Back to Your Roots
It is believable that in the past, Jack and Belinda have made some significant decisions that have lead to success of their venture Back to your Roots, a hairdressing salon. As they make plans for expansion, among the important decisions they have to make is the kind of legal structure the business is going to take (Mitchellette 125). Their structure presently has been a partnership. Their concern is on whether to carry on with that structure or set up a limited company. The decision made by these two will have a great impact on their taxable amount, amount of paperwork, ability of raising money as well as personal liability they are going to have towards the business. This report discusses their options and recommends the most ideal form of structure. In the second section, the paper will discuss contractual terms they are supposed to include while constructing contracts for employment.
Partnership refers to an implied or express agreement by 2 or more individuals to begin a common business with the purpose of making profits (Mann and Barry 572). All the partners contribute capital, skills, property or labor in varying forms in accordance to the agreement. Additionally, they expect to share profits as well as losses and deductions that arise as a result of operations. However, it does not make payment of annual income tax. Simply, it passes the losses and profits through to its partners all of whom are required to include their share of the business loss or income in their tax return.
As there is no employer who can withhold the income taxes, each partner is supposed to put aside enough money to make tax payment on their annual profits share. This implies partners must approximate the tax amount they are obligated to pay for the year as well as pay HM Revenue and Customs. Partners are also supposed to pay taxes whether the business makes a profit or not (HRMC 1).
Partnerships have an advantage in that setting them up is relatively easy and they can run for as long as partners have common understanding regarding management. Everyone has their own responsibilities according to the agreement. Raising capital is also solely the partners’ duty. However, when it comes to general partnerships, all partners are liable for their decisions, business debts and actions. This implies their properties can easily be easily in instances when the business defaults on debts. In cases of a limited partnership, some of the partners have limited liability. This means they are not liable to business debts. The 1907 Limited Partnership Act mandates that in a limited partnership, one partner is supposed to assume full liability for the venture. The 2000 Limited Liability Act defined limited liability partnerships limit all partners’ liabilities (Miller 554).
In laws of the land, limited companies have special status. These kinds of businesses are incorporated which implies they have their unique identity which is different from that of the owners. As such, they can be sued or sue or own property in their individual right (Scott 122). Ownership of a limited company is categorized in equal parts known as shares. Because limited companies have their identity, the owners cannot in anyway be held personally responsible for the debts. This means their property cannot be taken in the event their business defaults on debts.
Unlike partnerships, owners in a limited company are not required to be involved in day to day operations of the business. This implies they can enlist additional assistance from outsiders when they are in need of raising capital. The company pays tax which is a fixed percentage of profits made. Owners who get paid a salary by the business have the obligation of paying income tax (Carysforth and Neild 130).
RECOMMENDATION TO JACK AND BELINDA
Jack and Belinda, in the past ran Back to your Roots as a partnership. Their management has been successful which means the business has thrived such they have considered expanding the business, employing more staff and possibly opening salons in other locations. While the partnership has worked for them, I recommend they change their current set up to limited company.
With a limited company, they will not be involved actively in running the business. If the business expands and opens new salons in different locations, their workload is going to increase considerably. For people used to managing small premises, they will come across difficulties running the expanded business. On top of this, forming a limited company is going to ensure they raise additional capital from outside investors. For instance, they will have the option of seeking loans and using the business as collateral. Even when they default, they will not risk their personal property being taken away (Merrills and Fisher 402). Additionally, to finance an expansion, they can also enlist the business in London Stock Exchange.
With a limited company, they are going to have an identity that is separate from their business. This implies personal actions will not have any impact on the business and that business decisions are not going to have any influence on their personal lives. Their procedure for tax payment will be far less burdensome compared to how it currently is. The business will continue to exist though one of them might make the decision to leave the business. This in turn gives Back to your Roots additional security than when it is a partnership.
Contractual Terms in Employee Agreements
Validity of employment contract is not dependent on its form; it can either be oral or written. However, the 1996 Employment Rights Act mandates an employer is supposed to provide to employees a written stamen of particulars in a span of 2 months after starting a job. Therefore, it is recommendable for Jack and Belinda to come up with an agreement for employees as they seek to recruit more staff and expand. The key terms to be included in the agreement are as follows:
- The employees name and other important personal information that pertains to him/her
- The date the employee started his/her employment
- The date the employee commenced their job. This is applicable when the employee is moved to a different capacity in a demotion or promotion or when they are re-employed after redundancy or unfair dismissal
- The employee title and brief description of the job they are doing
- Length of the contract if the company is not offering employment on permanent basis.
- The salary amount, compensation, bonus structure and other privileges
- Holiday entitlement as well as the amount payable during holidays
- Number of hours the employees is supposed to work and compensation in the event the hours are exceeded or the fine if hours are violated
- Type of leaves permitted and payment during such periods
- Pension rights
- Areas the employee is supposed to work. All employees working outside the country are supposed to be furnished with details of their work conditions and the work they will be undertaking (Middlemiss 36)
- The notice length the employer is supposed to issue the employee before their dismissal. It is supposed to specify the duration an employee is supposed to notify the employer about their discontinuation of employment
- The duties and rights of both employee and employer
- Behavioral expectations of the employee
- Disciplinary actions to be followed when a code gets broken. This is supposed to include grievance procedure for employee so they ensure they are treated in a just and reasonable manner when a dispute arises (Persson 410).
As Jack and Belinda seek to expand their salon business, the most important decision they can make is the kind of legal structure the business is going to take. Currently, the structure has been one of partnership. This has brought success which has encouraged them to consider critically, the possibility of expanding their premise and establishing new salons in other regions. However, for the business to continue thriving, they need to establish a limited company. This is going to reduce their workload as well as give them an identity that is separate from their business. It is also going to enable them seek capital from external sources. Most importantly, it is going to give their salon better security in case one of them makes the decision to abandon the venture.
Carysforth, Carol, and Mike Neild. Intermediate Business. Oxford: Heinemann, 2000. Print.
Clifford, Denis, and Ralph E. Warner. Form a Partnership: The Complete Legal Guide. Berkeley, CA: Nolo, 2012. Print.
HM Revenue and Customs. “Tax returns for partners and partnerships”. HMRC, n.d. Web. 15 Nov. 2013. <http://www.hmrc.gov.uk/sa/parts-partners.htm>
Mann, Richard A, and Barry S. Roberts. Essentials of Business Law and the Legal Environment. Mason, OH: South-Western Cengage Learning, 2013. Print.
Merrills, Jonathan, and Jonathan Fisher. Pharmacy Law and Practice: Fourth Edition. Burlington: Elsevier Science, 2013. Print.
Middlemiss, Sam. “The Psychological Contract and Implied Contractual Terms.” International Journal of Law and Management53.1 (2011): 32-50.
Miller, Roger. Business Law Today: The Essentials, 10th ed. Mason, OH: South-Western Cengage Learning, 2013. Print.
Mitchellette, Ronald J. Entrepreneurial Decision Making: A Must-Read for Every Aspiring Entrepreneur. Philadelphia, PA: Xlibris, 2008. Print.
Persson, Anders J. “The Contract of Employment – Ethical Dimensions.” Journal of Business Ethics 66.4 (2006): 407-15.
Scott, Peter. Accounting for Business: An Integrated Print and Online Solution. Oxford: Oxford University Press, 2012. Print.