘Join us’, the decision was a welcome development for some of the employees. Michael did not join other employees in doing the overtime and resigned with effect from 31st March. Michael has applied to work for a company in United States of America as a Court Clerk.

1. Suggest appropriate legal solutions for each case.
2. Provide justifications for the use of appropriate legal solutions to the above cases.
3. Assess the positive and negative impacts of legal solutions to the above business problems.
4. For each of the above cases, recommend legal solutions based upon a different country’s legal system and/or a different legal framework.

Key Legislation and Legal Advice for New Start-Up Companies

In UK, the principal source of law includes the statutes, which are the legislations or the acts of the parliament; the common law, which are the laws which have been made through the principles which have been established in the cases over time; and the laws of the European Union, in context of the treaties and the directives issued (In Brief, 2017). The secondary sources of laws are the commentaries which are referred to and include law journals, legal encyclopaedia, textbooks, and parliamentary and non parliamentary documents (SOAS, 2017). 

The laws in UK are passed by the Parliament, which are the result of the proposals made by the government. These proposals are aimed at addressing a particular issue or shaping the society. The agenda of the government is informed by the general election. Upon being a part of the government, the political parties bring the events to the attention of the minister. And based on the consideration of different factors, the laws are formed (UK Parliament, 2017).

As has been stated earlier, the common law and the statutory laws are the two sources of law in the nation. The statutory laws are originated from the Parliament, thus the government contributes in their making. An example of statutory law is the Employment Rights Act, 1996, where the act is divided into chapters, and each chapter has its own provisions. It is formed through a consultative or a green paper, followed by draft proposals or the white paper, and before becoming the act, it remains a bill, and this transition from bill to act is made through the Royal Assent (In Brief, 2017). The statutory laws are applied by the courts based on the principle of statutory interpretation.

The common laws are the cases which are used as the law owing to the judicial decision making. A judgement of the case covers its factual description, the legal position, i.e., the ratio and the decision. This ratio becomes the binding precent for such courts which are below the hierarchical level of courts of England and Wales. However, the system does have flexibility in context of the ability of overruling the judgment of a lower court, or distinguishing one case from another. Thus, on the basis of the analysis of the entire case, the common law is applied in the courts (In Brief, 2017).

The legal system of the nation is quite a comprehensive and detailed one, where every aspect of it is detailed from the formation of an act, to its amendments or its end through being repealed. The amendments or the repealing of acts is done owing to the reforms and developments in the particular area of the act or in the changed judgments. Changes are also anticipated in the present context owing to Brexit. Once the terms of the same are confirmed, the laws of the EU would no longer be applicable in UK. This would also help in giving away with the problems which are often faced in the nation due to clash between the EU norms and the norms of the nation, and in the issue of parliamentary sovereignty. A leading example of the changes reforms leading to changes in the part of the legal system of the nation, i.e., in the act was the amalgamation of the different anti-discriminatory acts of UK in a single legislation, i.e., the Equality Act, 2010 (Elliot & Quinn, 2017).

Cases Related to Company Formation

Irrespective of the jurisdiction in which the business works, there are certain similar laws which apply on the businesses and impact them in specific manner. For UK, the statutory laws relating to companies and employment, in addition to the common law in line with contract law play a crucial role. The companies in UK are incorporated, governed and even ended through winding up based on the Companies Act, 2006 and its related regulations. Where this is not followed, different consequences can be raised which relate to the company or even the ones who run the business of the company, i.e., its directors. Hence, the company laws have to be strictly followed to avoid any civil or criminal liabilities (Hannigan, 2015).

When it comes to the employment laws, the situation is similar. Businesses have to avoid any instances of discrimination on the basis of age, gender, race or any other criteria towards any employee or potential employee (Hardy & Butler, 2016; Gennard & Judge, 2005). For instance, in Kwele-Siakam v The Co-operative Group Ltd UKEAT/0039/17/LA, liabilities were raised against the company for racial discrimination based on provisions of Equality Act, 2010 (Employment Cases Update, 2017a). Nearly every business activity requires a contract to be drawn which makes it more important for the companies to properly follow the common law provisions of contract law. This means that the companies have to properly drawn out the terms of the contract, ensure the same is not breached and do not use any vitiating factors in the same, which could result in liabilities for the business (Andrews, 2015).

The work of the organizations is to be conducted on the basis of certain requirements drawn out by the government, regulatory bodies or the professional bodies. These are biding based on their jurisdiction, work being conducted, applicability and different other factors. The legislations are the acts which have to be followed by the business and these legislations are supported by their regulations which cover the detail of the requirements covered under a specific section of the legislation. For instance, Equality Act, 2010 is to be followed in context of employment law by the organizations, which is accompanied by regulations like Equality Act 2010 (Disability) Regulations, 2010 and Equality Act 2010 (Specific Duties) Regulations, 2011 (Hepple, 2014). Standards are the minimum requirements which have to be met for undertaking certain activities. For instance, UK GAAP covers the financial reporting standards which have to be followed by the organizations (Deloitte, 2017).

Cases Related to Employment Law

There are various forms of conducting business in the nation and the two key forms include sole trader and Limited Liability Company (LLC). A transformation from sole trader to LLC requires some key points to be taken under consideration. Within the nation, the two business forms have differences in national insurance, and tax bands and rates. When it comes to the limited companies, the National Insurance of both employer and employee becomes payable on the salaries and bonuses of the directors. The national insurance charge is high in comparison to the one paid by a sole trader, where for 2017-18, Class 2 national insurance contributions are paid at £2.85 for each week and for Class 4 the contributions on profits are paid over £8,164 (MadeSimple, 2017).

When it comes to the taxation issues, there is considerable change in between sole trader and companies. A sole trader has personal allowances of £11,500, which shows that this much sum can be earned before any income tax is paid. For 2017-18, the taxation remains 20%, 40% and additional 45% based on income limits of £33,500, between £33,501 and £150,000, and over £150,000. When it comes to the companies, the rates are different and the losses can be carried forward which cannot be done in sole trader, and these can be set against future profits or against the profits of previous years. For sole trader, these have to be set off for the same tax year only (MadeSimple, 2017).

Higher tax liabilities and national insurance burden should only be undertaken where Andrew is sure of good returns in business. Where Andrew decides to go out of UK for setting up this company, the tax rates and the insurance scheme would change again. Thus, there is quite a difference between sole trader and LLC when it comes to national insurance and tax purpose and it is advised to Andrew to keep these points in mind before incorporating the business as LLC.

A director in UK has the entitlement to get the pay which they have under the drawn contract. So, where a contract is formed between the company and the director to give certain service where the director would be paid certain salary or other benefit, they become entitled to such pay. This can be approved through an ordinary resolution (Company Law Club, 2017). In this context, it is a standard to disclose the remuneration of the directors before the company as this would help in setting clarity in the mind of the different stakeholders regarding the standards followed, particularly for the employees. Where the company struggles to survive, different measures like restricting can be adopted to better the situation of the company and when all these fail, the company has to be wound up.

Cases Related to Taxation

Thus, it is advised to Thomas that he would be entitled to the pay which is covered under his service agreement and to disclose the same to maintain the faith of the employees. Also, Thomas should make constant efforts to ensure that the company does not lead to its winding up.

The Equality Act, 2010 makes it unlawful to discriminate on the basis of the sex/ gender of the person (Sargeant, 2013). This is in addition to the Equal Treatment Directive 2006/54/EC which continues to apply in UK for now, where equal opportunity has to be given to both males and females for employment and occupation opportunities (Official Journal of the European Union, 2006). Where this is not done, the employer can be held liable for discrimination. Rajaratnan v Care UK Clinical Services Ltd UKEAT/0435/14/DA saw the appeal of indirect sex discrimination being upheld with costs (Employment Cases Update, 2017b).

Where an employee is dismissed from employment owing to the need of the employer to reduce their workforce, it is referred to as redundancy. When an employee is made redundant, they are required to be given redundancy pay, a notice period, consultation with employer, options of moving to another job and time period for finding an alternative job. Where this is not done, a claim for unfair dismissal can be made by the employee (UK Government, 2017a).

The Data Protection Act, 1998 puts an obligation on the employees to keep the personal data of the employees safe and secure (UK Government, 2017b). The same has to be used in a limited, fair, lawful manner where adequacy and relevancy is applied. The personal information of an employee cannot be held longer than is absolute necessary (UK Government, 2017c). After ten years of dismissal of Paul, this information should not have been held by the company and yet they held it. To make the matters worse, they leaked this information, which contravened the Data Protection Act.

Thus, for hiring Paul instead of his wife on the basis of man being stronger than woman, TMT would be liable. Also, for not giving the Paul the option to exercise his rights in context of notice period and redundancy pay, he can sue the company for unfair dismissal. Lastly, Paul can also bring actions against the company for breach of the Data Protection Act, where his personal information was not only held in unlawful manner but the same was also leaked.

The working time regulations provide that a person cannot be made to work for over 48 hours in a week on average. An employee cannot be forced to work overtime where the contract does not provide the same. Even when working overtime is covered in the employment contract, an employee cannot be forced to work for over 48 hours based on the work time regulations. Only when the employee signs the written “opt-out” agreement can the employee be forced to work overtime (NI Direct, 2017).

In the given case, no such “opt-out” agreement had been signed and so, Michael cannot be forced to work overtime as the employment contract never mentioned this clause. This would allow him to leave the present job and join another. Thus, it is advised to MPP Ltd to get the other employees to sign the “opt-out” agreement and refrain from making a case against Michael for not serving the notice period.

References

Andrews, N. (2015). Contract Law (2^nd ed.). UK: Cambridge University Press

Company Law Club. (2017). Are directors entitled to be paid?. Retrieved from: https://www.companylawclub.co.uk/are-directors-entitled-to-be-paid

Deloitte. (2017). UK GAAP. Retrieved from: https://www.iasplus.com/en-gb/standards/uk-gaap

Elliot, C., & Quinn, F. (2017). English Legal System. London: Pearson Education Limited.

Employment Cases Update. (2017a). Kwele-Siakam v The Co-operative Group Ltd UKEAT/0039/17/LA. Retrieved from: https://www.employmentcasesupdate.co.uk/site.aspx?i=ed35968

Employment Cases Update. (2017b). Rajaratnan v Care UK Clinical Services Ltd UKEAT/0435/14/DA. Retrieved from: https://www.employmentcasesupdate.co.uk/site.aspx?i=ed27674

Gennard, J., & Judge, G. (2005). Employee Relations (4^th ed.). London: Chartered Institute of Personnel and Development.

Hannigan, B. (2015). Company law. Oxford: Oxford University Press.

Hardy, S., & Butler, M. (2016). European Employment Laws: A comparative guide (3^rd ed.). London: Spiramus.

Hepple, B. (2014). Equality: The Legal Framework. West Sussex: Bloomsbury Publishing.

In Brief. (2017). English Law: An introduction. Retrieved from: https://www.inbrief.co.uk/legal-system/english-law/

MadeSimple. (2017). Sole Trader Vs Limited Company: Advantages and Disadvantages. Retrieved from: https://www.companiesmadesimple.com/sole-trader-v-limited-company.html

NI Direct. (2017). Overtime. Retrieved from: https://www.nidirect.gov.uk/articles/overtime

Official Journal of the European Union. (2006). Directive 2006/54/EC Of The European Parliament And Of The Council. Retrieved from: https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2006:204:0023:0036:en:PDF

Sargeant, M. (2013). Discrimination and the Law. Oxon: Routledge.

SOAS. (2017). Sources of UK Law. Retrieved from: https://www.soas.ac.uk/library/subjects/law/research/file70249.pdf

UK Government. (2017a). Redundancy: your rights. Retrieved from: https://www.gov.uk/redundant-your-rights

UK Government. (2017b). Personal data an employer can keep about an employee. Retrieved from: https://www.gov.uk/personal-data-my-employer-can-keep-about-me

UK Government. (2017c). Data protection. Retrieved from: https://www.gov.uk/data-protection

UK Parliament. (2017). How laws are made. Retrieved from: https://www.parliament.uk/education/about-your-parliament/how-laws-are-made/