If you are having difficulty viewing this e-mail, please click here

Russell-Cooke Solicitors - Monthly Business Law Update

February 2011

 
 

RELOCATION 2011 BEDFORD ROW

As part of the firm’s plans for expansion of the Company Commercial Department and increasing its central London presence generally, in January 2011 Scott Leonard (Partner) and David Webster (Solicitor) moved to the firm’s Bedford Row office near Chancery Lane.

Although Scott and David are now based at Bedford Row, they are still very much part of the Company Commercial Department and will continue to work closely with colleagues based in Putney.

It is not intended that the move should lead to any changes in existing client relationships, and the Department’s hourly rates and terms and conditions of business will not be changing as a result of the move.

 

NEW JOINERS TO THE COMPANY COMMERCIAL TEAM

Simon Ewing joined the Company Commercial team in September 2010 as a qualified solicitor having trained with Russell-Cooke for the previous two years.


Katie Bannister joined our Company Commercial Team in November 2010 as a three year qualified solicitor having previously worked at PricewaterhouseCoopers Legal and SJ Berwin.


Simon and Katie will be based in the Putney office, together with Head of Department Jonathan Thornton and Guy Wilmot.

 

ONLINE COMPANY COMMERCIAL UPDATES

The Company Commercial Department is launching a series of online client guides which will be available free of charge through the firm’s website, www.russell-cooke.co.uk


Each of the guides will focus on a particular area of business law or practice and will offer a detailed analysis of the relevant rules and issues to consider.

The first guide relates to shareholders’ agreements and is now online. The next guides to be added will be an introduction to intellectual property, and an overview of law and practice relating to company meetings, resolutions and decision-making.

 

WHICH BUSINESS STRUCTURE?

There is no one business structure that suits every business type, but it is essential for anyone starting up a business to carefully consider what structure is likely to suit them best. This article sets out some of the options that are available and their respective advantages and disadvantages.

Sole Trader

The simplest way of starting up a business is for an individual to act as a sole trader. A business run by a sole trader will not be subject to public filing obligations similar to companies and will not be subject to the overriding legislative provisions of the Companies Act 2006.

Sole traders are in control of their business and decision making, and any profits made will be treated as an individual’s personal taxable income.

However, sole traders are also personally liable for any losses that the business makes which may not be an attractive option for individuals.

Partnerships

A partnership enables two or more people to join forces and to set up a business together. Partners share the risks and liabilities, management and profits of the business.

All partners are personally liable for liabilities of the partnership, so if things go wrong and one of the partners cannot pay their individual share of debts, then the other partners are responsible.

Any one partner can bind the partnership to a contract with a third party without the consent of the other partner(s), and as a result there must be confidence in the skills and integrity of all partners.

A partnership can be created without any formality required – broadly speaking, it is simply enough that two or more persons carry on a business in common with a view to making a profit. Such a partnership would be governed by the default provisions in the Partnership Act 1890.

It is therefore advisable to have a partnership agreement drawn up in order to clarify precisely how the partnership is to be run, on what basis partners can leave, who is responsible for what and how partnership monies are split to ensure that the legal rights and obligations relating to the partnership reflect the commercial agreement of the parties.

Partnerships do offer the benefit of confidentiality as, unlike LLPs or limited companies, no public filings are required. A partnership is also tax transparent, i.e. the profits of the partnership will be treated as the profits of the partners themselves.

Limited Company

A limited company is a separate legal entity and is largely governed by the provisions of the Companies Act 2006.

The liability of shareholders is limited to the amount that each shareholder invests in the company. Directors will not generally be subject to any personal liability where they are acting in good faith on behalf of the company.

This limited personal liability for participants in a company is often highly attractive. However, in practice, the benefits of this may be eroded for start up businesses by the need to give personal guarantees to creditors (particularly banks). However, incorporated vehicles such as limited companies, and LLPs (discussed below) are generally more attractive propositions for lenders because of their ability to offer floating charges by way of security.

The directors manage the business of the limited company and the shareholders own it - the directors are ultimately answerable to the shareholders as a body.

The costs of company formation itself are fairly low, but there will be a cost in terms of ongoing compliance with the provisions of the Companies Act, for example the preparation of annual accounts.

Generally the share capital structure of a company will offer a flexibility which other vehicles do not have in terms of facilitating additional equity investment, and allowing shareholders to transfer their interest in the company.

A limited company will have articles of association which govern the internal administration of the company, and deal with matters such as director and shareholder meetings. The articles of association will be a public document.

If there are a number of shareholders serious consideration should be given to using a shareholders’ agreement – further information in relation to shareholders’ agreements can be found on our website.


Using a limited company will also lead to the possibility of a double charge to taxation – any profits the company makes will be subject to corporation tax, and sums paid out to individual shareholders/employees will generally be subject to tax in their hands. This will not always mean however that the use of a limited company will lead to a higher aggregate tax bill. This depends on a number of factors, not least the rate at which it pays corporation tax.

Limited Liability Partnerships (“LLPs”)

An LLP is essentially a hybrid of a partnership and a limited company.

Like a limited company, it has its own legal personality separate to its members and so offers the benefits of limited liability. Liability of the members is limited to the amount that they have invested in the business (and any personal guarantees that they may have given).

The use of an LLP also has similar drawbacks to those of a limited company however, in that the LLP will have to make certain information publicly available, including its annual accounts.

LLPs are governed primarily by the Limited Liability Partnership Act 2000 (and delegated legislation which applies numerous provisions of the Companies Act 2006 to LLPs).

Although the formation of an LLP does require a filing to be made at Companies House, it is possible to have an LLP with no written members’ agreement. In this case the rights and responsibilities of members will be determined by the default provisions of the 2000 Act.

As with a partnership, it is therefore recommended that an LLP Agreement is drawn up in order to clarify the responsibilities, practices and rights of the individual members to the LLP and to ensure these reflect the commercial agreement of the parties.

Members of an LLP are also taxed as if they were partners in a partnership - the profits of an LLP are divided amongst the members who pay tax on their own share at the rate appropriate to their circumstances.

Summary

Each business structure brings its own advantages and disadvantages. When deciding what form to adopt it is important to consider what is important to your business and which business structure will best serve that purpose. Some of the key factors which you will need to take into account are the most appropriate tax structure for your individual needs, the level of risk which participants are willing to take on (in particular, whether limited liability is a key driver) and the importance of business confidentiality.

If you would like any further advice on these matters, or any other aspects of starting a business, please contact: Katie Bannister on 020 8394 6554 Katie.Bannister@russell-cooke.co.uk

 

ABOLITION OF DEFAULT RETIREMENT AGE

Change is on the horizon as the Government has decided to abolish the default retirement age of 65. It will shortly only be possible for an employer to rely on a retirement age if it can be shown to be objectively justifiable and it is not expected that it will be easy to satisfy this test.

This change has come about following a legal challenge brought by Heyday (part of Age UK) in July 2006. They argued that the compulsory retirement age was an infringement of age discrimination law. Although the challenge ultimately failed it was decided that the law should be reviewed in 2011. In order to ‘reflect the change in economic circumstances’ the Government brought this review forward to 2010.

The Government’s subsequent decision to abolish the default retirement age entirely from October 2011 has caused controversy. It is considered by some to be a victory against ageism and a prudent step to take in order to ease the strain on the public purse. However, many businesses are concerned that they will have reduced flexibility in managing their workforce. Businesses are given little time to prepare, as compulsory retirement notices cannot be issued after April 2011, six months before the legislation is due to come into force.

So how should employers prepare for this change? Serious thought will need to be put into planning how the needs of the business can be met in some way other than by relying on an automatic right to retire employees who do not want to stop working at 65. Many employees will no doubt still want to retire at about this age and it will of course still be possible to dismiss on the basis that an employee is not performing competently, provided the employer has gone through a proper procedure first.

As before, it will be good practice to discuss options with workers who are at an age when they may wish to retire. The Advisory, Conciliation and Arbitration Service (ACAS) has produced guidance on managing business needs and employee expectations.

If you would like any advice on these issues, or to discuss how the abolition of the default retirement age could affect your policies, procedures and practice in the workplace, please contact: Anthony Sakrouge on 020 8394 6504 or Anthony.Sakrouge@russell-cooke.co.uk.

 

 

This material does not give a full statement of the law. It is intended for guidance only, and is not a substitute for professional advice. No responsibility for loss occasioned as a result of any person acting or refraining from acting can be accepted by Russell-Cooke LLP.

Copyright Russell-Cooke LLP, February 2011

To subscribe to this bi-annual  legal update please e-mail businessupdates@russell-cooke.co.uk 
To unsubscribe to this bi-annual  legal update then please e-mail businessupdates@russell-cooke.co.uk

If you would like to reproduce some or all of our updates in your own publication please contact: Katie Bannister on 020 8394 6554 Katie.Bannister@russell-cooke.co.uk

 

If you would rather not receive the Business Law Update from Russell-Cooke, unsubscribe by clicking here.